By Travis Fidel
Most net lease developers we talk to do not have a deal flow problem. They have an equity problem: every deal ties up cash they need for the next one.
The equity cap
Take a $4 million build-to-suit. A bank will usually lend 70% to 75% of cost. That leaves $1.0 million or more of your cash in the deal until you sell or refinance.
If you have $1.5 million of liquidity, you can do one project. Then a second site comes along while your cash is still tied up in the first. Passing on it is expensive. As we all know, tenants give repeat sites to developers who are reliable and deliver multiple sites on time. Turn down a deal and the real estate manager will call a competitor.
What changes at 100% of cost
At 100% loan-to-cost, the same $1 million is not tied up in any one project. It covers what it should cover: earnest money, pursuit costs, entitlement work on the next sites, and a cushion for overruns.
Now capital is not what holds you back. The only question is how many deals you can run well. And your time goes back to the work that makes you money: finding sites, keeping tenants happy and getting buildings delivered.
What it takes to operate like this
Leverage alone does not get you there. Your capital partner matters.
- Efficient, repeat capital provider (Radar). Five separate lenders means five sets of documents, five draw processes and five credit committees. Borrowing with Radar means the second loan closes faster than the first.
- Repeatable documents. Same borrower structure, same guaranty, same GC contract form. Each new deal is a change of address and budget, not a new negotiation.
- Fast draws. With five jobs running you have a draw going out almost every week. If each one takes three weeks, your contractors are stressed and your project slips.
- A lender who closes what they quote. The term sheet you sign should be the loan you close. A retrade two weeks before closing can cost you the site, or your credibility with the tenant.
- A direct line to the decision-maker. With five jobs running, something comes up every week. You need an answer that day from someone who can say yes.
The part nobody advertises
High leverage costs more than bank debt on paper. But it usually still beats an outside equity partner on blended cost of capital, and it leaves your equity deployable instead of locked into one project. Whether it’s worth keeping your cash dry depends on what you would do with the cash. If the answer is “four more deals,” it usually is. If the answer is “nothing,” use your bank.
How we look at it
Radar has closed more than 225 net lease transactions, and most of our borrowers come back for multiple deals. We size the loan to the lease and as-complete value, we service draws in-house, and you talk to the principals. One capital partner, many deals.
Radar Net Lease is a direct lender to net lease developers, with construction loans up to 100% loan-to-cost nationwide. If you have a signed lease and a site, send us the deal.