Unlocking Opportunity with Build to Suit Arrangements

Build to suit is a unique arrangement in real estate where a landowner constructs a building specified by a potential tenant, and then leases the land and building to that tenant. This allows businesses to customize commercial spaces without incurring the full initial cost of purchasing land and constructing a building themselves.

What is Build to Suit?

Build to suit (BTS) agreements offer a streamlined solution for businesses seeking a readily customized operational space. By opting for this type of arrangement, companies can specify their exact requirements for a property, including layout, size, and amenities for a building that perfectly fits their business needs.

Benefits of Build to Suit Arrangements

• Customization: Tenants can have personalized spaces constructed to their specific needs
• Cost Efficiency: Avoiding the heavy upfront costs of land acquisition and construction
• Speed to Market: Facilitates faster expansion by reducing development time
• Strategic Locations: Access to prime real estate without the capital overhead

Real-World Example

Beverly wants to open a high-end restaurant. Instead of buying her own piece of land and bearing the expense of constructing a specialized facility herself, she opts for a build to suit arrangement. She identifies a suitable site with an agreeable landowner willing to build the restaurant as per her specifications and subsequently lease both the land and the newly constructed restaurant building to Beverly. This allows her to save on significant capital expenditure while achieving her goal of running a customized dining establishment.

Frequently Asked Questions

What kinds of businesses benefit most from build to suit arrangements?

Many types of businesses can benefit from build to suit, particularly those needing highly specialized facilities. This includes retail stores, restaurants, warehouses, medical facilities, and corporate offices.

How long does a build to suit project typically take?

The timeframe can vary depending on the complexity and size of the project, but generally, it can range from a few months to over a year. It’s contingent on site selection, design approvals, and construction schedules.

Are build to suit leases usually long term?

Yes, due to the significant investment by the landowner in constructing the building, build to suit leases are typically long-term, often ranging from 10 to 20 years or more.

Do tenants have an option to buy the property in a build to suit arrangement?

In some agreements, tenants may negotiate options to purchase the property at a later date, either during or at the end of the lease term.

The Bottom Line

Build to suit arrangements offer an innovative way for businesses to acquire custom-designed operational spaces without significant initial capital outlay. This enables rapid growth and positioning in strategic locations tailored to specific business needs, fostering sustainable development and success.

Related Terms: ground lease, net lease, turnkey projects.