Build to Suit (BTS) is an option for organizations that desire 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 )
• Advantages and disadvantages
• How to Arrange Financing
• Frequently Asked Questions
• Recent News & Related Articles
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  What Does Build to Suit Mean?
  
  Build to suit is an arrangement in which a proprietor constructs a structure for a sole occupant. The resulting free-standing building satisfies the particular requirements of the occupant.
  
  Typically, businesses of all sizes organize BTS realty arrangements to efficiently acquire and control custom facilities. In reality, many industrial buildings and retail residential or commercial properties are BTS, although any type of industrial property is possible.
  
  How Do Build to Suit Leases Work?
  
  A construct to suit lease is a long-lasting commitment in between a property owner and an occupant.
  
  How To Start a BTS Real Estate Project
  
  The BTS process can start in a few ways. For instance, these include:
  
  - A prospective renter can seek out a property owner to construct a building according to the tenant's requirements. Thereafter, the tenant participates in a long-term lease with the property manager.
• A landowner may promote land that it will develop out to support a BTS lease. An interested company can contact the landowner to set up a build to match lease agreement.
• In a reverse BTS, the potential occupant constructs the structure. Typically, the landlord finances the project, but the occupant runs the project. Then, the renter takes tenancy of the structure as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes good sense when the occupant has specific building 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 construct to match contract enables the proprietor to re-let the residential or commercial property to a various occupant.
  
  Components of a Build to Suit Lease Arrangement
  
  Essentially, a BTS arrangement includes 2 components:
  
  Development Agreement: The designer concurs to build or obtain and redevelop a structure on behalf of the tenant. The agreement results from the occupant releasing a demand for proposition (RFP) to one or more designers. The development agreement defines the relationship in between the property owner and the tenant. That is, the arrangement defines the style of the residential or commercial property, who will build it and who will fund it. Typically, the occupant will take sole occupancy of the residential or commercial property, but often other renters will share the building. The building and construction component is the chief and most complex problem in a BTS arrangement. Lease Agreement: The BTS lease defines the regards to occupancy once the designer finishes building and construction. Sometimes, the lease itself will define the building and construction arrangements directly or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A build to suit lease is a major endeavor for the landlord and renter. Clearly, they will be handling each other over an extended period. Therefore, the BTS arrangement need to thoroughly think about each participant's obligations:
  
  Landlord: The proprietor needs to examine the occupant's creditworthiness. Also, it must comprehend the requirements of the renter as a guide to style and building and construction. Frequently, the property manager requires a warranty and money security from the renter. The property manager must define whether it or the tenant will lead the building and construction job. Furthermore, the property owner will want a long-enough lease term so that it can recover its investment. Tenant: The occupant establishes the RFP. It needs to assess whether the proprietor has the technical expertise and funds to provide on time. The assessment will include the proprietor's previous BTS property experience, track record, and structure. The renter should decide whether it wishes to direct the building and construction of the structure or leave it to the proprietor. It may likewise need assurances and/or a letter of credit to guarantee the financing of the construction element.
  
  Both parties will want to supply input regarding the choice of architects, engineers, and contractors.
  
  BTS Request for Proposal
  
  The renter develops the ask for proposition and disperses it to several designers. Typically, the RFP will attend to:
  
  - The uses of the residential or commercial property
• The area required
• A calendar timeline for building and construction and occupancy
• The rent variety that the occupant 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 tenant wants a particular site for the building. Because case, the landowner may be the sole recipient of the RFP. Naturally, the landowner has more impact if the renter wishes to construct on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the renter chooses the winning RFP respondent, major negotiations can start. Normally, the procedure involves submissions from the property manager's designers that define the design plans.
  
  In return, the tenant's area planners and specialists examine the plan and negotiate changes. A natural tension is unavoidable. On the one hand, the occupant wants a space completely suited to its requirements. On the other hand, the property owner requires to stabilize the occupant's needs with the accessibility of task financing. The property manager needs to likewise consider how quickly it can re-let the residential or commercial property once the initial lease expires.
  
  Eventually, the develop to suit lease contract emerges from the settlement procedure. It defines as much detail as possible about the structure construction, the responsibilities of each party, and the lease terms. For instance, the agreement may need the property owner to build a structure shell that the tenant finishes.
  
  Alternatively, the property owner might have to fit out a turn-key residential or commercial property in move-in condition. If the property manager provides just a shell, the contract ought to define how the two groups interface at the turnover time. The occupant can avoid this problem by consenting to utilize the property owner's designer for the ending up stage.
  
  B. Timetable and Deliverables
  
  Obviously, the construct to fit contract should specify a job schedule and turn-over period. Specifically, the agreement will specify the delivery details and move-in date.
  
  The expiration of the tenant's existing lease might create the need for a set move-in date. Because of that, the celebrations should work backward from the needed move-in date to set the timetable and turning points. Typical turning points consist of securing the financing, beginning, putting concrete for the foundation and putting up the structural steel.
  
  Potential Delays
  
  Delays can be very expensive. The occupant may reserve the right to desert the offer if hold-ups go beyond a set date. For example, the proprietor may find it hard to fund the project, postponing its start. Other sources of delays include obtaining permits, zone variances, and assessments.
  
  Perhaps an unforeseen catastrophe will make it difficult to acquire structure materials when needed. Or a labor action by the construction crew may shut down the task. Moreover, ecological groups may submit lawsuits that stop building and construction.
  
  Indeed, the chances for delay are tremendous, and the BTS arrangement should address treatments upfront. The arrangement may define penalties that will significantly stimulate on the designer. The renter may discover brand-new methods to inspire the property owner.
  
  C. Rent
  
  The build to fit lease contract will define the tenant's basic rental rate. The basic rate hinges on the land value, the expense of construction, and the landlord's required rate of return.
  
  Sometimes the arrangement will allow changes to the rate if building costs go beyond expectations. The occupant might ask for modification orders that include to the expense of construction and increase the last lease. If the occupant plays hardball on any lease increases, the job budget and scope must be extremely detailed.
  
  The agreement ought to specify the change order process and the property owner's right to approve. The landlord might resist any modifications that add building expenses without a matching rent boost.
  
  Alternatively, the agreement might specify that the renter spends for any accepted change orders. The contract ought to likewise alleviate the proprietor of penalties due to hold-ups coming from modification orders.
  
  D. Other Lease Considerations
  
  Certain other problems need factor to consider when negotiating a BTS lease:
  
  Commencement Date vs Construction Date: The property owner might desire the BTS lease to specify a start date for the renter to begin paying lease. However, the tenant might demand postponing any lease payments up until construction is complete. Right to Purchase: Some occupants might desire the option to purchase the residential or commercial property during the lease period. At the least, the tenant might want the right of very first offer to a proposed sale. Moreover, the renter might request the right to match any purchase quote. The landlord may agree to these occupant rights as long as it does not lower the very best market price. Space Migration: In many cases, the BTS residential or commercial property belongs to a commercial park. The renter may be concerned about broadening the quantity of space it inhabits later on. Therefore, the arrangement may include an alternative for a brand-new building stage. Alternatively, if the renter has too much area, the lease ought to deal with subletting the residential or commercial property. Warranties: The agreement ought to attend to the warrantied cost of construction defects and shortages. The lease needs to specify the warranty responsibilities for malfunctioning design, building or materials. What is Build-to-Suit Financing?
  
  Build to Suit Lease Accounting
  
  The Financial Account Standards Board (FASB) recently issued brand-new accounting standards for leases (Topic 842). The brand-new standards cover BTS leases, which sometimes utilize sale-and-leaseback accounting.
  
  If the occupant (lessee) manages the asset during the building and construction stage before lease commencement, it is the possession owner. Upon completion of building and construction, the occupant sells the residential or commercial property to the property manager and leases it back. The lessee owns the residential or commercial property if any of the following are real:
  
  - The lessee has the right to buy the residential or commercial property throughout construction.
• The lessor (property manager) 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 improvements, or the non-real-estate possessions under building and construction.
• The lessee controls the land and does not lease it to the lessor or another celebration before building begins.
• A lessee leases the land for a duration that shows the substantial financial life of the residential or commercial property enhancement. The lessee does not sublease the land before building starts and before gaining the residential or commercial property's economic life.
  
  Under these scenarios, the lessee is the asset's deemed owner during construction. Therefore, it needs to account for construction-in-progress using ASC 360 - Residential Or Commercial Property, Plant and Equipment. The guideline requires the lessee to presume responsibility for the building and construction costs via a considered loan from the lessor. When ends, the lessee follows the sale and leaseback accounting guidelines.
  
  On the other hand, if the lessee is not the deemed owner of the property during construction, it does not apply sale and leaseback treatment. Instead, it treats payments it makes to use the property as lease payments.
  
  For detailed information about build to suit lease accounting, look for assistance from your accounting and legal consultants.
  
  Benefits and drawbacks of BTS Real Estate
  
  The pros of build to fit leasing frequently surpass the cons.
  
  Pros of BTS Real Estate
  
  Capital: The tenant need not assign the capital essential to construct 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 place rather than picking from available stock. It can select a location in a high-growth area with easy access. The property owner makes use of the land it owns without any threat that a brand-new residential or commercial property will sit vacant. Efficiency: The renter defines the building size so that it's perfect for its requirements. Furthermore, it can require high energy efficiency through contemporary devices and technology. The proprietor can use its participation with a green job to burnish its track record. Branding: The tenant may gain from a building that shows its character and image. The renter can select the architectural style, surfaces and colors to magnify its image. Risk: The renter might be able to walk away from the lease if the building and construction falls significantly behind. The property manager gain from a locked-in long-term lease when construction is total. Taxes: The renter's lease payments are totally deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The occupant sustains a long-lasting commitment that is challenging to leave before the term expires. Typical lease durations run ten years or longer. Financing: Typically, the lessee needs to demonstrate it is sufficiently creditworthy to manage a long-term lease commitment. Cost: It's cheaper for the tenant to discover and lease uninhabited area. Many business can not afford to spend for build to fit realty. Time: It takes longer to construct a building than to lease space from an existing one. How Assets America ® Can Help
  
  Assets America ® can organize financing for your BTS job beginning at $10 million, with no upper limit. We invite you to contact us for more information for our complete monetary services.
  
  We can assist make your BTS project possible through our network of personal financiers and banks. For the best in BTS financing, Assets America ® is the wise choice.
  
  What is a ground lease vs. construct to suit?
  
  In a ground lease, the renter rents the underlying land instead of the residential or commercial property. In a build to suit lease agreement, the property manager owns the land and the tenant rents the building constructed on the land.
  
  What does develop to suit domestic suggest?
  
  Often, construct to match describes commercial residential or commercial properties. However, it is possible to participate in a develop to suit agreement for a multifamily home. Then, the occupant subleases the systems to subtenants.
  
  What is a reverse construct to match?
  
  A reverse develop to fit is when the tenant oversees the building of the residential or commercial property. Reverse BTS works when the tenant has unique know-how in constructing the type of residential or commercial property involved. Typically, the landlord finances the reverse BTS deal.
  
  Is a build-to-suit lease contract right for me?
  
  It may make good sense for property managers who have vacant land they desire to establish. The BTS arrangement minimizes the threat of developing the land given that the lease is locked-in. Tenants preserve capital through a BTS lease agreement.
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  Recent BTS News
  
  If you're interested in news short articles about recent BTS advancements, you can check out this $75 million build-to-suit investment or this develop to fit satisfaction center for Amazon. Additionally, you can have a look at this build-to-suit commercial structure in Janesville or these office occupants requiring build to match leases.