If you are curious to know more about the topics listed in the table of contents, please continue reading!
Table Of Contents
- What exactly is a “build-to-suit” now that you ask?
- How does it function?
- Developer Route
- Sale-Leaseback Route
- Which benefits come with build-to-suit?
- Typical Build-to-Suit Timelines
- What are a few drawbacks to building to suit?
Have you ever been driving around and wondered what a “build-to-suit” sign on a parcel of property meant? Why should you care?
That varies.
Have you been unsuccessful in finding the ideal commercial location for your company? You ought to give it some thought.
Is it hard to find surplus funds to design and construct a new facility for your company? You must be concerned.
Does your capital earn more than 10% to 12% from working for your company? You must provide it with some thought.
Do you have 15-24 months till you need to relocate? You must be concerned.
What exactly is a “build-to-suit” now that you ask?
When a commercial property tenant enters into a Build to Suit (BTS) arrangement with a developer or landowner, the two parties agree to build a brand-new, specially designed facility that will get leased. After construction finishes, the renter usually becomes the only inhabitant. As the future occupier defines how they want the building to be built to fulfill their business objectives, this kind of agreement provides for the most effective use of both the land and the facility.
BTS projects get frequently used to construct Walgreens, standalone Starbucks locations, and numerous single-occupant office or warehouse buildings. There must be a strong rationale for BTS initiatives if corporations like Starbucks, Amazon, and Walgreens are involved. Continue reading to see why.
How does it function?
The building of BTS is a dynamic process that involves simultaneous leasing and construction contract negotiations.
Before we get into more detail about some of the benefits and drawbacks of this kind of agreement, let’s first lay out the general framework and timetable for how it operates, keeping in mind that every contract is unique with its requirements and set of circumstances.
BTS developments are often offered in two ways:
1) Developer Route: The expanding firm selects to work with a business broker to “shop” its transaction for commercial developers. The responsibility of acquiring the land, constructing the building, and managing the property is subsequently assumed by the developer who provides the biggest bargain. After construction is finished, the developer leases the building to the tenant (Company), often for ten years or more.
2) Sale-Leaseback Route: In this situation, the tenant bears the initial burden of site purchase, and financing obligation, involving a general contractor to layout and build the building. When the building is completed, an investor purchases it, with the sole tenant staying as the inhabitant. By doing this, the tenant can withdraw the entirety of their investment money from the property and reinvest it in any way they see fit into their business.
Which benefits come with build-to-suit?
Typical Build-to-Suit Timelines
Typically, the developer secures the project’s equity and debt, freeing up money that the tenant may utilize to expand their business. The facility will be specifically designed with the tenant’s requirements in mind, taking into account both current requirements and potential future expansion.
You’ll probably make more money as a BTS renter than as an owner-occupier with capital invested in real estate if your firm generates returns on invested capital of more than 10% to 12%.
The tenant’s rent gets deducted from their income. Consult your lawyer and CPA in most situations.
What are a few drawbacks to building to suit?
A BTS can last for a period that ranges from 15 to 24 months or even longer in specific circumstances.
Long-term lease agreements could be seen negatively by tenants if there aren’t sufficient expansion and contraction alternatives.
It costs a lot to build new. No exemption applies to BTS development; you only pay more for your lease.
In a BTS agreement, renters are required to have good credit.
The tenant must have precise growth projections, ensuring that the design and building of the new facility will meet their demands in the future.
Build-to-Suit development is a fast-paced venture, but it may help a business tenant handle a wide range of space issues. A knowledgeable commercial real estate broker should be consulted as soon as your business starts to think about its needs for real estate expansion to find possible Build-to-Suit solutions. By hiring a specialist in the field, you can concentrate on your core line of business while leaving the frequently challenging growth process in the capable hands of a project management team.
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