Build to Suit (BTS) is a service for services that want to occupy purpose-built residential or commercial property without owning it. In this short 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
  wikipedia.org
  What Does Build to Suit Mean?
  
  Build to suit is an arrangement in which a property owner constructs a building for a sole occupant. The resulting free-standing building fulfills the specific requirements of the renter.
  
  Typically, services of all sizes organize BTS realty arrangements to effectively obtain and manage custom-made centers. In reality, lots of industrial buildings and retail residential or commercial properties are BTS, although any kind of business property is possible.
  
  How Do Build to Suit Leases Work?
  
  A build to match lease is a long-lasting commitment in between a property owner and an occupant.
  
  How To Start a BTS Real Estate Project
  
  The BTS procedure can start in a couple of methods. For example, these include:
  
  - A prospective occupant can look for a proprietor to build a building according to the occupant's specs. Thereafter, the tenant participates in a long-term lease with the property owner.
• A landowner may promote land that it will develop out to support a BTS lease. An interested business can contact the landowner to organize a develop to match lease agreement.
• In a reverse BTS, the potential occupant constructs the building. Typically, the property owner finances the task, but the occupant runs the task. Then, the renter takes tenancy of the structure as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes sense when the renter has specific building and construction knowledge in the sort of facility it desires.
  
  Typically, the landlord owns the land or has a ground lease on it. Upon lease expiration, the develop to fit agreement 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 includes two elements:
  
  Development Agreement: The developer accepts construct or acquire and redevelop a structure on behalf of the tenant. The arrangement arises from the occupant issuing a request for proposition (RFP) to several designers. The development contract defines the relationship in between the property manager and the occupant. That is, the arrangement specifies the design of the residential or commercial property, who will develop it and who will finance it. Typically, the tenant will take sole tenancy of the residential or commercial property, but often other renters will share the structure. The part is the chief and most intricate concern in a BTS agreement. Lease Agreement: The BTS lease specifies the terms of tenancy once the designer finishes building. Sometimes, the lease itself will define the building and construction provisions directly or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A construct to fit lease is a major endeavor for the property manager and renter. Clearly, they will be handling each other over a prolonged duration. Therefore, the BTS arrangement need to carefully think about each participant's duties:
  
  Landlord: The property owner should evaluate the renter's creditworthiness. Also, it should understand the requirements of the tenant as a guide to design and building and construction. Frequently, the proprietor requires a warranty and cash security from the tenant. The property manager should define whether it or the occupant will lead the construction task. Furthermore, the property manager will desire a long-enough lease term so that it can recover its investment. Tenant: The renter establishes the RFP. It needs to assess whether the proprietor has the technical knowledge and financial resources to deliver on time. The examination will include the property manager's previous BTS realty experience, track record, and structure. The renter should choose whether it wants to direct the building of the structure or leave it to the landlord. It might also need assurances and/or a letter of credit to guarantee the funding of the construction element.
  
  Both parties will wish to supply input concerning the choice of architects, engineers, and professionals.
  
  BTS Ask For Proposal
  
  The occupant develops the request for proposition and distributes it to one or more designers. Typically, the RFP will resolve:
  
  - Usings the residential or commercial property
• The space needed
• A calendar timeline for construction and tenancy
• The rent variety that the tenant will accept
• Design parameters and details
  
  Usually, the occupant distributes the RFP to multiple residential or commercial property owners/developers. It ends up being more complicated if the tenant desires a specific website for the building. In that case, the landowner may be the sole recipient of the RFP. Naturally, the landowner has more influence if the renter wishes to construct on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the tenant selects the winning RFP respondent, severe negotiations can begin. Normally, the procedure includes submissions from the property owner's architects that define the design strategies.
  
  In return, the renter's area organizers and consultants review the strategy and work out changes. A natural tension is inescapable. On the one hand, the occupant desires an area completely suited to its needs. On the other hand, the landlord needs to balance the occupant's requirements with the availability of project financing. The proprietor needs to also think about how quickly it can re-let the residential or commercial property once the initial lease expires.
  
  Eventually, the develop to match lease contract emerges from the negotiation process. It defines as much information as possible about the building construction, the tasks of each celebration, and the lease terms. For example, the arrangement may require the landlord to build a building shell that the occupant completes.
  
  Alternatively, the property owner may need to fit out a turn-key residential or commercial property in move-in condition. If the property manager provides only a shell, the agreement needs to define how the two groups user interface at the turnover time. The occupant can avoid this problem by accepting utilize the property owner's developer for the completing phase.
  
  B. Timetable and Deliverables
  
  Obviously, the develop to fit agreement must specify a task timetable and turn-over duration. Specifically, the arrangement will mention the delivery information and move-in date.
  
  The expiration of the tenant's existing lease may produce the need for a set move-in date. Because of that, the celebrations must work backward from the required move-in date to set the timetable and turning points. Typical milestones include protecting the funding, breaking ground, putting concrete for the structure and setting up the structural steel.
  
  Potential Delays
  
  Delays can be extremely pricey. The tenant may book the right to abandon the offer if delays go beyond a set date. For instance, the landlord may find it hard to finance the task, delaying its start. Other sources of hold-ups consist of procuring authorizations, zone variances, and examinations.
  
  Perhaps an unanticipated disaster will make it difficult to acquire building materials when required. Or a labor action by the construction crew may shut down the project. Moreover, environmental groups may file claims that halt building and construction.
  
  Indeed, the opportunities for hold-up are tremendous, and the BTS contract ought to address remedies upfront. The contract may specify penalties that will greatly stimulate on the developer. The renter might discover new methods to motivate the proprietor.
  
  C. Rent
  
  The construct to suit lease contract will specify the occupant's fundamental rental rate. The fundamental rate hinges on the land value, the cost of construction, and the proprietor's required rate of return.
  
  Sometimes the agreement will enable modifications to the rate if building and construction costs surpass expectations. The renter might request change orders that contribute to the expense of building and increase the last lease. If the occupant plays hardball on any lease increases, the job budget plan and scope must be exceptionally detailed.
  
  The agreement should specify the modification order process and the proprietor's right to authorize. The proprietor might resist any modifications that include construction costs without a corresponding rent increase.
  
  Alternatively, the contract may define that the tenant spends for any approved change orders. The agreement should also relieve the property manager of charges due to hold-ups coming from modification orders.
  
  D. Other Lease Considerations
  
  Certain other concerns require factor to consider when working out a BTS lease:
  
  Commencement Date vs Construction Date: The property manager might desire the BTS lease to define a commencement date for the tenant to begin paying rent. However, the renter may demand postponing any rent payments up until building and construction is complete. Right to Purchase: Some tenants may desire the choice to acquire the residential or commercial property throughout the lease period. At the least, the renter may want the right of first deal to a proposed sale. Moreover, the tenant might request the right to match any purchase bid. The property manager might accept these renter rights as long as it doesn't decrease the very best asking price. Space Migration: In many cases, the BTS residential or commercial property belongs to a business park. The renter may be concerned about broadening the amount of area it inhabits later. Therefore, the agreement may consist of an option for a new building and construction stage. Alternatively, if the renter has too much space, the lease ought to resolve subletting the residential or commercial property. Warranties: The agreement needs to attend to the warrantied expense of construction problems and deficiencies. The lease needs to specify the service warranty obligations for faulty style, building and construction 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 standards cover BTS leases, which in some cases utilize sale-and-leaseback accounting.
  
  If the occupant (lessee) manages the property during the construction phase before lease commencement, it is the property owner. Upon conclusion of building, the tenant offers the residential or commercial property to the property owner and leases it back. The lessee owns the residential or commercial property if any of the following are real:
  
  - The lessee can purchase the residential or commercial property throughout building.
• The lessor (landlord) has the right to collect payment for work performed 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 properties under construction.
• The lessee controls the land and doesn't rent it to the lessor or another celebration before building and construction begins.
• A lessee rents the land for a period that reflects the substantial financial life of the residential or commercial property enhancement. The lessee does not sublease the land before building begins and before gaining the residential or commercial property's financial life.
  
  Under these situations, the lessee is the property's deemed owner during construction. Therefore, it must account for construction-in-progress using ASC 360 - Residential Or Commercial Property, Plant and Equipment. The rule requires the lessee to assume obligation for the building and construction costs by means of a considered loan from the lessor. When building and construction ends, the lessee follows the sale and leaseback accounting rules.
  
  On the other hand, if the lessee is not the deemed owner of the property during building, it does not use sale and leaseback treatment. Instead, it treats payments it makes to use the property as lease payments.
  
  For comprehensive details about build to fit lease accounting, look for guidance from your accounting and legal consultants.
  
  Pros and Cons of BTS Real Estate
  
  The pros of construct to fit leasing typically outweigh the cons.
  
  Pros of BTS Real Estate
  
  Capital: The occupant need not assign the capital required to build the residential or commercial property itself. The proprietor gets to put its capital to operate in return for long-term lease earnings. Location: The tenant can choose its location instead of picking from offered stock. It can select an area in a high-growth location with simple gain access to. The landlord makes use of the land it owns without any danger that a new residential or commercial property will sit vacant. Efficiency: The occupant specifies the structure size so that it's ideal for its needs. Furthermore, it can require high energy performance through modern equipment and technology. The property manager can use its involvement with a green project to burnish its track record. Branding: The occupant might take advantage of a building that shows its character and image. The renter can pick the architectural design, finishes and colors to magnify its image. Risk: The occupant might be able to ignore the lease if the building falls considerably behind. The property owner gain from a locked-in long-lasting lease as soon as building and construction is complete. 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 not easy to exit before the term ends. Typical lease durations run ten years or longer. Financing: Typically, the lessee requires to demonstrate it is sufficiently creditworthy to deal with a long-term lease commitment. Cost: It's less expensive for the renter to discover and rent uninhabited space. Many business can not afford to spend for develop to suit real estate. Time: It takes longer to build a building than to lease space from an existing one. How Assets America ® Can Help
  
  Assets America ® can arrange financing for your BTS project starting at $10 million, with no ceiling. We invite you to call us to learn more for our total monetary services.
  
  We can assist make your BTS project possible through our network of private financiers and banks. For the very best in BTS financing, Assets America ® is the smart choice.
  
  What is a ground lease vs. develop to fit?
  
  In a ground lease, the tenant rents the hidden land rather than the residential or commercial property. In a build to match lease contract, the landlord owns the land and the tenant rents the building built on the land.
  
  What does construct to match residential indicate?
  
  Almost always, develop to suit describes commercial residential or commercial properties. However, it is possible to participate in a construct to suit contract for a multifamily house. Then, the occupant subleases the systems to subtenants.
  
  What is a reverse construct to suit?
  
  A reverse develop to match is when the occupant supervises the construction of the residential or commercial property. Reverse BTS works when the renter has special proficiency in building the kind of residential or commercial property included. Typically, the landlord funds the reverse BTS deal.
  
  Is a build-to-suit lease agreement right for me?
  
  It might make good sense for property managers who have vacant land they desire to develop. The BTS contract decreases the threat of developing the land given that the lease is locked-in. Tenants preserve capital through a BTS lease arrangement.
  
  Recent BTS News
  
  If you have an interest in news articles about recent BTS advancements, you can read about this $75 million build-to-suit financial investment or this construct to match satisfaction center for Amazon. Additionally, you can inspect out this build-to-suit industrial building in Janesville or these workplace tenants requiring construct to match leases.