Attracting National Tenants / Build to Suit / Ground Lease

[Gene H.]

Hello -

First post here and a newbie when it comes to commercial real estate development! Wanted to get some input/thoughts on how to attract national tenants for a build to suit project or ground lease.

We own a highly trafficked commercial corner lot (~2.2 acres) in a suburb south of Seattle WA and are committed to developing the land as we see good financial potential in developing it ourselves vs just selling it outright. Obviously, our first choice would be to go with the ground lease route and second would be to do a build to suit w/ a national tenant(s) e.g. 7-11, McDonalds, Walgreens etc.

But before we go any further, we'd like to know what are the necessary/important steps to attract national retail/fast food tenants. Do national retailers that go with the build to suit or ground lease route usually find their own sites, purchase the land and develop them w/ a developer/contractor they've done business with in the past? Or would they consider ideas/sites proposed by developers? Last but not least, would hiring a commercial leasing agent specializing in retail be the best route and would they help source potential clients?

Thank you so much in advance! Any input would be highly apprecaited.

[Joel Owens]

Hi Gene,

I am a principal commercial retail broker where clients buy STNL and MTNL directly and I am also a developer myself.

First you need to decide if you are holding the property long term or developing to sell? If you hold for one year generally looking at long term capital gains. 

You might have a corner but if it is the last undeveloped corner a bunch of tenants you would want might already be too close by. I just went through this on a 3 acre parcel I had a contract on but cancelled. The quality of tenants and rents offered did not justify the land price without getting the national tenants.

As a broker I know what tenants get the best cap rates on resale. A Mcdonald's or Chick Fil A might go for a 4 to 5 cap wheras a Bojangles might be a 6 to 6.5 cap on resale. The 2.2 acres depends on the shape of the lot. Generally pharmacy is 1.5 to 2 acres. Walgreens is on hold for development right now as they wait for approval of buying the Rite Aid stores and then selling some of the weak suburban to rural ones off to Fred's. In this way they are saying they are not going to be a monopoly to FTC to try to win approval from the federal government.