Process of STNL Development
I've been interested in doing single-tenant net lease asset development for a while now and wanted to make sure I fully understand the process and expenses that are to be incurred.  Here is what I know so far: 

1. Go under contract with the contingency of securing a lease with the tenant I have in mind. 

2. Once under contract: Get architectural renderings to help prospective tenants visualize the potential of the site. 

3. pitch the site to the tenant and their like-kind competitors. 

4. Finalize lease with tenant (with the condition that they do the construction themselves) 

5. Close on the property and begin marketing it for re-sale with the rent roll in place while the tenant is working on construction.

I know that I will incur attorney and architectural fees, and the lease would be an absolute NNN lease so I do not have concerns about carrying costs such as taxes.  However, am I missing any steps or expenses here?  Anyone have an excel model I should use?  

Any help would be greatly appreciated!
[{"id": "f7prm25", "text": "Who are you representing here? The 1st tenant, landlord, or the 2nd tenant? So 1st tenant builds on land they rent then rent or sell their transferable ground lease? Sound complicated. Probably a niche better filled by a real estate lawyer.", "replies": [{"id": "f7psxbi", "text": "I would be the purchaser and would be leasing it to a tenant (ground lease) while under contract and will only close once tenant has approvals in place.", "replies": [], "depth": 2}], "depth": 1}, {"id": "f7r7vk4", "text": "The tough part would be getting a seller to agree to those terms. \n\nYou might have to \u201cpay-to-play\u201d for additional time if your lease isn\u2019t in place. \n\nThe leasing agent that represents the tenant could use that to their advantage during negotiations. \n\nOtherwise. If you follow that exact blue print, that\u2019s the dream.", "replies": [{"id": "f7r8lhg", "text": "While it may be difficult, in theory it does sound simple (I.e., not too many steps). I\u2019ve never done any development before so this is absolutely terrifying haha", "replies": [{"id": "f7r9dfp", "text": "I\u2019ve done three for a credit tenant. The biggest issue was time (it took a year to get an executed lease), legal fees ($200k), and the potential of the lease not getting done.\n\nAlso, do you have any connect that can help place your tenant? If so, you got a shot at your blueprint. \n\nIf not, absolutely no way.", "replies": [{"id": "f7txded", "text": "I know all the retail reps so it\u2019s not an issue (if that\u2019s what you mean by a connect to place the tenant). \n\nHow the heck did you run a 200k legal bill in 1 year doing leases?", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f7tj54q", "text": "One thing I don't see on here is the research to make sure the location you've chosen will work for your tenant (or other potential tenants). It's important to make sure that the numbers pencil out before you get started.", "replies": [{"id": "f7txiwf", "text": "How does one go about doing that? Are you referring to doing a gap analysis for the potential tenants that I have in mind for the site?", "replies": [], "depth": 2}], "depth": 1}, {"id": "f7w48ua", "text": "You may want to approach this by creating a relationship with the market real estate manager for the tenant you\u2019re looking to develop for and try to get projects from that angle. In my experience these tenants have a very targeted growth strategy and rarely will they go outside that; unless they\u2019re in major growth mode and want to blitz a market. \n\nYou can certainly try to find a hole in the market, tie up the dirt and then approach the tenant, but I\u2019d say the probability of it working out is pretty low.", "replies": [{"id": "f7wll0o", "text": "That\u2019s very good advice.  I go to ICSC a couple times per year, and I always make sure to get updated site specs.  However, this only tells me what traffic counts and demos they look for.  If I ask where they\u2019re looking to be I get generic answers like, \u201call over\u201d or \u201csend us a site and we\u2019ll tell you yay or nay\u201d\n\nI\u2019m currently tying up dirt where I have several prospective tenants in mind that, I think, would be interested.  Going forward I think my strategy is going to be to pick 2 specific tenants and focus only on finding sites for them.", "replies": [{"id": "f7wnl3s", "text": "Another idea that\u2019ll take less of your time is to find an off market site where you think would be an ideal location for a tenant, get confirmation from the owner that they\u2019ll sell, say you need to talk to a couple of your developer clients to gauge their interest before you can move forward and then shop it to the couple of tenants, if they like it, tie it up and go from there. There\u2019s risks doing it this way, but you won\u2019t waste as much time or tie up capital for earnest money, only to find out the tenants don\u2019t like it.", "replies": [{"id": "f7wo44t", "text": "The risk with that is getting cut out of the deal. If I\u2019m spending a couple grand to fly to RECON and all these different shows I need to be able to market it freely as if I already own it.\n\nCapital is not an issue as I have access to plenty and these are all cash deals with only 5-figure deposits", "replies": [{"id": "f7wobrx", "text": "That\u2019s one of the risks I was eluding. But by all means, if you have the capital then that\u2019s the way to go. Better safe than sorry.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}, {"id": "f7wnyv5", "text": "Also, once you get a few deals under your belt and build a relationship and they like you, a lot of these tenants will direct you where they want to be, you just have to find the site and deliver the building on time and under budget.", "replies": [{"id": "f7wob6t", "text": "I won\u2019t be doing any construction. These will be absolute NNN ground leases. (I.e.. Come pay me rent and build it yourself)", "replies": [{"id": "f7wok60", "text": "Got it. I have still seen it where the tenant directs you where they want to be, you buy the site, get it pad ready and entitlements in place, then hand it over to them on a ground lease.", "replies": [{"id": "f7wpc1e", "text": "I think I need to ask more specific questions to these tenants, but apart from knowing desired traffic counts and demos the only other way I could think to narrow it down would be to ask who their preferred neighboring tenants are.\n\nLike I\u2019ll find a piece of vacant land next to a 7/11 but its the only national tenant for miles and I start questioning, \u201cWho the hell typically follows 7/11?\u201d Thoughts on this?\n\nAnother strategy I\u2019ve heard of is to buy wherever you see a McDonald\u2019s because they supposedly pump an incredible amount of funding into site research and analysis.", "replies": [{"id": "f7wrscd", "text": "Whether it\u2019s true or not, that\u2019s what I have always heard about CVS. They let Walgreens do all the market analysis and site selection, then move in across the street a year or two down the line. \n\nDo you have access to CoStar nationwide, outside of just your market? I haven\u2019t done this for STNL properties in particular, but to try and find data on what tenants locate near other tenants, I have searched for \u201cmr tenant\u201d built no more than 5-8 years ago, and locate those throughout the US, then just take a look at other tenants that have been built more recently and are within proximity. I hope that made sense. \n\nHonestly, the easiest way to approach this and find out where tenants want to be is to take the RE manager out to lunch and pick his brain. Find out what you can provide to him that makes his job easier and start to build a relationship with him. You can certainly still bring them off market deals that they haven\u2019t seen yet, in an area that makes sense for them, but if you want to keep seeing more business in the future and not just a one and done deal, you need to have a relationship with them.", "replies": [{"id": "f7wsyw2", "text": "Interesting.\n\nI recently switched companies, and I\u2019m getting set up with CoStar this week.  I was told I can get national comps for $400/month.  Not sure if it\u2018ll serve its purpose or not.  I\u2019m going to ask a friend in my target market to let me use theirs and then decide if I should add that market to my contract.\n\nI don\u2019t know if CoStar let\u2019s you get that specific. I\u2019m used to doing manual gap searches and then typing SP\u2019s zip code into prospective tenant\u2019s store locator site to see if a gap indeed exists. \n\nThat is sound advice.  Most people won\u2019t pass up a free meal haha, but I don\u2019t know how well that will go, \u201cHi I stopped by your booth at ICSC 8-9 months ago. Anyway, I\u2019m in your town and was wondering if you wanted to grab lunch?\u201d  I don\u2019t mind going for it but you think they\u2019d take me up on the offer?", "replies": [{"id": "f7wulhf", "text": "I think they\u2019d take you up on the offer. You can mention you met them at ICSC and just say you\u2019d like to buy them lunch to pick their brain a little more and take it from there. It\u2019s not necessarily to get a deal from them at the first lunch but just build the relationship. At the lunch though I\u2019d subtly ask targeted questions along the lines of  what\u2019s your growth strategy look like, what do you think of \u201cthis area\u201d, etc. these guys need to fill their pipeline to get paid and keep their job, so they\u2019re eager to find new deals too. \n\nYou should be able to get more quality answers out of the reps at lunch as opposed to ICSC anyways. They have developers coming up to them all day wanting to do business with them, it can get hectic and the conversation might not be as effective.", "replies": [{"id": "f7wwpak", "text": "All very good points.  For me personally, the most convenient time to meet would be the week of ICSC.  But I bet there\u2019s major companies pampering them trying to cozy up to them then.", "replies": [{"id": "f7wxkoq", "text": "And I\u2019m not saying that\u2019s a bad time, but obviously if you could get a lunch with the local contact, that would be ideal.", "replies": [{"id": "f7xa0k5", "text": "Yes that is true. However, with some of the larger companies they could, for example, have a guy repping the entire northeast and they're based out of Boston where my target market may be DC or NJ.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f7yp99l", "text": "This is exactly what we did at my former employer and how a lot of smaller retail developers structure things. It can work, but it's generally a slow, frustrating, and expensive process. It's a difficult pitch to a seller, but we we're able to tie up enough to make it work. You ideally would have specific retailers in mind for the site as their internal process is also incredibly slow, so you don't have a ton of time to \"figure it out\" while the IP ticks away. Worked on a deal for almost 18 months with a national retailer and burned through about $100k in legal and engineering fees to ultimately have the deal implode over a specific lease clause. \n\nAlso, regarding point 4 on your list. You can sometimes push certain things on the tenant, but it's not just close on some land then let the tenant fund all the improvements. The developer/LL has to deliver the site to the tenant based on the negotiated work letter. Generally speaking, pretty much all of the horizontal is typically on the LL/developer.", "replies": [{"id": "f7z5sk0", "text": "The issue is I am not a builder and know nothing about construction. I\u2019ve met some national reps who have told me they\u2019d be willing to do construction themselves. I\u2019d rather give a lot of rent abatement than ever try and venture into construction myself.  I\u2019m really learning as I go here and it\u2019s exciting yet terrifying", "replies": [{"id": "f80qwiu", "text": "They're talking about the vertical improvements. I can assure you that you are not closing on a piece of land then turning it over to the retailer without touching the site. There are a ton of unique deal-specific aspects to any development, but definitely find a good civil and site contractor.", "replies": [{"id": "f80rwu9", "text": "But then how do I run my numbers in advance of even making an offer to ensure it\u2019s a good deal?  Do you happen to have a special spreadsheet template I could use?  I ask because due to my ignorance in construction I don\u2019t even know where to begin on guesstimating myself. I\u2019d already have to be UC before I can bring in contractors for quotes.\n\nI\u2019m starting to wonder if maybe I bit off more than I can chew with this endeavor", "replies": [{"id": "f8261lq", "text": "That's pretty much the crux of development - being able to conceptualize a site and pro-forma  accurate enough to ensure there will be profit when complete. There isn't really a template that's going to lay out your hard and soft costs as it's going to vary based on site and projecting is a combination of experience and leaning on vendors. There are significantly more steps and expense involved than what's laid out in the first post.\n\nWe all have to start somewhere, but development can be a quick path to broke if you don't fully understand the process. Perhaps think about partnering with a developer. Can still make good money without being the sole developer if structured appropriately.", "replies": [{"id": "f8agg9l", "text": "As a broker I know that in any given region the construction prices PSF are pretty consistent within their respective sectors. (I.e., Cost of construction for office in the northeast is consistent within that sector of CRE. Same goes for industrial, retail etc.). So perhaps I would be able to narrow down my estimate by studying construction costs PSF in my target market?\n\nOf course I will also consider partnering with a developer.  However, I don\u2019t personally know any developers in my target market and I have reservations about jumping into bed, financially, with someone I do not know.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "f89js1n", "text": "What if the corporation leasing for 99 years goes out of business throughout that timespan? How can you guarantee the payments. Corporate guarantee?", "replies": [{"id": "f8ag2b2", "text": "Yes I only plan on signing tenants with a solid credit rating and on a corporate guarantee. I\u2019ll be flipping the property to a 1031 investor so no need for me to worry about future insolvency of the corporation", "replies": [{"id": "f8ag80e", "text": "How are you finding tenants? Reaching out personally or commissioned a STNL broker?", "replies": [{"id": "f8agkz4", "text": "Reaching out personally. I\u2019ve been going to ICSC for a few years so I\u2019m starting to develop relationships with all the reps", "replies": [{"id": "f8agq3f", "text": "Got it. Out of curiosity, what would make a tenant that\u2019s desirable choose your location? Don\u2019t most great tenants deal with tenant representation?\n\nWhat attributes do you look for in site selection and where do you know what areas to buy? each tenant has their own numerous criteria. Thanks", "replies": [{"id": "f8agwk9", "text": "So what if they have a tenant rep? Said rep\u2019s job is to analyze and vet sites that are sent to them.\n\nThere\u2019s a plethora of factors that go into my analysis of a site. I have a lot of experience dealing with corporate tenants so I\u2019m familiar with how they go about looking for sites/what appeals to them, and when I see something that I think fits their criteria I immediately jump on it.", "replies": [{"id": "f8ahbxz", "text": "But aren\u2019t their tenants reps doing this for them already?they essentially have all their criteria and trust them", "replies": [{"id": "f8ai9bh", "text": "Right but us brokers rely on each other to keep each other informed of new opportunities, listings etc. I\u2019ve done tenant rep for a major national tenant, so I would tell every single broker I met, \u201cHey I represent X tenant and here are their specs. They\u2019re currently interested in A, B, C locations. Do you have anything fitting? Please keep me in mind if you come across something\u201d.   Can\u2019t expect the tenant rep to know about EVERYTHING that\u2019s available.  We\u2019re all in this together and rely on each other to make deals happen.", "replies": [{"id": "f8akhou", "text": "That\u2019s true. Got it. Thanks and good luck!", "replies": [], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]