What is a Build to Suit

Build to suit is a type of real estate transaction where a property owner or developer will construct a building for sale or lease that will be built to the tenant's or buyer's specifications.  When the property is leased to a tenant, it is termed a build to suit lease. Build to suit commercial real estate commonly involves retail or industrial properties, but can be any type of real estate.

 

What are the advantage of a Build to Suit lease?

A build to suit lease is suited for tenants who have specific real estate needs that are not fulfilled in the market where they need to be located yet need the advantages of leasing a property. In new developments or undeveloped areas, the market may not have real estate product yet available. Commercial property in other markets may be obsolete or out of line with the needs of certain tenants.

In other situations, prospective tenants needs may be so specific, that commercial property will have to be custom built to their specifications to work for their business. A common example is a fast food chain restaurant that has a specific business and marketing strategy to differentiate themselves from their competitors.  Landlords will offer a build to suit lease for a variety of reasons. A site may be particularly suited for a build to suit property transaction.

 

What are the advantages of a Build to Suit lease?

Conserve on capital -  The tenants capital is better served to be used for their primary business and not tight up in real estate.

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Tax Deductions - 100% of the rent can be tax deductible.  

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Building to your needs. - Building to exactly what you need is the most efficient way to have a building suit your exact needs.  

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Time - Your time is better served focusing and growing on your primary business.  Leave the headaches and hassles to someone else that will deal with them for you.  

 

What are the Tenant costs?

Depending the tenant,  many times the only costs the tenant occurs is their Furniture Fixtures and Equipment (FF&E).  

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What is the lease structure? 

The lease period may be longer than a typical existing space lease. This is because build to suit properties are designed based on the specifications of a particular tenant. In many cases, they range from 15-20 years in order to provide to achieve more favorable financing.  

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What is the NNN lease structure? 

A triple net lease (triple-Net or NNN) is a lease agreement on a property whereby the tenant or lessee is responsible to pay all the expenses of the property including real estate taxes, building insurance, and maintenance. These payments are in addition to the fees for rent and utilities, and all payments are typically the responsibility of the landlord in the absence of a triple, double, or single net lease.

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