Build To Suit: Is This Commercial Real Estate Venture Right For You?

Posted on: 18 November 2018

Specific features, such as property location, size, and layout, can make all the difference in whether or not your business venture will be successful. But finding an existing property to lease that has all or most of these features can be difficult or even impossible, especially during periods when your local commercial real estate market is growing. 

One way to potentially solve this dilemma is to consider a built to suit property, instead of a more traditional style lease. 

What is a build to suit lease? 

Build to suit leasing is defined as when a property owner or developer constructs or remodels a property to meet the specific needs of a lessee. There are usually some stipulations involved, including a minimum leasing term, often of ten years or longer. 

What type of lease is typical in a build to suit lease? 

While the exact terms can be different, based on the actual agreement made between the developer and the lessee, most build to suit arrangements utilize a net lease. In a net lease arrangement, the tenant, or lessee, is responsible for management and operational costs of the property during their lease term.

Developers typically insist upon longer term net leases for build to suit properties in order to reduce risk and make the project more financially feasible for the developer and landlord, as well as the tenant. 

What disadvantages should prospective lessees be aware of? 

The longer term of the average build to suit property lease can be a disadvantage to lessees who are struggling to grow their business and lack the margin needed to absorb down periods. 

Lessees interested in build to suit must also have a strong financial foundation with excellent credit, both of which can be difficult for newer business owners. 

Time frames for completion can also be a disadvantage for those interested in a build to suit arrangement. Because the construction process typically begins with a bare lot, it can take months or even a year or more to design and complete a build to suit property to meet the lessees needs. 

What advantages are involved in a build to suit arrangement? 

Lessees who choose a build to suit commercial real estate deal will be able to enjoy a custom built location for their business that will allow them to move in and be up and running without renovations and repairs when they take occupancy.

To learn more about build to suit commercial real estate options in your area, business owners should make an appointment to meet with a successful commercial real estate brokerage in their area.