Build to Suit (BTS) is a solution for organizations that desire 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 fit is an arrangement in which a property owner constructs a structure for a sole renter. The resulting free-standing structure meets the specific requirements of the renter.
  
  Typically, businesses of all sizes organize BTS genuine estate arrangements to efficiently get and manage custom centers. In truth, lots of commercial structures and retail residential or commercial properties are BTS, although any type of commercial genuine estate is possible.
  
  How Do Build to Suit Leases Work?
  
  A build to suit lease is a long-term dedication between a property owner and a tenant.
  
  How To Start a BTS Real Estate Project
  
  The BTS procedure can begin in a couple of methods. For instance, these include:
  
  - A potential occupant can look for a proprietor to build a structure according to the renter's specs. Thereafter, the occupant participates in a long-term lease with the landlord.
• A landowner might promote land that it will develop out to support a BTS lease. An interested business can contact the landowner to set up a develop to fit lease agreement.
• In a reverse BTS, the prospective renter constructs the structure. Typically, the landlord finances the job, however the tenant runs the job. Then, the tenant takes tenancy of the structure as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes sense when the tenant has specific construction expertise in the sort of facility it desires.
  
  Typically, the property owner owns the land or has a ground lease on it. Upon lease expiration, the build to fit contract permits the proprietor 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 parts:
  
  Development Agreement: The developer consents to construct or acquire and redevelop a structure on behalf of the tenant. The agreement results from the tenant issuing a request for proposal (RFP) to several developers. The development agreement defines the relationship between the landlord and the tenant. That is, the arrangement defines the style of the residential or commercial property, who will develop it and who will fund it. Typically, the tenant will take sole tenancy of the residential or commercial property, however sometimes other renters will share the structure. The construction component is the chief and most complex problem in a BTS agreement. Lease Agreement: The BTS lease specifies the terms of tenancy once the developer finishes building. Sometimes, the lease itself will define the construction arrangements straight or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A build to match lease is a major endeavor for the landlord and renter. Clearly, they will be handling each other over a prolonged duration. Therefore, the BTS plan should thoroughly think about each individual's responsibilities:
  
  Landlord: The landlord should assess the renter's creditworthiness. Also, it should comprehend the requirements of the renter as a guide to style and construction. Frequently, the landlord requires an assurance and money security from the renter. The proprietor must define whether it or the renter will lead the construction project. Furthermore, the property manager will desire a long-enough lease term so that it can recover its financial investment. Tenant: The renter develops the RFP. It needs to examine whether the landlord has the technical proficiency and monetary resources to provide on time. The assessment will include the property owner's previous BTS property experience, track record, and structure. The occupant should choose whether it desires to direct the construction of the structure or leave it to the property manager. It may also need assurances and/or a letter of credit to ensure the financing of the building element.
  
  Both parties will want to offer input concerning the selection of designers, engineers, and specialists.
  
  BTS Request for Proposal
  
  The tenant creates the request for proposal and disperses it to one or more developers. Typically, the RFP will address:
  
  - The usages of the residential or commercial property
• The space required
• A calendar timeline for construction and occupancy
• The rent variety that the tenant will accept
• Design criteria and details
  
  Usually, the renter distributes the RFP to numerous residential or commercial property owners/developers. It ends up being more complicated if the renter wants a particular site for the structure. Because case, the landowner might be the sole recipient of the RFP. Naturally, the landowner has more influence if the occupant desires to develop on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the tenant chooses the winning RFP respondent, serious negotiations can begin. Normally, the procedure involves submissions from the property owner's designers that specify the style plans.
  
  In return, the occupant's area coordinators and experts examine the strategy and negotiate modifications. A natural tension is inescapable. On the one hand, the renter wants an area perfectly fit to its requirements. On the other hand, the property owner requires to balance the occupant's needs with the accessibility of task financing. The property manager needs to also think about how quickly it can re-let the residential or commercial property once the initial lease expires.
  
  Eventually, the construct to suit lease contract 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 agreement might require the property manager to construct a building shell that the occupant finishes.
  
  Alternatively, the landlord might need to fit out a turn-key residential or commercial property in move-in condition. If the landlord delivers only a shell, the contract should specify how the two groups user interface at the turnover time. The occupant can prevent this issue by accepting use the property manager's developer for the finishing phase.
  
  B. Timetable and Deliverables
  
  Obviously, the build to suit contract need to specify a project schedule and turn-over duration. Specifically, the agreement will mention the shipment information and move-in date.
  
  The expiration of the tenant's existing lease might develop the need for a set move-in date. Because of that, the celebrations need to work backward from the needed move-in date to set the schedule and turning points. Typical milestones consist of securing the funding, beginning, putting concrete for the foundation and erecting the structural steel.
  
  Potential Delays
  
  Delays can be extremely pricey. The occupant might book the right to abandon the offer if hold-ups go beyond a set date. For instance, the property manager might discover it challenging to finance the job, postponing its start. Other sources of delays consist of procuring licenses, zone variances, and inspections.
  
  Perhaps an unanticipated disaster will make it difficult to obtain structure materials when required. Or a labor action by the building and construction crew may close down the job. Moreover, environmental groups may submit suits that halt building.
  
  Indeed, the opportunities for delay are tremendous, and the BTS contract should resolve solutions in advance. The contract may specify charges that will considerably spur on the developer. The renter might discover brand-new methods to encourage the landlord.
  
  C. Rent
  
  The construct to match lease contract will define the occupant's fundamental rental rate. The fundamental rate hinges on the land worth, the cost of construction, and the proprietor's required rate of return.
  
  Sometimes the agreement will enable changes to the rate if building expenses exceed expectations. The renter may request modification orders that add to the expense of building and increase the final rent. If the tenant plays hardball on any rent increases, the job budget plan and scope ought to be extremely detailed.
  
  The contract ought to specify the modification order process and the landlord's right to approve. The property owner might withstand any modifications that include building expenses without a matching rent increase.
  
  Alternatively, the arrangement might specify that the occupant pays for any accepted change orders. The arrangement should also alleviate the property owner of charges due to delays stemming from change orders.
  
  D. Other Lease Considerations
  
  Certain other concerns need consideration when working out a BTS lease:
  
  Commencement Date vs Construction Date: The property manager may desire the BTS lease to define a beginning date for the occupant to begin paying lease. However, the renter might demand postponing any rent payments until building and construction is complete. Right to Purchase: Some renters might desire the alternative to purchase the residential or commercial property throughout the lease duration. At the least, the renter might want the right of very first deal to a proposed sale. Moreover, the renter might ask for the right to match any purchase quote. The proprietor may agree to these renter rights as long as it doesn't reduce the finest selling price. Space Migration: In many cases, the BTS residential or commercial property becomes part of an industrial park. The occupant might be worried about expanding the quantity of area it inhabits later. Therefore, the agreement may include an option for a new building and construction stage. Alternatively, if the renter has excessive area, the lease should attend to subletting the residential or commercial property. Warranties: The arrangement needs to resolve the warrantied cost of construction flaws and shortages. The lease must specify the guarantee commitments for faulty design, building or products. What is Build-to-Suit Financing?
  
  Build to Suit Lease Accounting
  
  The Financial Account Standards Board (FASB) recently provided new accounting requirements for leases (Topic 842). The new requirements cover BTS leases, which sometimes utilize sale-and-leaseback accounting.
  
  If the occupant (lessee) manages the asset throughout the building phase before lease commencement, it is the asset owner. Upon completion of building, the occupant sells the residential or commercial property to the landlord and rents it back. The lessee owns the residential or commercial property if any of the following hold true:
  
  - The lessee can buy the residential or commercial property during building and construction.
• The lessor (property owner) deserves to gather 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 improvements, or the non-real-estate assets under construction.
• The lessee manages the land and doesn't lease it to the lessor or another celebration before construction begins.
• A lessee leases the land for a period that reflects the significant financial life of the residential or commercial property improvement. The lessee doesn't sublease the land before construction begins and before gaining the residential or commercial property's financial life.
  
  Under these circumstances, the lessee is the asset's deemed owner throughout building and construction. Therefore, it needs to account for construction-in-progress utilizing ASC 360 - Residential Or Commercial Property, Plant and Equipment. The rule requires the lessee to for the building and construction costs by means of 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 considered owner of the possession throughout construction, it does not apply sale and leaseback treatment. Instead, it treats payments it makes to use the asset as lease payments.
  
  For detailed info about develop to match lease accounting, look for assistance from your accounting and legal advisors.
  
  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 renter need not assign the capital required to build the residential or commercial property itself. The property manager gets to put its capital to work in return for long-lasting lease earnings. Location: The tenant can select its location instead of selecting from available stock. It can pick a place in a high-growth area with easy gain access to. The property owner makes use of the land it owns with no threat that a brand-new residential or commercial property will sit vacant. Efficiency: The renter specifies the building size so that it's perfect for its requirements. Furthermore, it can demand high energy performance through contemporary devices and technology. The landlord can utilize its participation with a green task to burnish its track record. Branding: The occupant may take advantage of a structure that shows its character and image. The occupant can select the architectural design, surfaces and colors to amplify its image. Risk: The renter may be able to ignore the lease if the construction falls significantly behind. The property owner take advantage of a locked-in long-term lease when construction is total. Taxes: The occupant's lease payments are fully deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The renter incurs a long-lasting commitment that is hard to leave before the term expires. Typical lease durations run 10 years or longer. Financing: Typically, the lessee needs to demonstrate it is adequately creditworthy to handle a long-term lease commitment. Cost: It's more affordable for the tenant to discover and rent vacant space. Many companies can not afford to spend for develop to suit property. Time: It takes longer to build a structure than to rent area from an existing one. How Assets America ® Can Help
  
  Assets America ® can arrange financing for your BTS task starting at $10 million, without any ceiling. We welcome you to call us for additional information for our complete monetary services.
  
  We can assist make your BTS job possible through our network of personal financiers and banks. For the best in BTS funding, Assets America ® is the smart choice.
  
  What is a ground lease vs. develop to fit?
  
  In a ground lease, the renter rents the hidden land rather than the residential or commercial property. In a build to suit lease agreement, the proprietor owns the land and the occupant leases the structure built on the land.
  
  What does construct to fit property mean?
  
  Usually, build to suit describes commercial residential or commercial properties. However, it is possible to participate in a develop to match arrangement for a multifamily home. Then, the tenant subleases the systems to subtenants.
  
  What is a reverse construct to fit?
  
  A reverse construct to fit is when the tenant oversees the building and construction of the residential or commercial property. Reverse BTS works when the renter has unique proficiency in building the type of residential or commercial property included. Typically, the property owner funds the reverse BTS offer.
  
  Is a build-to-suit lease contract right for me?
  
  It might make good sense for proprietors who have uninhabited land they wish to establish. The BTS agreement decreases the risk of developing the land given that the lease is locked-in. Tenants preserve capital through a BTS lease arrangement.
  
  Recent BTS News
  
  If you're interested in news short articles about current BTS developments, you can read about this $75 million build-to-suit financial investment or this construct to match fulfillment center for Amazon. Additionally, you can check out this build-to-suit commercial structure in Janesville or these office renters requiring develop to fit leases.
  realtor.com