Definition
Build to Suit refers to an arrangement wherein a landowner finances the construction of a building that meets the specific requirements of a potential tenant. After the construction is complete, the landowner leases both the land and the newly constructed building to the tenant.
Examples
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Corporate Headquarters: A tech company requires a customized office building for its new headquarters. The company identifies a suitable plot of land and enters into a Build to Suit agreement with the landowner. The landowner finances and constructs the building per’s company specifications, and upon completion, leases the property to the company.
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Retail Store: A national retail chain wishes to expand into a new area and needs a store built to its branding and layout specifications. The chain enters a Build to Suit agreement with a local landowner who constructs the store as per the chain’s requirements and then leases it to the retailer.
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Manufacturing Facility: An automotive manufacturer needs a specific type of facility to house its assembly line. By entering into a Build to Suit agreement with a landowner, the manufacturer ensures that the new facility meets its unique specifications. Post construction, the manufacturer leases the property.
FAQs
What are the benefits of a Build to Suit arrangement?
- Customization: Tenants get a property designed to their exact specifications, which may be essential for their operations.
- Lower Initial Costs: Tenants avoid the upfront costs of purchasing land and constructing a building.
- Long-term Lease Stability: Such arrangements typically come with long-term leases, providing stability for both the tenant and the landowner.
How long does a typical Build to Suit lease last?
Lease terms can vary, but they often range from 10 to 25 years, providing long-term security for both the tenant and the landowner.
Who controls the design and construction process in a Build to Suit arrangement?
The tenant usually has significant input into the design and construction specifications to ensure the building meets their functional and aesthetic needs. The landowner works with contractors to oversee and fund the construction.
Is financial responsibility solely on the landowner?
In Build to Suit arrangements, the financial burden of construction typically rests on the landowner, who then recoups this investment through the lease agreement.
What happens if the tenant no longer needs the building?
In most cases, the tenant is still bound by the lease agreement terms. Subleasing or lease termination clauses are often negotiated in the original contract to address such scenarios.
Related Terms
- Triple Net Lease (NNN): A lease agreement where the tenant is responsible for property taxes, insurance, and maintenance costs in addition to rent.
- Ground Lease: A lease agreement where a tenant is allowed to develop a piece of property during the lease period, after which all improvements revert to the property owner.
- Corporate Relocations: Moving of a business to a new location, often involving new custom-built facilities.
- Real Estate Development: A process encompassing the purchase of land, building construction, and leasing or sale of the completed project.
Online References
Suggested Books for Further Studies
- “Commercial Real Estate Investing: From Financing to Marketing” by David M. Geltner
- “Real Estate Development: Principles and Process” by Mike E. Miles, Laurence M. Netherton, Adrienne Schmitz
- “Professional Real Estate Development: The ULI Guide to the Business” by Richard B. Peiser and Anne B. Frej
Fundamentals of Build to Suit: Real Estate Basics Quiz
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