Mister Car Wash New Store Development Proposal

TerraForm Companies is pleased to have this opportunity to present a proposal for new store development for Hotshine Holdings, Inc., doing business as Mister Car Wash (“Mister”). Based on our discussions with James Throckmorton, VP of Development, we understand that Mister desires to select a real estate development partner to assist with growth through new construction. It is anticipated that the development partner will oversee 5 to 10 ground up development deals per year for the next 2 to 3 years. The purpose of this proposal is to illustrate why TerraForm is best-suited to be Mister’s strategic development partner.

Why TerraForm…

Just like Mister, our proven approach has always centered on bringing our clients the best service in the industry.  Every aspect of our business is designed to provide a better experience for our clients.  TerraForm is uniquely prepared to help Mister grow in a way no other firm can because of 2 main differentiators:


TerraForm is different by design. Unique components of our structure designed to add more value to our clients include the following:


For over 30 years, we have made the conscious decision to remain a relatively small, boutique development firm. Larger firms tend to lose the personal touch provided by high-level, senior partners who can make decisions quickly. We choose to stay nimble and have our experienced partners dedicate their time to only the most important clients and accounts. Senior, experienced partners work directly on every aspect of each project. The result is a better experience for our clients with less run around and red tape.


We practice 100% open book development. Our clients have full audit rights to verify our costs and ensure that we are not overstating any expenses to take an additional scrape. Though many development firms purport to provide open book development, we prove it by providing supporting documentation and contracts. Additionally, we use the latest technology to provide our clients with direct access to the day-to-day progress of each deal so they can verify and confirm construction timing.


We only do net lease build-to-suit development. This specialized focus means our net lease clients get our undivided attention. As true specialists in net lease development, we know what it takes and have the right relationships to get net lease projects done on time and on budget.

Intellectual Captial

Starting a build-to-suit program is a daunting task for any company.  There is a significant learning curve associated with new ground-up design, project management, and execution.  TerraForm is fortunate to be involved in 2 new construction projects for Mister.  The first in Taylorsville, Utah was a ground lease and our oversight and management was limited.  However, we have stepped in where needed to try and add value and work through challenges.  The second in Ogden, Utah is a build-to-suit and our role will be much more involved.  Already, we have worked aggressively to identify inconsistencies with the drawings and correct them before they become an issue during construction.  Our knowledge and experience gained during these 2 projects is invaluable.  This intellectual capital will enable us to build new stores faster and with less need for resources and oversight from Mister.

We are confident that the unique structure of our firm and the intellectual capital gained through our current work with Mister sets TerraForm apart as the ideal development partner for Mister’s ground-up growth.

Deal Structure

We have been asked to present terms for 2 different ground-up development scenarios:

1. Traditional build-to-suit
2. Fee development

This section will address the differences in these scenarios and outline our proposed structure under each.

Under this option, TerraForm would purchase the land and provide all necessary funding to complete the project. Mister would sign a long-term lease with TerraForm. It is anticipated that TerraForm would sell the real estate, subject to the lease, upon completion of construction or keep the asset as landlord in TerraForm’s owned portfolio.

• Cost. The cost for this type of development is calculated as a spread over the anticipated market or valuation cap rate at the end of the project. On our initial deals with Mister, we estimated a market cap rate of 6.75% and included a development margin of 175 bps. However, feedback from the real estate investment market for new construction Mister deals has been positive. The positive feedback from the market and our familiarity with Mister’s strength as an organization results in less perceived development risk. That, coupled with a discount for a preferred development relationship, results in a reduction of our development margin as well. Assuming a similar lease structure to those previously negotiated, we propose the following terms for future build-to-suit development:

o Estimated Market Cap Rate: 6.15% (please note that this may vary slightly depending on the size and strength of a given market)
o TerraForm Margin: 160 bps
o Build to Cap Rate / Rent Multiplier: 7.75%

In this scenario, TerraForm would manage the scope of the development project from start to finish. Funding for the project would be provided by either Mister or TerraForm, at Mister’s discretion. In the event Mister requested that TerraForm provide all funding for the transaction, a separate equity fee would be paid to TerraForm on top of the development fee. In such event, TerraForm would bear all risk regarding a back-end take out.

• Development Fee Cost. In the situation where Mister funds the entire development as costs arise and TerraForm manages the development process, TerraForm’s risk is fully mitigated and our fee becomes a project management fee. In previous discussions with Mister, TerraForm proposed a development fee of $75,000. Since that time, the construction market has tightened considerably resulting in a less qualified sub-contractor base and the need for substantially more oversight and direction. In light of current conditions in the construction market, we propose the following fee structure:

o Development Fee for Project Management: $100,000 per project; 50% due upon receipt of building permit and the remaining 50% due upon receipt of certificate of occupancy.

• Equity Fee Cost. In the event TerraForm is asked to fund the project, an equity fee would be paid to TerraForm. We would fund the project by obtaining the best possible debt financing from our banking relationships. It is anticipated that the debt portion of the project will be between 65 – 75% of total project costs. The equity fee is in consideration of the cost of capital as well as the risk taken by TerraForm throughout the project. In such a scenario, the fee development option becomes very similar to the build-to-suit option as TerraForm would be funding the project and bearing all risk, including back-end market risk. The equity fee proposed would be as follows:

o Equity Fee: The greater of (i) a 35% simple cash on cash return, or (ii) a 30% IRR. The fee will be calculated only on the equity required to be deployed by TerraForm to obtain bank financing for the development of the project. It is anticipated that the equity portion of any deal will be between 25 – 35% of total project costs.

This structure contemplates TerraForm overseeing and managing the entire development project and funding the costs for the project as they arise. Prior to commencing the project, Mister would agree to purchase the property from TerraForm at cost, thus minimizing TerraForm’s back-end market risk. A development fee would be paid by Mister directly to TerraForm and all financing costs would be reimbursed by Mister as well.

• Development Fee Cost Structure. The development fee in this scenario is a hybrid of the cost of our resources and expertise together with our assumption of risk during the course of the project. We propose the following fee structure:

o Development Fee: $350,000
o Contingency Allowance: 10%. If total project costs exceed the initial budget by more than 10%, TerraForm will be responsible for the portion over 10%.
o Financing Cost Reimbursement: TerraForm will be solely responsible for obtaining any debt financing to fund projects. Mister will reimburse TerraForm for all financing costs.


TerraForm has direct and recent experience developing net lease projects in the following states:

• Washington
• Oregon
• Idaho
• Nevada
• Utah
• Montana
• Wyoming
• Colorado
• Nebraska
• Iowa
• Texas

We are confident in our abilities to provide an exceptional level of service in all markets within these states.

We are willing to make Mister one of our top priority accounts if given the opportunity of a preferred development relationship.  As such, we would disengage from other less strategic projects to free up the capacity of our experienced partners to develop 5 to 10 sites per year for Mister.

We look forward to working with you.

Jason Smith
Managing Partner