by Gabe Gonzalez

The single tenant Build-to-Suit (BTS) market continues to be one of fastest growing sectors in terms of development, acquisition, and financing activity.  Over the past eighteen months, Metropolitan Capital Advisors has secured over $100 million in capital for clients to develop and/or acquire Build-To-Suit (“BTS”) and other Triple Net (“NNN”) tenant properties. Some recent examples build to suit commercial real estateof closed transactions include:

  • A $1,800,000 (85% of project cost) acquisition/development loan in northwest San Antonio for a to-be-built In-N-Out Burger.  MCA closed the loan with a local bank that agreed to burn off recourse upon completion.  The interest rate was 4.40% with 12 months I/O, followed by a 25-yr amortization.  The bank allowed the developer to contribute their fees as equity.
  • A $1,100,000 loan in Dallas for a single tenant warehouse facility leased by UPS.  While only a five-year lease, MCA delivered a 10-year fixed-rate loan at 4.75%.
  • A $1,000,000 refinance for a Shoe Carnival in Moore, Oklahoma.  Shoe Carnival was already in its option periods; however, the lender offered a structured, non-recourse loan at an interest rate of 4.67%.

So, what exactly is driving this wave of demand for these types of properties from the tenant and investor perspectives?

Tenants prefer Built-to-Suits (BTS) because they get superior locations with the best visibility.  Tenants have greater flexibility to design their store layouts, create maximum efficiency, and customize their parking solutions.  Moreover, tenants don’t have to worry about who their retail neighbors may be, and they can quickly address any repairs to their specific property.

From the investor perspective, high-leverage financing is available for passive investors who want to “clip coupons.”  Many investors in the BTS market are investors seeking a 1031 Exchange.  The 1031 Exchange market is as active as it was in 2005.  Recent tax changes accelerated demand for BTS and NNN properties.

As the demand for BTS and NNN properties has increased, alternative net-lease properties have emerged, such as fitness centers, educational facilities, and special medical buildings.  Non-institutional investors who have veered away from the overcrowded investment-grade NNN market have been willing to acquire gyms, charter schools, day-care centers, and medical properties, even in secondary and tertiary markets.  This strategy has allowed investors to acquire properties at higher cap rates (8.0% +) versus what the investment-grade leases are trading for in terms of cap-rate. Furthermore, buying alternative net-lease properties allows investors to diversify their portfolios in terms of tenants.  However, purchasing these alternative NNN properties requires additional due diligence into the operations of the business behind the tenant.  In some cases the special-use nature of these assets makes it challenging to quickly re-tenant or to repurpose the property.  A keen understanding of the specific business at hand is important to determine the risk involved in the purchase of the real estate.

In the competitive BTS / NNN environment, the cost of capital is tantamount to achieving projected returns.  Metropolitan Capital Advisors has relationships with a myriad of capital sources to ensure you get the best execution at the lowest cost of capital.  Please contact Gabe Gonzalez ( or any of the Senior Directors at MCA if you are contemplating acquiring or developing a single tenant Built-to-Suit of any size, use, or credit.