What is a Build-to-Suit Lease? (#1) · Issues · Barry Newell / 7venoaks

What is a Build-to-Suit Lease?

Build to Suit (BTS) is a solution for companies that wish to occupy purpose-built residential or commercial property without owning it. In this article, we cover:

- What is a Build-to-Suit Lease?

How Do BTS Leases Work?
New Build to Suit Accounting Rules (2016 )
Benefits and drawbacks
How to Arrange Financing
Frequently Asked Questions
Recent News & Related Articles

What Does Build to Suit Mean?

Build to match is an arrangement in which a property owner constructs a structure for a sole occupant. The resulting free-standing building meets the particular requirements of the occupant.

Typically, companies of all sizes arrange BTS genuine estate agreements to efficiently acquire and control custom centers. In reality, many industrial structures and retail residential or commercial properties are BTS, although any kind of business property is possible.

How Do Build to Suit Leases Work?

A construct to suit lease is a long-lasting commitment in between a landlord and a tenant.

How To Start a BTS Real Estate Project

The BTS process can begin in a few ways. For instance, these include:

- A potential renter can seek out a landlord to construct a building according to the tenant's specifications. Thereafter, the renter participates in a long-lasting lease with the property owner.
A landowner may market land that it will build out to support a BTS lease. An interested business can contact the landowner to organize a build to match lease agreement.
In a reverse BTS, the potential tenant constructs the building. Typically, the property owner funds the project, but the tenant runs the task. Then, the occupant takes occupancy of the building as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes sense when the renter has specific building and construction proficiency in the kind of center it desires.

Typically, the proprietor owns the land or has a ground lease on it. Upon lease expiration, the construct to fit agreement enables the property manager to re-let the residential or commercial property to a different renter.

Components of a Build to Suit Lease Arrangement

Essentially, a BTS arrangement includes 2 components:

Development Agreement: The developer accepts build or obtain and redevelop a structure on behalf of the occupant. The agreement arises from the renter providing an ask for proposition (RFP) to one or more developers. The advancement arrangement defines the relationship between the property owner and the occupant. That is, the contract specifies the style of the residential or commercial property, who will develop it and who will finance it. Typically, the occupant will take sole tenancy of the residential or commercial property, however often other renters will share the building. The building element is the chief and most complex concern in a BTS contract. Lease Agreement: The BTS lease specifies the regards to occupancy once the designer finishes building and construction. Sometimes, the lease itself will define the building and construction provisions straight or through an accompanying work letter.

The Roles of BTS Participants

A develop to match lease is a major endeavor for the property manager and renter. Clearly, they will be handling each other over a prolonged duration. Therefore, the BTS arrangement should carefully think about each individual's duties:

Landlord: The property manager should assess the renter's creditworthiness. Also, it must understand the needs of the renter as a guide to style and construction. Frequently, the proprietor needs a guarantee and money security from the occupant. The proprietor needs to define whether it or the occupant will lead the construction job. Furthermore, the property owner will want a long-enough lease term so that it can recover its financial investment. Tenant: The occupant develops the RFP. It should evaluate whether the landlord has the technical expertise and financial resources to deliver on time. The assessment will consist of the proprietor's prior BTS realty experience, track record, and structure. The tenant needs to choose whether it wishes to direct the building of the structure or leave it to the property owner. It may also require warranties and/or a letter of credit to guarantee the financing of the building component.

Both parties will wish to offer input relating to the choice of architects, engineers, and specialists.

BTS Request for Proposal

The occupant produces the ask for proposal and distributes it to one or more developers. Typically, the RFP will address:

- Usings the residential or commercial property
The area needed
A calendar timeline for construction and occupancy
The rent variety that the occupant will accept
Design criteria and information

Usually, the tenant disperses the RFP to numerous residential or commercial property owners/developers. It becomes more complicated if the occupant desires a specific website for the building. Because case, the landowner might be the sole recipient of the RFP. Naturally, the landowner has more impact if the occupant wishes to develop on the owner's land.

What is Build-to-Suit Financing?

A. Negotiating the Deal

Once the tenant picks the winning RFP respondent, severe negotiations can start. Normally, the process involves submissions from the property owner's designers that specify the design strategies.

In return, the occupant's space coordinators and specialists examine the strategy and work out changes. A natural tension is inevitable. On the one hand, the occupant wants an area completely fit to its needs. On the other hand, the property manager requires to balance the tenant's needs with the schedule of job financing. The proprietor should also consider how quickly it can re-let the residential or commercial property once the initial lease expires.

Eventually, the develop to match lease arrangement emerges from the negotiation process. It defines as much information as possible about the building construction, the duties of each celebration, and the lease terms. For instance, the arrangement may require the proprietor to construct a structure shell that the renter finishes.

Alternatively, the property owner may have to fit out a turn-key residential or commercial property in move-in condition. If the property owner delivers just a shell, the contract must specify how the 2 teams interface at the turnover time. The occupant can avoid this concern by accepting utilize the property manager's developer for the ending up phase.

B. Timetable and Deliverables

Naturally, the develop to suit contract should define a task schedule and turn-over duration. Specifically, the arrangement will mention the shipment details and move-in date.

The expiration of the tenant's existing lease might produce the requirement for a set move-in date. For that factor, the parties should work backwards from the needed move-in date to set the timetable and milestones. Typical milestones include protecting the funding, breaking ground, putting concrete for the foundation and setting up the structural steel.

Potential Delays

Delays can be really expensive. The renter might reserve the right to desert the offer if hold-ups go beyond a set date. For instance, the landlord might find it hard to finance the job, delaying its start. Other sources of delays consist of obtaining licenses, zone variations, and evaluations.

Perhaps an unforeseen catastrophe will make it difficult to acquire structure products when needed. Or a labor action by the building and construction crew might shut down the project. Moreover, environmental groups might file claims that stop construction.

Indeed, the chances for hold-up are immense, and the BTS arrangement ought to deal with solutions upfront. The contract may specify charges that will considerably spur on the designer. The tenant may discover brand-new methods to inspire the property manager.

C. Rent

The build to suit lease agreement will specify the occupant's standard rental rate. The basic rate depend upon the land worth, the expense of building, and the property owner's needed rate of return.

Sometimes the contract will enable modifications to the rate if building costs go beyond expectations. The occupant might request change orders that contribute to the cost of building and construction and increase the last rent. If the renter plays hardball on any rent increases, the project budget and scope need to be exceptionally detailed.

The arrangement must define the modification order process and the property manager's right to authorize. The proprietor might withstand any changes that add construction expenses without a corresponding rent increase.

Alternatively, the arrangement might define that the tenant spends for any accepted change orders. The agreement must also relieve the landlord of penalties due to delays originating from change orders.

D. Other Lease Considerations

Certain other issues need factor to consider when working out a BTS lease:

Commencement Date vs Construction Date: The proprietor may desire the BTS lease to define a start date for the renter to start paying lease. However, the renter may demand delaying any lease payments up until building is complete. Right to Purchase: Some occupants may want the option to purchase the residential or commercial property throughout the lease period. At the least, the renter might desire the right of very first offer to a proposed sale. Moreover, the tenant may request the right to match any purchase quote. The landlord may agree to these occupant rights as long as it does not minimize the best asking price. Space Migration: In many cases, the BTS residential or commercial property is part of a business park. The occupant might be worried about broadening the amount of space it occupies later. Therefore, the arrangement may include an option for a brand-new construction phase. Alternatively, if the tenant has excessive space, the lease must attend to subletting the residential or commercial property. Warranties: The contract should resolve the warrantied expense of building problems and shortages. The lease must specify the guarantee responsibilities for faulty design, construction or products. What is Build-to-Suit Financing?

Build to Suit Lease Accounting

The Financial Account Standards Board (FASB) recently released new accounting requirements for leases (Topic 842). The new requirements cover BTS leases, which in some cases use sale-and-leaseback accounting.

If the occupant (lessee) controls the property during the construction phase before lease start, it is the property owner. Upon conclusion of building and construction, the renter sells the residential or commercial property to the property owner and leases it back. The lessee owns the residential or commercial property if any of the following are real:

- The lessee can purchase the residential or commercial property throughout construction.
The lessor (property manager) has the right to collect payment for work carried out and has no other usage for the residential or commercial property.
Lessee owns either the land and residential or commercial property enhancements, or the non-real-estate properties under building and construction.
The lessee manages the land and does not rent it to the lessor or another party before building and construction starts.
A lessee rents the land for a duration that reflects the considerable financial life of the residential or commercial property enhancement. The lessee does not sublease the land before building and construction starts and before enjoying the residential or commercial property's financial life.

Under these scenarios, the lessee is the property's considered owner during building and construction. Therefore, it must represent construction-in-progress using ASC 360 - Residential Or Commercial Property, Plant and Equipment. The rule needs the lessee to presume duty for the building and construction costs via a deemed loan from the lessor. When building and construction ends, the lessee follows the sale and leaseback accounting guidelines.

On the other hand, if the lessee is not the deemed owner of the possession throughout building, it does not apply sale and leaseback treatment. Instead, it treats payments it makes to utilize the possession as lease payments.

For detailed info about develop to match lease accounting, seek guidance from your accounting and legal consultants.

Benefits and drawbacks of BTS Real Estate

The pros of build to match leasing often surpass the cons.

Pros of BTS Real Estate

Capital: The tenant need not assign the capital essential to build the residential or commercial property itself. The property owner gets to put its capital to work in return for long-term lease income. Location: The tenant can select its area instead of picking from offered stock. It can pick a location in a high-growth location with easy gain access to. The proprietor makes use of the land it owns without any danger that a new residential or commercial property will sit uninhabited. Efficiency: The occupant defines the building size so that it's perfect for its needs. Furthermore, it can require high energy performance through modern equipment and technology. The property manager can utilize its participation with a green task to burnish its credibility. Branding: The occupant might take advantage of a structure that shows its personality and image. The tenant can select the architectural design, finishes and colors to amplify its image. Risk: The tenant may be able to leave the lease if the construction falls significantly behind. The landlord take advantage of a locked-in long-lasting lease as soon as building is total. Taxes: The tenant's lease payments are completely deductible over the life of the lease. Cons of BTS Real Estate

Commitment: The occupant sustains a long-term commitment that is difficult to leave before the term expires. Typical lease periods run 10 years or longer. Financing: Typically, the lessee requires to demonstrate it is sufficiently creditworthy to manage a long-term lease dedication. Cost: It's less expensive for the renter to discover and rent uninhabited space. Many business can not manage to spend for develop to fit real estate. Time: It takes longer to build a building than to lease space from an existing one. How Assets America ® Can Help

Assets America ® can set up funding for your BTS job beginning at $10 million, with no ceiling. We invite you to contact us for more details for our complete monetary services.

We can help make your BTS job possible through our network of and banks. For the best in BTS financing, Assets America ® is the smart choice.

What is a ground lease vs. construct to suit?

In a ground lease, the occupant rents the underlying land instead of the residential or commercial property. In a develop to match lease contract, the landlord owns the land and the occupant leases the structure built on the land.

What does construct to suit residential suggest?

Often, build to fit describes industrial residential or commercial properties. However, it is possible to enter into a build to match agreement for a multifamily house. Then, the occupant subleases the units to subtenants.

What is a reverse construct to fit?

A reverse build to fit is when the occupant supervises the building and construction of the residential or commercial property. Reverse BTS is useful when the renter has unique know-how in constructing the kind of residential or commercial property included. Typically, the landlord funds the reverse BTS deal.

Is a build-to-suit lease arrangement right for me?

It may make good sense for landlords who have uninhabited land they wish to develop. The BTS agreement reduces the threat of developing the land since the lease is locked-in. Tenants preserve capital through a BTS lease agreement.

Recent BTS News

If you're interested in news short articles about current BTS advancements, you can check out this $75 million build-to-suit investment or this build to suit fulfillment center for Amazon. Additionally, you can have a look at this build-to-suit industrial building in Janesville or these office tenants demanding develop to suit leases.

Build to Suit (BTS) is a solution for companies that wish to occupy purpose-built residential or commercial property without owning it. In this article, we cover: 
 - What is a Build-to-Suit Lease?
- How Do BTS Leases Work?
- New Build to Suit Accounting Rules (2016 )
- Benefits and drawbacks
- How to Arrange Financing
- Frequently Asked Questions
- Recent News & Related Articles 
 What Does Build to Suit Mean? 
 Build to match is an arrangement in which a property owner constructs a structure for a sole occupant. The resulting free-standing building meets the particular requirements of the occupant. 
 Typically, companies of all sizes arrange BTS genuine estate agreements to efficiently acquire and control custom centers. In reality, many industrial structures and retail residential or commercial properties are BTS, although any kind of business property is possible. 
 How Do Build to Suit Leases Work? 
 A construct to suit lease is a long-lasting commitment in between a landlord and a tenant. 
 How To Start a BTS Real Estate Project 
 The BTS process can begin in a few ways. For instance, these include: 
 - A potential renter can seek out a landlord to construct a building according to the tenant's specifications. Thereafter, the renter participates in a long-lasting lease with the property owner.
- A landowner may market land that it will build out to support a BTS lease. An interested business can [contact](https://venturahomestexas.com) the landowner to organize a build to match lease agreement.
- In a reverse BTS, the potential tenant [constructs](https://theeasternacres.com) the building. Typically, the property owner funds the project, but the [tenant runs](https://movingsoon.co.uk) the task. Then, the occupant takes occupancy of the building as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes sense when the renter has specific building and construction proficiency in the kind of center it desires. 
 Typically, the proprietor owns the land or has a ground lease on it. Upon lease expiration, the construct to fit agreement enables the property manager to re-let the residential or commercial property to a different renter. 
 Components of a Build to Suit Lease Arrangement 
 Essentially, a BTS arrangement includes 2 components: 
 Development Agreement: The developer accepts build or obtain and redevelop a structure on behalf of the occupant. The agreement arises from the renter providing an ask for proposition (RFP) to one or more developers. The advancement arrangement defines the relationship between the property owner and the occupant. That is, the contract specifies the style of the residential or commercial property, who will develop it and who will finance it. Typically, the occupant will take sole tenancy of the residential or commercial property, however often other renters will share the building. The building element is the chief and most complex concern in a BTS contract.
Lease Agreement: The BTS lease specifies the regards to occupancy once the designer finishes building and construction. Sometimes, the lease itself will define the building and construction provisions straight or through an accompanying work letter. 
 The Roles of BTS Participants 
 A develop to match lease is a major endeavor for the property manager and renter. Clearly, they will be handling each other over a prolonged duration. Therefore, the BTS arrangement should carefully think about each individual's duties: 
 Landlord: The property manager should assess the renter's creditworthiness. Also, it must understand the needs of the renter as a guide to style and construction. Frequently, the proprietor needs a guarantee and [money security](https://cartagenafincaraiz.com) from the occupant. The proprietor needs to define whether it or the occupant will lead the construction job. Furthermore, the property owner will want a long-enough lease term so that it can recover its financial investment.
Tenant: The occupant develops the RFP. It should evaluate whether the landlord has the technical expertise and financial resources to deliver on time. The assessment will consist of the proprietor's prior BTS realty experience, track record, and [structure](https://divinerealty.online). The tenant needs to choose whether it wishes to direct the building of the structure or leave it to the property owner. It may also require warranties and/or a letter of credit to guarantee the financing of the building component. 
 Both parties will wish to offer input relating to the choice of architects, engineers, and specialists. 
 BTS Request for Proposal 
 The occupant produces the ask for proposal and distributes it to one or more developers. Typically, the RFP will address: 
 - Usings the residential or commercial property
- The area needed
- A calendar timeline for construction and occupancy
- The rent variety that the occupant will accept
- Design criteria and information 
 Usually, the tenant disperses the RFP to numerous residential or commercial property owners/developers. It becomes more complicated if the occupant desires a specific website for the building. Because case, the landowner might be the sole recipient of the RFP. Naturally, the landowner has more impact if the occupant wishes to develop on the owner's land. 
 What is Build-to-Suit Financing? 
 A. Negotiating the Deal 
 Once the tenant picks the winning RFP respondent, severe negotiations can start. Normally, the [process involves](https://ivoryafrica.com) [submissions](https://bauerwohnen.com) from the property owner's designers that specify the design strategies. 
 In return, the occupant's space coordinators and specialists examine the strategy and work out changes. A natural tension is inevitable. On the one hand, the occupant wants an area completely fit to its needs. On the other hand, the property manager requires to balance the tenant's needs with the schedule of job financing. The proprietor should also consider how quickly it can re-let the residential or commercial property once the initial lease expires. 
 Eventually, the develop to match lease arrangement emerges from the negotiation process. It defines as much information as possible about the building construction, the duties of each celebration, and the lease terms. For instance, the arrangement may require the proprietor to [construct](https://easybreezybnb.com) a structure shell that the renter finishes. 
 Alternatively, the property owner may have to fit out a turn-key residential or commercial property in move-in condition. If the property owner delivers just a shell, the contract must specify how the 2 teams interface at the turnover time. The occupant can avoid this concern by accepting utilize the property manager's developer for the ending up phase. 
 B. Timetable and Deliverables 
 Naturally, the develop to suit contract should define a task schedule and turn-over duration. Specifically, the arrangement will mention the shipment details and move-in date. 
 The expiration of the tenant's existing lease might produce the requirement for a set move-in date. For that factor, the parties should work backwards from the needed move-in date to set the timetable and milestones. Typical milestones include protecting the funding, breaking ground, putting concrete for the foundation and setting up the structural steel. 
 Potential Delays 
 Delays can be really expensive. The renter might reserve the right to desert the offer if hold-ups go beyond a set date. For instance, the landlord might find it hard to finance the job, delaying its start. Other sources of delays consist of obtaining licenses, zone variations, and evaluations. 
 Perhaps an unforeseen catastrophe will make it difficult to acquire structure products when needed. Or a labor action by the building and construction crew might shut down the project. Moreover, environmental groups might file claims that stop construction. 
 Indeed, the chances for hold-up are immense, and the BTS arrangement ought to deal with solutions upfront. The contract may specify charges that will considerably spur on the designer. The tenant may discover brand-new methods to inspire the property manager. 
 C. Rent 
 The build to suit lease agreement will specify the occupant's standard rental rate. The basic rate depend upon the land worth, the expense of building, and the [property owner's](https://fourfrontestates.com) needed rate of return. 
 Sometimes the contract will enable modifications to the rate if building costs go beyond expectations. The occupant might request change orders that contribute to the cost of building and construction and increase the last rent. If the renter plays hardball on any rent increases, the project budget and scope need to be exceptionally detailed. 
 The arrangement must define the modification order process and the property manager's right to authorize. The proprietor might withstand any changes that add construction expenses without a corresponding rent increase. 
 Alternatively, the arrangement might define that the tenant spends for any accepted change orders. The agreement must also relieve the landlord of penalties due to delays originating from change orders. 
 D. Other Lease Considerations 
 Certain other issues need factor to consider when working out a BTS lease: 
 Commencement Date vs Construction Date: The proprietor may desire the BTS lease to define a start date for the renter to start paying lease. However, the renter may demand delaying any lease payments up until building is complete.
Right to Purchase: Some occupants may want the option to purchase the residential or commercial property throughout the lease period. At the least, the renter might desire the right of very first offer to a proposed sale. Moreover, the tenant may request the right to match any purchase quote. The landlord may agree to these occupant rights as long as it does not minimize the best asking price.
Space Migration: In many cases, the BTS residential or commercial property is part of a business park. The occupant might be worried about broadening the amount of space it occupies later. Therefore, the arrangement may include an option for a brand-new construction phase. Alternatively, if the tenant has excessive space, the lease must attend to subletting the residential or commercial property.
Warranties: The contract should resolve the warrantied expense of building problems and shortages. The lease must specify the guarantee responsibilities for faulty design, construction or products.
What is Build-to-Suit Financing? 
 Build to Suit Lease Accounting 
 The Financial Account Standards Board (FASB) recently released new accounting requirements for leases (Topic 842). The new requirements cover BTS leases, which in some cases use sale-and-leaseback accounting. 
 If the occupant (lessee) controls the property during the construction phase before lease start, it is the property owner. Upon conclusion of building and construction, the renter sells the residential or commercial property to the property owner and leases it back. The lessee owns the residential or commercial property if any of the following are real: 
 - The lessee can purchase the residential or commercial property throughout construction.
- The lessor (property manager) has the right to collect payment for work carried out and has no other usage for the residential or commercial property.
- Lessee owns either the land and residential or commercial property enhancements, or the non-real-estate properties under building and construction.
- The lessee manages the land and does not rent it to the lessor or another party before building and construction starts.
- A lessee rents the land for a duration that reflects the considerable financial life of the residential or commercial property enhancement. The lessee does not sublease the land before building and construction starts and before enjoying the residential or commercial property's financial life. 
 Under these scenarios, the lessee is the property's considered owner during building and construction. Therefore, it must represent construction-in-progress using ASC 360 - Residential Or Commercial Property, Plant and Equipment. The rule needs the lessee to presume duty for the building and [construction costs](https://atofabproperties.com) via a deemed loan from the lessor. When building and construction ends, the lessee follows the sale and leaseback accounting guidelines. 
 On the other hand, if the lessee is not the deemed owner of the possession throughout building, it does not apply sale and leaseback treatment. Instead, it treats payments it makes to utilize the possession as lease payments. 
 For detailed info about develop to match lease accounting, seek guidance from your accounting and legal consultants. 
 Benefits and drawbacks of BTS Real Estate 
 The pros of build to match leasing often surpass the cons. 
 Pros of BTS Real Estate 
 Capital: The tenant need not assign the capital essential to build the residential or commercial property itself. The property owner gets to put its capital to work in return for long-term lease income.
Location: The tenant can select its area instead of picking from offered stock. It can pick a location in a high-growth location with easy gain access to. The proprietor makes use of the land it owns without any danger that a new residential or commercial property will sit uninhabited.
Efficiency: The occupant defines the building size so that it's perfect for its needs. Furthermore, it can require high energy performance through modern equipment and technology. The property manager can utilize its participation with a green task to burnish its credibility.
Branding: The occupant might take advantage of a structure that shows its personality and image. The tenant can select the architectural design, finishes and colors to amplify its image.
Risk: The tenant may be able to leave the lease if the construction falls significantly behind. The landlord take advantage of a locked-in long-lasting lease as soon as building is total.
Taxes: The tenant's lease payments are completely deductible over the life of the lease.
Cons of [BTS Real](https://ilandasset.ng) Estate 
 Commitment: The occupant sustains a long-term commitment that is difficult to leave before the term expires. Typical lease periods run 10 years or longer.
Financing: Typically, the lessee requires to demonstrate it is sufficiently creditworthy to manage a long-term lease dedication.
Cost: It's less expensive for the renter to discover and rent uninhabited space. Many business can not manage to spend for develop to fit real estate.
Time: It takes longer to build a building than to lease space from an existing one.
How Assets America ® Can Help 
 Assets America ® can set up funding for your BTS job beginning at $10 million, with no ceiling. We invite you to contact us for more details for our complete monetary services. 
 We can help make your BTS job possible through our network of and banks. For the best in BTS financing, Assets America ® is the smart choice. 
 What is a ground lease vs. construct to suit? 
 In a ground lease, the occupant rents the underlying land instead of the residential or commercial property. In a develop to match lease contract, the landlord owns the land and the occupant leases the structure built on the land. 
 What does construct to suit residential suggest? 
 Often, build to fit describes industrial residential or commercial properties. However, it is possible to enter into a build to match agreement for a multifamily house. Then, the occupant subleases the units to subtenants. 
 What is a reverse construct to fit? 
 A reverse build to fit is when the occupant supervises the building and construction of the residential or commercial property. Reverse BTS is useful when the renter has unique know-how in constructing the kind of residential or commercial property included. Typically, the landlord funds the reverse BTS deal. 
 Is a build-to-suit lease arrangement right for me? 
 It may make good sense for landlords who have uninhabited land they wish to develop. The BTS agreement reduces the threat of developing the land since the lease is locked-in. Tenants preserve capital through a BTS lease agreement. 
 Recent BTS News 
 If you're interested in news short articles about current BTS advancements, you can check out this $75 million build-to-suit investment or this build to suit fulfillment center for Amazon. Additionally, you can have a look at this build-to-suit industrial building in Janesville or these office tenants demanding develop to suit leases.