Build To Suit
A Build to Suit project is exactly how it sounds… building to suit the specific needs of a tenant.
The Build-to-Suit and the Design-Build process are similar. The difference is a Build-to-Suit, commencing at the completion of construction, is leased for a predetermined period. This allows a company to preserve its capital for business operations, rather than real estate investment. Additionally, this approach also provides term flexibility to a company. The Build-to-Suit and Design-Build process is a seamless, turnkey, single contract for services, method of building delivery. From conception through completion, historically, this method of construction has proven to reduce both project cost and completion time.
Developing build to suit properties involves working directly with the client to fully meet the functional, ascetic, and corporate criteria. As a full-service Build-to-Suit developer, our site selection, design, and construction teams will use the collective knowledge, experience, and proven process to ensure the ultimate success of the development.
What is a Build to Suit and how does it work?
Again, a Build to Suit is precisely how it sounds… building to suit the particular needs of a client. Typically, this is a commercial building specifically designed and constructed for a certain business.
There are multiple ways to complete a build to suit, but the most popular tend to be:
- Traditional: A client will hire a commercial developer with the intent of becoming a long-term tenant. The developer will source a site and acquire it, finance, and manage the risk of design and construction based on the client’s specifications. The design phase of the build to suit process is a collaborative approach between the client, architect, contractor, and the developer. The client will then lease the property for a predetermined amount of time essentially becoming the tenant of the developer.
- Owner Build: In this process, a business operator will assume all liability and manage the project themselves. They will acquire the land, obtain financing, entitlements, permitting and hire an architect along with a general contractor to complete the building for themselves. Once completed, the owner may then sell the property to regain their initial cash investment and lease the property from the new owner.
What are the Costs and Lease Structure?
There are a number of factors that determine the specific costs of a build to suit project. They may include:
- Credit Rating
- Length of Lease
- Entitlement Requirements
- Program Standards
- Specific Improvements
- Site Location
- Current State of Market
Typically, the specific requirements of the tenant will play a significant role in establishing the cost of the project and based on the costs, the rental rate (rent constant) is established. The overall project and rent will need to make sense for all parties involved. Once the cost is established the development terms are agreed upon and the project begins.
Most build to suit projects tend to be net leases, where the occupant is responsible for the operating and management costs of the property. A longer-term lease generally allows the developer to achieve more favorable financing, translating into a reduction in rent constant.
What are the Advantages, Disadvantages, and Hurdles?
The main advantages are a customized building, newly built, and specifically designed for the business with a pre-negotiated rental constant and locked in place for many years.
However, depending on a tenant’s business approach, the longer-term lease may be a drawback as it requires a client to commit as a tenant for longer period. The client must be able to accurately forecast future growth to ensure the BTS will meet long-term needs.
More so, one of the major hurdlers in build to suit development is the upfront costs of construction which requires the client and soon to be tenant to have excellent credit to obtain financing. The lender will want to know that the company that signed the lease will be sufficient for rent for the entire term.
Build to suit developments are considered the most sought after and universally beneficial project delivery methods in the commercial real estate industry. Although there are many moving parts that must come together for a Build to Suit to come to fruition, when completed, they are truly an ‘everyone wins’ situation. Furthermore, we understand that developing build to suit properties implies working to fully meet the operational needs of our clients. As a result, our goal is to always make sure we deliver the best solutions for our clients on every project- turning their vision into a reality!
We Turn Your Vision Into A Reality
The key strength of SCGWest is the quality of the individual team members and the ability to form a team perfectly suited to any project with knowledge, competency, and experience unrivaled by our competitors.