Views on the deal
I have inherited land, and recently a pharmaceutical company approached me for a built to suit facility for them. So it has all fancy stuff like a 1000 kva generator, water cooling facility etc. The land is 200,000 square feet and they are going to utilize around 185-190k square feet.

The cost of making it would be around $3-3.5 million and the rental income would be around $44k-50k per month of which most of it would go as EMI and I would get around 2-3k per month as income. After 8-9 years when the loan tenure is done i'd get the full rental income. The lock-in period which I am going to propose is of 10 years, which they can extend later on. The rent increases by 5% every year as well since I am in India as the inflation is higher.

Do you guys think it is a good deal or should I structure it better?
[{"id": "ggxekgm", "text": "Im assuming thats NNN, so a 15 cap? Seems pretty great to me but I have no idea what the default risk is in India or with this tenant. You could try to do a ground lease if you dont want the risk of owning that building type.", "replies": [{"id": "ggxfb7e", "text": "Yeah it would be a triple net!. The risk of default with these companies is generally low because they are big companies like MNCs, and if the company is doing well they would most likely extend it as they don't wanna move their machines and stuff around. I am not looking for a ground lease because the location is a prime one where all the manufacturing facilities are in my city, and the rent on that would be much lower as well. Thanks for the response! Appreciate it.", "replies": [{"id": "ggxp7r5", "text": "&gt; I am not looking for a ground lease because the location is a prime one where all the manufacturing facilities are in my city, and the rent on that would be much lower as well.\n\nWould it be lower than the $2-3k you'd get per month for the first 8-9 years? You're taking a lot of risk if the construction financing is secured by both the land and the building(s) compared to if it is secured by a ground lease that will expire.\n\nMake sure that it is the top parent corporate entity that guarantees the lease, not one of its subsidiaries. It can be confusing since subsidiaries will often have a similar name. You can verify what the name should be by matching it to corporate annual reports (assuming the company is listed on a stock exchange).", "replies": [], "depth": 3}, {"id": "ggxzvvr", "text": "Oh I didnt realize the land was located in a existing industrial zone. I would definitely pull comps to figure out what market terms are. If you dont know that stuff it would definitely be worth paying a good commercial broker to represent you. Theyll take a fee but theyll likely pay for themselves by negotiating the best terms for you", "replies": [], "depth": 3}], "depth": 2}, {"id": "ggxpez0", "text": "15 cap on construction costs, but that includes income from the land without including the value of the land.", "replies": [{"id": "ggxzbav", "text": "Good point, I thought he was saying 3-3.5m total project cost but hes prob not including the value of the land now that I reread it", "replies": [{"id": "ggz4d20", "text": "if i consider the land value in the deal, the rent will be huge and the tenants will not likely be able to afford it. Throughout my city, everyone does not consider the value of land.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "ggxwog0", "text": "A 15 cap only means that your NOI is only worth $6.66 per dollar.  That is not investment grade property.  But I doubt that you are in a 15 cap market.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ggxi4wr", "text": "To your point on inflation, make sure the currency of rent payment is the same as the loan, to eliminate fx risk and reduce inflation concerns. \nIf you're not experienced with development of this size, make sure you have adequate legal representation for the lease and construction agreements so you don't get stuck in the middle where you're paying on the loan but tenant says building isn't ready etc.", "replies": [{"id": "ggz62q5", "text": "So in the last deal which was made the firm had to give 1 year worth of rent in order to assist me, which helps with the initial interest payment of the loan and also the construction itself. So going to ask the same with this one. Not concerned about the fx risks as it's all in the same currency as my home country.Thank you!", "replies": [{"id": "ggz63dx", "text": "/u/mikesyikes101, I have found an error in your comment:\n\n &gt; \u201crisks as ~~its~~ [**it's**] all in the\u201d\n\nI suggest that you, mikesyikes101, post \u201crisks as ~~its~~ [**it's**] all in the\u201d instead. \u2018Its\u2019 is possessive; \u2018it's\u2019 means \u2018it is\u2019 or \u2018it has\u2019.\n\n ^(This is an automated bot. I do not intend to shame your mistakes. If you think the errors which I found are incorrect, please contact me through DMs or contact my owner EliteDaMyth!)", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ggxo7i6", "text": "What is your development yield here? You\u2019re getting $50k/month in rent and $3k CFADS, but what\u2019s your operating income (revenue less expense excluding interest?) would make sure you\u2019re stabilized yield is at a spread to cap rates for a manufacturing plant such as this which I\u2019m sure it is. \n\nIn terms of deal structure, consider lowering the amortization payment in your loan. It seems to be fully amortizing over the 9-10 years. If you feel it\u2019s going to be hard to get a new tenant in there to re use the equipment maybe you leave the loan as is. Negotiate FMV extension options w the tenant as opposed to fixed. Make sure you have a restoration clause. Make sure your building could maybe be repurposed as industrial/distribution \n\nWhat\u2019s your exit plan? If you want to develop, lease and sell w some decent term left that will reduce your loan repayment risk if you want to collect higher cash yield those first few years and make more profit through sale. \n\nYour risk w specialize real estate is finding a 2nd gen user. That makes selling it more difficult or having to sell at higher cap rate. If 2nd gen prospects are tough  maybe your exit plan is to sell after 3 years w some remaining term in place", "replies": [{"id": "ggxotya", "text": "Seeing in comments it\u2019s NNN and 15% cap. Interest payments are high clearly, maybe see if you can get longer loan term or better amo terms to boost your cash yield. Show  the lender their LTV is super low at exit still even if property is vacant", "replies": [], "depth": 2}, {"id": "ggz598f", "text": "makes sense, so I calculated my NOI by taking the rent minus the interest as all maintenance will be handled by the firm, and hence I included interest as a fixed expense per month. The yield on cost which I got was 27-30% somehow (NOI/Project Cost). The machinery and capex will also be installed and bought by the firm itself, so all I am doing is providing them with the building according to specifications with generators, water systems etc. Regarding the exit plan, that is something which I need to think about but I feel that my city is a prime manufacturing hub in India and that since the firm will be investing money for new machines and stuff they are also likely going to continue for long. I understand, I cant rely on those things but ill def look into that. Thanks for the response! I am 20 and just figuring it out as its new for me.", "replies": [], "depth": 2}], "depth": 1}, {"id": "ggzl7fa", "text": "OP, I am confused. So this deal is in India? Then, I think you need to consult your local professionals. I am afraid that people here may not familiar with India and may not give you a correct answer.", "replies": [], "depth": 1}]