What Does "Build to Suit" Mean?
Build to suit is an option where a landowner agrees to build a facility to the specifications of a prospective tenant, who signs a lease agreement to occupy the property once it is complete. This is a long-term arrangement, as the owner needs to make a considerable investment in the process, and if the custom features of the building are very unique, it may be difficult to find a replacement tenant. Developers usually offer a build to suit option for commercial spaces, although some may build schools and other facilities by request.
Developers who offer this lease option typically advertise it in trade publications and real estate magazines. It is common to place a sign on the land advertising that it is available for a build to suit lease. The tenant can contact the developer to work out a contract. Once the terms are satisfactory for everyone involved, the developer can break ground to construct the building and turn it over to the tenant for use once it is complete.
For tenants, there are a number of advantages to this type of leasing. One is the ability to develop a customized facility to precisely meet needs, with a layout tailored to the company's mission and activities. This can be valuable in the long term, especially when contrasted with the alternative of trying to make a generic building work. Companies may find it easier to expand and reconfigure their operations when they have a customized building to work with.
There may be reasons why a company does not want to own a property. Real estate can be expensive, and building structures requires a substantial investment that may be difficult to finance. In addition, the developer retains the responsibility for maintenance in many build to suit contracts, allowing the tenant to focus on using the space. Leasing a build to suit structure may be more expensive, but the advantages could outweigh this.
Developers get a committed tenant who will maintain occupancy, allowing the developer to recoup investment costs associated with buying the property and building the structure. This can be a significant benefit in regions where tenant turnover tends to be high.
The terms of a build to suit agreement can vary considerably. All parties should review the contract with care and request any necessary changes before agreeing. Contract negotiations usually require legal services to represent the interests of everyone involved.
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