A build-to-suit commercial real estate is a way of leasing property, usually for commercial purposes, in which the developer or landlord builds to a tenant’s specifications. The landowner pays for the construction to the specifications of the tenant, and the tenant then leases the land and building from the landowner, who retains ownership. Build to suit is frequently used by tenants who wish to occupy a building of a certain type but do not wish to own the building.
This construction can range from adding minor tenant finish items to a general business office to the full design and construction of a new building particularly suited to the tenant’s business needs. Some examples of leases with a build-to-suit component (and varying levels of complexity) include minor building renovations, major renovations such as moving walls or expanding the premises, tenant finish of a shell space, cookie-cutter type construction of a standard building, such as a chain retail store or restaurant, and architectural design and construction of a special use building optimized for a particular site such as a manufacturing plant, corporate campus, or a one-of-a-kind architecturally significant office.
Typical Candidates for Build-to-Suit Projects
Various types of landlords and tenants participate in build-to-suit transactions. Although any type of tenant may want a build-to-suit facility, a typical build-to-suit tenant requires a specialized building not readily available on the market. An example is a chain retailer or restaurant that has a standard, distinctive model used for many or all of its facilities. Amazon, for example, requires its landlords to design and build facilities in accordance with an extremely specific set of specifications designed for maximum efficiency and Amazon’s particular business needs. Certain manufacturing tenants may need a specific layout to facilitate an optimal manufacturing process.
The tenant may have various related businesses that may or may not all have a presence at each of the tenant’s facilities. A tenant may have selected a unique site. The tenant may wish to have an architecturally unique building or meet certain sustainability or energy efficiency standards. A build-to-suit landlord often has both internal construction and property management divisions specializing in build-to-suit leasing. These companies may hold the completed building indefinitely or flip the property to a more traditional investor landlord following completion of construction.
Site Selection for Commercial Build to Lease Real Estate Projects
Sites for build-to-suit projects are selected in various ways. The following alternatives are some of the common situations:
A tenant often will select a new commercial development and then negotiate with the developer to determine whether the tenant’s building will be developed on a buy-own or build to-suit basis; the tenant may have done its own site search and selected a site advertised for a build-to-suit lease; the tenant may publish a request for proposals to various specialized build-to-suit developers, who may then each provide a proposal for a site selected by the developer; the tenant may select a build to-suit developer and then work in partnership with the developer to locate an appropriate site for the project;
The second one is that the tenant may select a site and then contact various build-to-suit developers for proposals to acquire and develop the site.