Build to Suit (BTS) is a service for businesses that wish 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 )
• Pros and Cons
• 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 a plan in which a property owner constructs a structure for a sole renter. The resulting free-standing building meets the particular requirements of the tenant.
  
  Typically, businesses of all sizes organize BTS property contracts to efficiently get and control custom-made facilities. In reality, lots of commercial buildings 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 develop to suit lease is a long-lasting dedication between a property owner and an occupant.
  
  How To Start a BTS Real Estate Project
  
  The BTS process can begin in a couple of methods. For instance, these consist of:
  
  - A potential tenant can seek out a property owner to build a structure according to the tenant's specifications. Thereafter, the occupant gets in into a long-lasting lease with the property manager.
• A landowner may market land that it will construct out to support a BTS lease. An interested company can get in touch with the landowner to set up a construct to fit lease agreement.
• In a reverse BTS, the prospective occupant constructs the structure. Typically, the property owner finances the job, but 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 particular building and construction knowledge in the kind of center it desires.
  
  Typically, the landlord owns the land or has a ground lease on it. Upon lease expiration, the construct to suit agreement allows the property manager to re-let the residential or commercial property to a different renter.
  
  Components of a Build to Suit Lease Arrangement
  
  Essentially, a BTS arrangement consists of 2 components:
  
  Development Agreement: The developer concurs to construct or acquire and redevelop a building on behalf of the tenant. The agreement results from the renter releasing an ask for proposition (RFP) to several designers. The development agreement defines the relationship between the property manager and the renter. That is, the agreement specifies the design of the residential or commercial property, who will construct it and who will fund it. Typically, the renter will take sole occupancy of the residential or commercial property, but sometimes other renters will share the building. The building and construction component is the chief and most intricate issue in a BTS agreement. Lease Agreement: The BTS lease specifies the regards to occupancy once the designer finishes construction. Sometimes, the lease itself will define the construction provisions directly or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A build to fit lease is a major endeavor for the property manager and tenant. Clearly, they will be dealing with each other over a prolonged duration. Therefore, the BTS plan need to thoroughly consider each participant's obligations:
  
  Landlord: The landlord needs to evaluate the occupant's creditworthiness. Also, it must comprehend the requirements of the tenant as a guide to design and building and construction. Frequently, the proprietor requires an assurance and cash security from the tenant. The landlord must specify whether it or the renter will lead the construction task. Furthermore, the proprietor will want a long-enough lease term so that it can recoup its financial investment. Tenant: The tenant develops the RFP. It should examine whether the property owner has the technical proficiency and funds to deliver on time. The evaluation will consist of the property manager's previous BTS realty experience, track record, and structure. The occupant needs to decide whether it wishes to direct the building and construction of the structure or leave it to the property owner. It might also need warranties and/or a letter of credit to guarantee the financing of the building element.
  
  Both parties will want to provide input concerning the selection of designers, engineers, and contractors.
  
  BTS Ask For Proposal
  
  The tenant creates the demand for proposal and disperses it to one or more designers. Typically, the RFP will deal with:
  
  - Usings the residential or commercial property
• The area needed
• A calendar timeline for building and tenancy
• The rent range that the renter will accept
• Design parameters and details
  
  Usually, the tenant distributes the RFP to numerous residential or commercial property owners/developers. It ends up being more complex if the occupant wants a particular site for the building. In that 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 tenant picks the winning RFP participant, major negotiations can start. Normally, the procedure includes submissions from the proprietor's architects that define the style strategies.
  
  In return, the tenant's area organizers and consultants review the strategy and work out modifications. A natural tension is inevitable. On the one hand, the tenant wants an area completely matched to its needs. On the other hand, the landlord requires to balance the tenant's needs with the schedule of task funding. The proprietor must also consider how quickly it can re-let the residential or commercial property once the initial lease expires.
  
  Eventually, the construct to match lease contract emerges from the negotiation procedure. 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 need the property owner to construct a structure shell that the tenant finishes.
  
  Alternatively, the proprietor may have to fit out a turn-key residential or commercial property in move-in condition. If the property manager delivers just a shell, the contract needs to define how the 2 groups user interface at the turnover time. The tenant can prevent this issue by accepting use the proprietor's developer for the finishing stage.
  
  B. Timetable and Deliverables
  
  Naturally, the build to match agreement must specify a task timetable and turn-over duration. Specifically, the arrangement will state the shipment information and move-in date.
  
  The expiration of the tenant's existing lease may develop the need for a set move-in date. Because of that, the parties need to work backwards from the required move-in date to set the schedule and turning points. Typical milestones consist of protecting the financing, beginning, pouring concrete for the foundation and putting up the structural steel.
  
  Potential Delays
  
  Delays can be very costly. The occupant might schedule the right to desert the deal if delays exceed a set date. For example, the property manager might discover it challenging to finance the task, postponing its start. Other sources of hold-ups consist of obtaining licenses, zone variations, and examinations.
  
  Perhaps an unanticipated disaster will make it difficult to get building products when needed. Or a labor action by the building team may shut down the task. Moreover, environmental groups may submit claims that halt building and construction.
  
  Indeed, the chances for hold-up are immense, and the BTS arrangement should attend to remedies in advance. The agreement might specify charges that will greatly spur on the developer. The occupant may find new ways to motivate the property manager.
  
  C. Rent
  
  The build to fit lease arrangement will define the tenant's basic rental rate. The standard rate hinges on the land value, the cost of building and construction, and the proprietor's required rate of return.
  
  Sometimes the contract will allow adjustments to the rate if building expenses exceed expectations. The occupant may ask for modification orders that contribute to the expense of construction and increase the final lease. If the renter plays hardball on any lease increases, the project budget and scope must be incredibly detailed.
  
  The contract must specify the change order process and the proprietor's right to approve. The proprietor might resist any modifications that include construction costs without a corresponding rent increase.
  
  Alternatively, the agreement may define that the tenant pays for any accepted modification orders. The contract needs to also eliminate the proprietor of penalties due to delays originating from change orders.
  
  D. Other Lease Considerations
  
  Certain other issues require consideration when working out a BTS lease:
  
  Commencement Date vs Construction Date: The proprietor might desire the BTS lease to specify a commencement date for the renter to begin paying rent. However, the occupant might firmly insist on delaying any lease payments until building is complete. Right to Purchase: Some occupants might want the option to purchase the residential or commercial property during the lease duration. At the least, the renter may desire the right of first deal to a proposed sale. Moreover, the renter might request the right to match any purchase bid. The property manager may consent to these occupant rights as long as it does not reduce the best selling cost. Space Migration: In some cases, the BTS residential or commercial property becomes part of a business park. The tenant may be worried about expanding the amount of space it inhabits later. Therefore, the arrangement may include an alternative for a new building phase. Alternatively, if the occupant has excessive area, the lease needs to address subletting the residential or commercial property. Warranties: The contract must attend to the warrantied cost of construction flaws and shortages. The lease must define the guarantee commitments for defective 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 brand-new standards cover BTS leases, which sometimes utilize sale-and-leaseback accounting.
  
  If the tenant (lessee) manages the property during the building phase before lease commencement, it is the property owner. Upon conclusion of construction, the occupant offers the residential or commercial property to the proprietor and rents it back. The lessee owns the residential or commercial property if any of the following are real:
  
  - The lessee deserves to buy the residential or commercial property throughout construction.
• The lessor (property manager) deserves to gather 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 improvements, or the non-real-estate possessions under construction.
• The lessee manages the land and does not rent it to the lessor or another celebration before building starts.
• A lessee leases the land for a period that shows the substantial economic life of the residential or commercial property improvement. The lessee does not sublease the land before building starts and before gaining the residential or commercial property's financial life.
  
  Under these situations, the lessee is the property's deemed owner throughout construction. Therefore, it needs to represent construction-in-progress utilizing ASC 360 - Residential Or Commercial Property, Plant and Equipment. The rule needs the lessee to assume duty for the building and construction costs by means of a deemed loan from the lessor. When building ends, the lessee follows the sale and leaseback accounting rules.
  
  On the other hand, if the lessee is not the considered owner of the asset throughout construction, it does not use sale and leaseback treatment. Instead, it deals with payments it makes to use the possession as lease payments.
  
  For in-depth information about develop to suit lease accounting, look for assistance from your accounting and legal advisors.
  
  Pros and Cons of BTS Real Estate
  
  The pros of construct to fit leasing frequently surpass the cons.
  
  Pros of BTS Real Estate
  
  Capital: The tenant need not allocate the capital necessary to construct the residential or commercial property itself. The landlord gets to put its capital to work in return for long-lasting lease earnings. Location: The renter can pick its area rather than choosing from offered stock. It can choose a location in a high-growth area with easy access. The property manager exploits the land it owns with no threat that a new residential or commercial property will sit uninhabited. Efficiency: The tenant defines the building size so that it's best for its requirements. Furthermore, it can require high energy effectiveness through contemporary devices and technology. The proprietor can use its participation with a green project to burnish its track record. Branding: The renter may gain from a building that shows its personality and image. The tenant can select the architectural design, 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 considerably behind. The property owner take advantage of a locked-in long-lasting lease as soon as construction is total. Taxes: The tenant's lease payments are completely deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The occupant incurs a long-term commitment that is difficult to exit before the term ends. Typical lease durations run 10 years or longer. Financing: Typically, the lessee needs to show it is adequately creditworthy to handle a long-term lease dedication. Cost: It's more affordable for the tenant to discover and lease uninhabited area. Many companies can not pay for to spend for develop to fit property. Time: It takes longer to construct a building than to lease area from an existing one. How Assets America ® Can Help
  
  Assets America ® can set up financing for your BTS project beginning at $10 million, without any ceiling. We invite you to call us for additional information for our complete monetary services.
  
  We can help make your BTS job possible through our network of personal investors and banks. For the finest in BTS financing, Assets America ® is the wise choice.
  
  What is a ground lease vs. develop to match?
  
  In a ground lease, the tenant leases the hidden land rather than the residential or commercial property. In a build to suit lease arrangement, the landlord owns the land and the occupant leases the structure constructed on the land.
  
  What does to fit residential indicate?
  
  Often, develop to match refers to commercial residential or commercial properties. However, it is possible to get in into a develop to fit arrangement for a multifamily home. Then, the occupant subleases the units to subtenants.
  
  What is a reverse construct to suit?
  
  A reverse build to suit is when the occupant oversees the building of the residential or commercial property. Reverse BTS works when the tenant has special proficiency in constructing the type of residential or commercial property involved. Typically, the landlord funds the reverse BTS offer.
  
  Is a build-to-suit lease contract right for me?
  
  It might make good sense for landlords who have vacant land they wish to establish. The BTS contract decreases the threat of establishing the land because the lease is locked-in. Tenants maintain capital through a BTS lease arrangement.
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  Recent BTS News
  
  If you're interested in news articles about recent BTS developments, you can check out this $75 million build-to-suit financial investment or this build to match fulfillment center for Amazon. Additionally, you can take a look at this build-to-suit commercial structure in Janesville or these office occupants demanding construct to suit leases.