Build to Suit (BTS) is a service for businesses that want to occupy purpose-built residential or commercial property without owning it. In this post, we cover:

- What is a Build-to-Suit Lease?

• How Do BTS Leases Work?
• New Build to Suit Accounting Rules (2016 )
• Pros and Cons
• How to Arrange Financing
• Frequently Asked Questions
• Recent News & Related Articles
  bloglines.com
  What Does Build to Suit Mean?
  
  Build to suit is an arrangement in which a property owner constructs a building for a sole renter. The resulting free-standing building fulfills the specific requirements of the occupant.
  
  Typically, businesses of all sizes set up BTS realty arrangements to effectively obtain and control custom-made centers. In truth, many industrial buildings and retail residential or are BTS, although any type of commercial property is possible.
  
  How Do Build to Suit Leases Work?
  
  A construct to suit lease is a long-lasting commitment between a landlord and a tenant.
  
  How To Start a BTS Real Estate Project
  
  The BTS process can start in a few methods. For example, these include:
  
  - A prospective renter can look for out a proprietor to construct a building according to the renter's specs. Thereafter, the occupant enters into a long-lasting lease with the property manager.
• A landowner might advertise land that it will develop out to support a BTS lease. An interested business can call the landowner to arrange a develop to suit lease contract.
• In a reverse BTS, the potential occupant constructs the structure. Typically, the proprietor finances the task, but the occupant runs the job. Then, the tenant takes occupancy of the structure as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes sense when the renter has particular building and construction proficiency in the type of facility it desires.
  
  Typically, the landlord owns the land or has a ground lease on it. Upon lease expiration, the develop to match arrangement enables the property manager to re-let the residential or commercial property to a different occupant.
  
  Components of a Build to Suit Lease Arrangement
  
  Essentially, a BTS plan consists of two elements:
  
  Development Agreement: The developer concurs to construct or obtain and redevelop a structure on behalf of the tenant. The arrangement arises from the occupant releasing a request for proposal (RFP) to several developers. The advancement arrangement specifies the relationship between the property manager and the tenant. That is, the agreement specifies the design of the residential or commercial property, who will build it and who will fund it. Typically, the tenant will take sole tenancy of the residential or commercial property, however often other renters will share the building. The building component is the chief and most complicated concern in a BTS agreement. Lease Agreement: The BTS lease specifies the terms of tenancy once the designer finishes building and construction. Sometimes, the lease itself will specify the building provisions straight or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A develop to suit lease is a major undertaking 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 responsibilities:
  
  Landlord: The landlord should assess the renter's creditworthiness. Also, it should understand the requirements of the renter as a guide to design and building and construction. Frequently, the property owner needs a warranty and cash security from the tenant. The property owner needs to define whether it or the occupant will lead the construction project. Furthermore, the proprietor will want a long-enough lease term so that it can recover its financial investment. Tenant: The tenant establishes the RFP. It needs to evaluate whether the property owner has the technical expertise and monetary resources to deliver on time. The examination will include the property manager's previous BTS realty experience, track record, and structure. The tenant needs to choose whether it wishes to direct the construction of the structure or leave it to the property manager. It might likewise need assurances and/or a letter of credit to guarantee the financing of the building and construction part.
  
  Both parties will wish to offer input relating to the selection of designers, 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 resolve:
  
  - Making uses of the residential or commercial property
• The area required
• A calendar timeline for building and construction and occupancy
• The rent variety that the renter will accept
• Design specifications and information
  
  Usually, the occupant distributes the RFP to multiple residential or commercial property owners/developers. It becomes more complex if the occupant wants a specific website for the building. Because case, the landowner might be the sole recipient of the RFP. Naturally, the landowner has more influence if the occupant wishes to construct on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the tenant picks the winning RFP participant, serious settlements can begin. Normally, the procedure includes submissions from the proprietor's architects that define the design strategies.
  
  In return, the renter's space planners and experts review the strategy and negotiate modifications. A natural stress is inevitable. On the one hand, the renter wants an area completely fit to its requirements. On the other hand, the landlord needs to balance the occupant's requirements with the accessibility of project financing. The property manager needs to also think about how easily it can re-let the residential or commercial property once the preliminary lease expires.
  
  Eventually, the construct to match lease contract emerges from the negotiation process. It specifies as much information as possible about the structure construction, the duties of each party, and the lease terms. For example, the agreement may require the property owner to build a building shell that the renter finishes.
  
  Alternatively, the landlord might need to fit out a turn-key residential or commercial property in move-in condition. If the property owner provides only a shell, the arrangement must specify how the 2 groups interface at the turnover time. The renter can prevent this issue by accepting utilize the property owner's developer for the ending up stage.
  
  B. Timetable and Deliverables
  
  Obviously, the build to suit contract should define a task timetable and turn-over duration. Specifically, the arrangement will specify the delivery information and move-in date.
  
  The expiration of the occupant's existing lease may create the requirement for a set move-in date. For that factor, the celebrations must work backward from the required move-in date to set the timetable and turning points. Typical turning points include securing the financing, beginning, pouring concrete for the foundation and setting up the structural steel.
  
  Potential Delays
  
  Delays can be really costly. The renter might reserve the right to abandon the deal if hold-ups surpass a set date. For instance, the property owner might discover it difficult to fund the task, postponing its start. Other sources of delays consist of obtaining authorizations, zone variances, and evaluations.
  
  Perhaps an unexpected catastrophe will make it impossible to get building products when required. Or a labor action by the building and construction team might shut down the task. Moreover, environmental groups may submit lawsuits that stop building.
  
  Indeed, the chances for delay are immense, and the BTS arrangement should resolve solutions in advance. The agreement may define penalties that will greatly stimulate on the developer. The tenant might find brand-new methods to motivate the property owner.
  
  C. Rent
  
  The build to match lease contract will specify the tenant's basic rental rate. The basic rate depend upon the land value, the expense of construction, and the property manager's needed rate of return.
  
  Sometimes the contract will allow adjustments to the rate if building costs exceed expectations. The tenant might request modification orders that contribute to the expense of building and construction and increase the final lease. If the occupant plays hardball on any rent increases, the task spending plan and scope should be extremely detailed.
  
  The arrangement should specify the change order process and the landlord's right to authorize. The property owner may resist any changes that add building expenses without a matching rent increase.
  
  Alternatively, the arrangement may define that the renter spends for any approved modification orders. The arrangement needs to also relieve the property manager of penalties due to hold-ups coming from modification orders.
  
  D. Other Lease Considerations
  
  Certain other concerns need factor to consider when working out a BTS lease:
  
  Commencement Date vs Construction Date: The property manager may want the BTS lease to specify a commencement date for the occupant to start paying lease. However, the tenant may demand postponing any rent payments till building and construction is complete. Right to Purchase: Some occupants might desire the choice to buy the residential or commercial property throughout the lease duration. At the least, the renter might want the right of first offer to a proposed sale. Moreover, the occupant might ask for the right to match any purchase quote. The proprietor may consent to these renter rights as long as it does not lower the best asking price. Space Migration: In some cases, the BTS residential or commercial property is part of a business park. The occupant might be concerned about expanding the amount of space it occupies later on. Therefore, the agreement might consist of an option for a new construction stage. Alternatively, if the renter has excessive area, the lease needs to address subletting the residential or commercial property. Warranties: The contract needs to attend to the warrantied expense of construction problems and deficiencies. The lease needs to specify the warranty responsibilities for defective style, building or products. What is Build-to-Suit Financing?
  
  Build to Suit Lease Accounting
  
  The Financial Account Standards Board (FASB) just recently provided new accounting requirements for leases (Topic 842). The new requirements cover BTS leases, which often use sale-and-leaseback accounting.
  
  If the occupant (lessee) controls the asset during the building and construction stage before lease commencement, it is the possession owner. Upon completion of building and construction, the occupant offers the residential or commercial property to the proprietor and leases it back. The lessee owns the residential or commercial property if any of the following hold true:
  
  - The lessee deserves to buy the residential or commercial property throughout building and construction.
• The lessor (property owner) deserves to collect payment for work carried out and has no other use for the residential or commercial property.
• Lessee owns either the land and residential or commercial property enhancements, or the non-real-estate assets under building.
• The lessee manages the land and doesn't rent it to the lessor or another celebration before construction starts.
• A lessee leases the land for a period that reflects the significant financial life of the residential or commercial property improvement. The lessee does not sublease the land before building and construction starts and before enjoying the residential or commercial property's economic life.
  
  Under these scenarios, the lessee is the possession's deemed owner during building. Therefore, it must represent construction-in-progress utilizing ASC 360 - Residential Or Commercial Property, Plant and Equipment. The guideline needs the lessee to presume responsibility for the construction costs via a considered loan from the lessor. When building 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 during building and construction, it does not use sale and leaseback treatment. Instead, it treats payments it makes to utilize the asset as lease payments.
  
  For detailed info about develop to match lease accounting, look for assistance from your accounting and legal consultants.
  
  Benefits and drawbacks of BTS Real Estate
  
  The pros of develop to match leasing frequently exceed the cons.
  
  Pros of BTS Real Estate
  
  Capital: The renter need not allocate the capital required to build the residential or commercial property itself. The property owner gets to put its capital to work in return for long-lasting lease earnings. Location: The renter can select its place instead of picking from readily available stock. It can select a place in a high-growth area with simple gain access to. The proprietor exploits the land it owns without any threat that a brand-new residential or commercial property will sit uninhabited. Efficiency: The renter defines the building size so that it's perfect for its needs. Furthermore, it can demand high energy performance through modern-day devices and technology. The property manager can use its involvement with a green job to burnish its track record. Branding: The renter may gain from a building that reflects its personality and image. The tenant can pick the architectural design, surfaces and colors to magnify its image. Risk: The renter may be able to leave the lease if the construction falls substantially behind. The property manager benefits from a locked-in long-lasting lease when building is complete. Taxes: The occupant's lease payments are totally deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The occupant sustains a long-term dedication that is not simple to exit before the term ends. Typical lease periods run ten years or longer. Financing: Typically, the lessee requires to demonstrate it is adequately creditworthy to manage a long-lasting lease dedication. Cost: It's more affordable for the tenant to discover and rent vacant space. Many companies can not afford to pay for construct to match property. Time: It takes longer to build a building than to rent area from an existing one. How Assets America ® Can Help
  
  Assets America ® can set up funding for your BTS task beginning at $10 million, with no upper limit. We welcome you to call us for more details for our total monetary services.
  
  We can assist make your BTS job possible through our network of personal financiers and banks. For the very best in BTS funding, Assets America ® is the clever option.
  
  What is a ground lease vs. build to match?
  
  In a ground lease, the tenant rents the hidden land instead of the residential or commercial property. In a develop to suit lease arrangement, the landlord owns the land and the occupant rents the building constructed on the land.
  
  What does build to match property indicate?
  
  Usually, build to suit describes industrial residential or commercial properties. However, it is possible to get in into a build to suit arrangement for a multifamily home. Then, the tenant subleases the units to subtenants.
  
  What is a reverse construct to fit?
  
  A reverse construct to fit is when the renter oversees the building of the residential or commercial property. Reverse BTS works when the occupant has special proficiency in building the kind of residential or commercial property involved. Typically, the landlord finances the reverse BTS offer.
  
  Is a build-to-suit lease arrangement right for me?
  
  It may make good sense for property owners who have vacant land they want to develop. The BTS arrangement decreases the risk of establishing the land since the lease is locked-in. Tenants maintain capital through a BTS lease contract.
  
  Recent BTS News
  
  If you're interested in news articles about recent BTS advancements, you can check out this $75 million build-to-suit financial investment or this build to match fulfillment center for Amazon. Additionally, you can have a look at this build-to-suit industrial building in Janesville or these office occupants requiring build to fit leases.