Nine Ways a Net Lease Deal Actually Gets Done

By Cole Borror · Director of Acquisitions, Sierra Capital Club · Reviewed September 2026

The short answer: Net lease transactions can be built around existing income, new construction, recapitalization, or repositioning. The nine common structures are ground lease, assignment or double escrow, sale-leaseback, blend-and-extend, forward takeout, build-to-suit, reverse build-to-suit, spec development, and redevelopment. What matters is not the name but who carries site, entitlement, construction, leasing, funding, and takeout risk before the rent becomes dependable, because that allocation sets basis and return.

In this article

1. Buying and building are only the endpoints
2. The execution-risk matrix
3. Ground lease
4. Assignment or double escrow
5. Sale-leaseback
6. Blend-and-extend
7. Forward takeout
8. Build-to-suit
9. Reverse build-to-suit
10. Spec development
11. Redevelopment is a mode, not a peer
12. One site, four pathways
13. Choosing the structure
14. FAQ

Buying and Building Are Only the Endpoints

You do not get paid for buying a building. You get paid for solving the problem between dirt and dependable rent.

The reference case is the ordinary stabilized acquisition: a finished building, a signed lease, an open tenant, and rent that has been arriving for a while. That is the zero-execution-risk end of the spectrum, and it is priced accordingly. Most of what is interesting in net lease happens to the right of it, where somebody has to take a risk before the income exists.

Think of a line. On the left, you are buying existing income. On the right, you are creating it. Every structure below is a point on that line, and each one moves a specific set of risks between the parties: site control, entitlement, design, cost, completion, tenant opening, rent commencement, financing, market takeout, and residual value. Keep those ten words in mind. They are the only thing that changes from structure to structure.

The Execution-Risk Matrix

Here is the whole article in one table. Each cell names the party that primarily carries the risk under common practice; nearly every cell can be moved by contract.

The sections below explain the most important cell in each row rather than repeating the definitions.

Closest to Existing Income: Ground Lease

The landlord owns the land and leases it long-term, often 20 to 99 years. The tenant or leasehold owner controls, builds, and usually finances the improvements. At expiration, the improvements typically revert to the fee owner, subject to the documents and state law.

When the building already exists and rent is flowing, investor execution risk is about as low as it gets, which is why ground leases under strong tenants trade at tight cap rates. The risks are structural rather than physical: leasehold mortgage priority and the lender's cure rights, rent reset mechanics, what happens after a casualty, default remedies against a tenant that owns the building on your land, and the condition of the improvements at reversion. Public REIT disclosure on ground net leases is a good primer on how institutional owners think about those provisions.

The investor solves for long-duration land income with a residual claim on a building. The tenant solves for lower upfront land capital. Both can be right at once, which is why the structure endures.

Existing Contract, New Holder: Assignment or Double Escrow

An assignment transfers a buyer's contractual purchase rights to an assignee for a fee. A double closing places an intermediary in the chain of title through back-to-back closings, buying and reselling the same property on the same day or within a short window.

The value here comes from controlling a mispriced or hard-to-source contract, not from doing anything to the building. The risks are correspondingly contractual: whether the purchase agreement is assignable, whether seller consent is required, what must be disclosed, escrow and title coordination, transfer taxes, duplicate closing costs, financing for a same-day resale, and the end buyer failing to close after you are committed.

State law and licensing rules vary and have tightened. Texas, for example, enacted specific assignment disclosure requirements, and California's standard commercial forms handle assignability differently depending on which form association drafted them. Treat transparency and counsel as the structure's requirements, not cleanup work.

Create the Lease at Closing: Sale-Leaseback

An operator sells real estate it owns and occupies and simultaneously signs a lease to stay. Physical execution risk is close to zero, since the building is built and open. Lease-creation and credit-underwriting risk are substantial, because the investor is helping to write the paper being purchased.

The buyer solves the operator's liquidity or capital-allocation problem and is paid through the cap rate, the lease term, the guaranty, and the rent bumps. The underwriting has to cover sustainable market rent and rent coverage, the guarantor, use and assignment restrictions, and, most importantly, what the property is worth without the seller's business in it. That last question is where sale-leasebacks go wrong: an over-rented lease from a thin tenant produces a great cap rate on a building nobody else wants at that rent.

The distinction from buying an old lease matters. When you buy a 12-year-old lease, you inherit what someone else negotiated. In a sale-leaseback, you are negotiating it, which is both the opportunity and the risk. The operator's side of that negotiation is covered in sale-leasebacks from the operator's side of the table.

Repair Existing Income: Blend-and-Extend

Buy an asset with a short remaining term, then exchange rent economics for a longer commitment. The tenant may accept more term in return for a rent reduction, a funded remodel, a tenant improvement contribution, option changes, or some other concession.

The investor takes negotiation risk and renewal risk, and in exchange creates duration at a lower basis than buying a freshly signed lease at a market cap rate. A short-term lease might trade at a 7.5% cap; the same building with a new 15-year term might trade at 6.0%. If the concessions cost less than that spread is worth, the investor created value by solving the tenant's problem.

The trap is extending above-market rent, or funding improvements without getting enough term, credit support, and transfer protection back. Alpine Income Property Trust's annual report describes lease extensions as a core part of its portfolio management, which is a useful reminder that this is an institutional strategy, not a workaround.

Contract the Exit Before Completion: Forward Takeout

The buyer commits before completion to purchase the finished, leased asset once specified delivery conditions are met. The developer generally keeps construction funding, cost-overrun, and completion risk until closing. The buyer takes counterparty risk, delivery-test risk, and the cost of committed capital sitting idle.

Pricing can be fixed, formula-based (a cap rate applied to final rent), or adjusted for cost, timing, and condition at delivery. The documents need to define completion, tenant acceptance, rent commencement, permits, lien releases, warranties, casualty during construction, outside dates, and each party's termination rights. Every one of those is a place where "delivered" turns out to mean something different to the buyer and the developer.

One distinction to keep clean. In a forward commitment, the buyer promises to buy at the end. In a forward funding structure, the investor funds construction as it proceeds and takes on materially more development exposure in exchange for a better basis. They are often lumped together and should not be.

Landlord Builds: Build-to-Suit

The developer secures the site, entitles it, finances construction, and builds to a tenant's specifications under a long-term lease signed before construction starts. The developer takes site, cost, schedule, contractor, and delivery risk; the tenant takes a long-term occupancy obligation that typically starts on delivery, acceptance, or opening.

The return is development yield on created basis, not the tenant's cap rate. If total cost is $2,500,000 and the lease produces $200,000 of rent, that is an 8.0% yield on cost. If the finished asset trades at a 6.25% cap, it is worth $3,200,000, and the $700,000 spread is the payment for solving the problem between dirt and rent. See cap rate is not a return for why yield on cost is the right metric here.

The lease is only valuable if the conditions to rent commencement are achievable. Underwrite the tenant's termination rights, opening contingencies, plan approval and change-order process, allowance caps, completion guaranties, and exactly what event starts the rent. A build-to-suit lease with a soft opening contingency is a signed lease that may never produce a dollar.

Tenant Builds, Landlord Funds: Reverse Build-to-Suit

The tenant controls design and construction, usually because it has a repeatable prototype and its own contractors. The landlord funds approved costs through draws and owns the result. Construction competence moves to the party that has it; funding and collateral risk stay with the landlord.

The diligence looks like a construction loan: budget, draw controls, lien waivers, audit rights, cost overruns, what happens to unused allowance, title to improvements as they are built, casualty during construction, and, most importantly, what happens if the work stops. ICSC's legal materials on build-to-suit and reverse build-to-suit cover the drafting issues in depth.

The structure can lower basis and improve alignment, since the tenant is building the box it wants and has no incentive to over-spec it. But a credit tenant is not automatically a good construction manager, and the landlord that assumed otherwise owns a half-built building and a lease that has not commenced.

Build Before the Tenant: Spec Development

The developer starts without a binding end-user lease. Entitlement, construction, lease-up, carry, and takeout risk all sit with the developer. The reward is control of scarce, ready-to-occupy product and the ability to capture higher rent when demand is strong and supply is not.

For net lease investors looking at spec product, the underwriting discipline is about distinguishing a signed lease from an LOI, a rent commencement date from a forecast, and a "tenant in discussions" from a tenant. The market does not pay for construction. It pays when the developer solves a timing or supply problem that tenants cannot solve themselves.

Redevelopment Is a Mode, Not a Peer

Redevelopment changes an existing site or building for a new or continuing use. It is not a tenth structure. It is an overlay that can sit inside an acquisition, a ground lease, a build-to-suit, a reverse build-to-suit, a forward takeout, a sale-leaseback, or a blend-and-extend.

Its risks are additive: demolition, environmental conditions, zoning and nonconforming status, utilities and access, downtime, tenant termination rights during construction, and whether the reuse is what the market wants. Two examples make the point. Buying a dark pharmacy and converting it to a drive-thru QSR is an acquisition plus redevelopment plus, depending on the tenant, a build-to-suit. Funding an existing tenant's expansion in exchange for ten more years of term is a blend-and-extend plus redevelopment.

The useful question is never "is this a redevelopment?" It is "which party owns each execution risk until rent starts, and what is the remedy if it does not?"

One Site, Four Pathways

Hypothetical: a vacant corner pad, and a national quick-service tenant that wants to be there. Keep the tenant constant so the structure, not the credit, explains the changing return requirement.

Spec development. The developer buys the pad, entitles it, and builds a prototype QSR box before the tenant signs. Entry point: raw dirt. Basis advantage: the largest, if the tenant signs at a strong rent. Failure mode: the tenant goes across the street and the developer owns an empty drive-thru. Evidence needed before funding: market depth for QSR users, not one tenant's interest.

Build-to-suit. The developer signs the tenant first, then buys, entitles, and builds. Entry point: dirt plus a signed lease. Basis advantage: large, but the tenant's leverage in lease negotiation is high because it knows you need the lease to finance. Failure mode: cost overruns, permit delay, or an opening contingency that lets the tenant walk. Evidence needed: an executed lease, an approved site plan, a bid-level budget.

Reverse build-to-suit. The tenant buys or controls the pad and builds its own prototype; the investor funds construction through draws and takes title with the lease in place. Entry point: a funded lease. Basis advantage: moderate, and the investor avoids managing construction. Failure mode: draw disputes, cost overruns the lease did not cap, or a stalled project. Evidence needed: the tenant's construction track record, a fixed budget, and clear title mechanics.

Forward takeout. A developer does one of the three above; the investor commits to buy the finished asset at a negotiated cap rate on delivery. Entry point: a contract to buy income. Basis advantage: smallest of the four, but usually better than buying the same asset on the open market. Failure mode: the developer fails to deliver, or "delivery" is disputed. Evidence needed: a developer with a balance sheet, and a delivery definition you can enforce.

Same tenant, same corner, four different return requirements, because four different sets of problems were solved.

Choosing the Structure

Four questions sort almost every deal.

What problem is being solved, and for whom? An operator needs liquidity (sale-leaseback). A tenant needs a building (build-to-suit). A short-term asset needs duration (blend-and-extend). A developer needs an exit (forward takeout).

Which risks can you actually control? If you have never managed construction, a build-to-suit is a bet on a contractor. If you cannot underwrite operator credit, a sale-leaseback is a bet on a broker's rent coverage number.

What milestones make capital nonrefundable? Hard deposits, construction draws, and forward commitments each lock money at a different point, and the point matters more than the amount.

Who owns the downside if the tenant, the permits, the budget, or the takeout fails? If the answer is "we'll figure it out," the structure has a hole in it.

Price the Problem Being Solved

A national tenant does not erase execution risk. It only identifies one counterparty after the documents become effective. Trace the deal from site control to dependable rent. The farther you move toward creating income, the more ways the basis can improve and the more ways the plan can fail. The return belongs to the party that identifies, controls, and solves those risks.

For how the lease itself allocates obligations once it exists, start with what a NNN lease actually is. For the entity design behind a sale-leaseback or operator partnership, see PropCo/OpCo separation. And if a replacement-property deadline is driving your structure choice, read the 1031 exchange timeline that kills deals first.

Frequently Asked Questions

What is the lowest-risk net lease deal structure? A stabilized acquisition of an existing building with a signed, in-place lease and a paying tenant is the reference case with the least execution risk. Among the nine structures here, a ground lease under an existing, occupied building is typically the closest to it. Lower execution risk is priced in, so it also carries the lowest return premium.

Is a ground lease the same as a sale-leaseback? No. In a ground lease, the landlord owns only the land and the tenant owns or controls the building. In a sale-leaseback, the operator sells the land and building together and leases the whole property back. An operator can do both at once by selling the land and ground-leasing it back while keeping the building, but that is a distinct structure.

What is the difference between build-to-suit and reverse build-to-suit? In a build-to-suit, the landlord or developer manages and funds construction to the tenant's specifications. In a reverse build-to-suit, the tenant manages construction using its own prototype and contractors while the landlord funds approved costs. The party with construction control changes; funding risk stays with the landlord in both.

Can redevelopment happen inside another structure? Yes, and it usually does. Redevelopment is an overlay that adds demolition, environmental, entitlement, and downtime risk to whatever structure it sits inside, whether an acquisition, blend-and-extend, sale-leaseback, or build-to-suit.

Related reading in this series

• What a NNN lease actually is, and the different kinds of commercial leases
• Cap rate is not a return: what it actually tells you
• Corporate guaranty vs. franchisee guaranty: what you're actually buying
• Estoppels and SNDAs in plain English
• Sale-leasebacks from the operator's side of the table
• PropCo/OpCo separation: an operator's guide
• The 1031 exchange timeline that kills deals
• How to underwrite a c-store net lease

About the author. Cole Borror is Director of Acquisitions at Sierra Capital Club, a Dallas-based net lease investment and development firm. He works on NNN and NN acquisitions, build-to-suit development, sale-leasebacks, and operator partnerships. Connect at coleborror.com.

This article is for educational purposes only and is not legal, tax, or investment advice. Transaction labels vary; the funding flows and executed documents control. Assignments, double closings, and development structures raise contract, disclosure, licensing, tax, and state-law issues that require qualified counsel.