Industrial Warehouse BTS Cash-On-Cash Returns
I am working with a developer who has approached us about buying our land parcel. We caught wind that he is shopping for a build to suit site for a tenant he is working with. As he is a private investor and mainly a cash buyer he probably doesn't look at investment returns the same way I do and I am assuming he does so from more of a cash-on-cash return prospective. As I am attempting to evaluate what his max. value threshold might be I was curious how other RE people look at cash-on-cash returns. What is considered a good cash-on-cash return for a BTS industrial warehouse?
[{"id": "cqqznyg", "text": "Are you going to sign a 5+ year lease? Does your business have any credit? ", "replies": [], "depth": 1}, {"id": "cqr0xww", "text": "I think you are over complicating this.  You don't know what he is building, how much it costs, the lease terms, the tenant's credit, his fees etc.  And they honestly don't matter.  He is probably looking at your property and others.  \n\nWhat is your land worth?  That is what matters.  Leave his development &amp; landlording profit to him.  You are selling land, you aren't entitled to that part of his profit and if you think you are, he will find cheaper land.", "replies": [{"id": "cqr5qrv", "text": "+1. This business is hard and full of risk. The developer will need to see profit to make it worth while. \n\nBut one way to look at it is that he is building to a 8% on cost - his cap rate at the end of the day will be an 8%, and he'll be able to sell at a 6% (both numbers are different depending on location and market cycle). \n\nSo he rents out at $800 per year, costs are $10k (or 8% cap rate). Sells at 6% cap, or $800 per year and $13,300 of value. (numbers are  only for illustration and fictitious)", "replies": [], "depth": 2}, {"id": "cqrrsvr", "text": "I would argue that it does matter - there is only one other competitive site to ours in the market (size with horizontal improvements) we are in so the buyer's options are limited to two sites in the market. Also, I do know what he would be building (industrial warehouse - not size but assume ~40% FAR), I know the costs to build in the market, I know his tenant - they are creditworthy and I have worked with his GC in the past so I know his fees. That said, I think I have a pretty good sense of his costs. What I am really most interested in getting a sense of is what cash buyer's consider an acceptable cash-on-cash return for opportunistic  investment properties in order to back-out his perceived value.  ", "replies": [], "depth": 2}], "depth": 1}]