Lease Structure
Build-to-Suit (BTS) Lease
Pre-committed leases on properties built to tenant specs
A Build-to-Suit (BTS) lease is a long-term lease agreement where a tenant pre-commits to lease a property before it's built. The developer acquires land, builds the property to the tenant's specifications (layout, size, fixtures), and delivers the finished property to the tenant for lease commencement. BTS is the primary development model for single-tenant NNN retail — dollar stores, auto parts, QSR, pharmacies, and convenience stores all expand primarily through BTS.
Term
15-25 years initial + 5-year options
Rent Bumps
10% every 5 years, or escalations in option periods
Cap Rate
5.25% - 6.50% at disposition
Tenants
National credit tenants with active expansion
Who Pays What?
| Expense | Tenant | Landlord |
|---|---|---|
| Construction (developer funds) | — | |
| Property Taxes (after opening) | — | |
| Insurance (after opening) | — | |
| Maintenance (after opening) | — | |
| Tenant Build-Out (tenant usually self-funds) | — | |
| Structure & Roof (per lease — often absolute NNN) | — |
Pros
- +Predictable development spread (150-250 bps typical)
- +Tenant commitment reduces speculative risk
- +12-18 month project cycle with clean exit
- +Active tenant expansion programs create pipeline
- +Strong disposition buyer pool (1031 buyers, NNN investors)
- +Corporate guarantees on leases
Cons
- −Entitlements and construction risk
- −Cost overruns cut into developer profit
- −Tenant LOI can fall through before land closing
- −Capital-intensive (requires development equity)
- −Timeline risk (weather, permit delays, labor)
Common Use Cases
How It Compares
BTS is fundamentally different from buying existing NNN — you're developing the asset from dirt. Higher return potential (20-35% IRR vs. 6-7% for passive NNN), but also higher risk and capital requirements. The exit is usually an absolute NNN or ground lease sold to a 1031/passive buyer.
Investor Perspective
BTS development is the most profitable way to create NNN real estate — but it's an active business, not a passive investment. Investors who want exposure without running projects can partner with a developer as an LP, typically earning 10-15% IRRs with the developer earning promote above a preferred return.
Other Lease Types
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