Build to Suit (BTS) is a solution 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 )
• Pros and Cons
• How to Arrange Financing
• Frequently Asked Questions
• Recent News & Related Articles
  
  What Does Build to Suit Mean?
  
  Build to fit is a plan in which a property owner constructs a structure for a sole renter. The resulting free-standing structure satisfies the specific requirements of the occupant.
  
  Typically, businesses of all sizes arrange BTS realty agreements to efficiently acquire and manage custom-made facilities. In fact, many commercial structures and retail residential or commercial properties are BTS, although any type of business property is possible.
  
  How Do Build to Suit Leases Work?
  
  A construct to match lease is a long-term dedication between a property owner and an occupant.
  
  How To Start a BTS Real Estate Project
  
  The BTS procedure can start in a few methods. For example, these consist of:
  
  - A potential renter can look for out a landlord to construct a structure according to the renter's requirements. Thereafter, the tenant participates in a long-term lease with the property manager.
• A landowner might market land that it will construct out to support a BTS lease. An interested company can call the landowner to organize a construct to fit lease arrangement.
• In a reverse BTS, the potential occupant constructs the structure. Typically, the landlord finances the project, but the renter runs the job. Then, the occupant takes tenancy of the structure as a lessee to the residential or commercial property owner. Normally, a reverse BTS makes good sense when the renter has specific construction know-how in the sort of center it desires.
  
  Typically, the property owner owns the land or has a ground lease on it. Upon lease expiration, the construct to suit agreement permits the property manager to re-let the residential or commercial property to a different tenant.
  
  Components of a Build to Suit Lease Arrangement
  
  Essentially, a BTS arrangement consists of 2 elements:
  
  Development Agreement: The developer consents to construct or acquire and redevelop a structure on behalf of the occupant. The contract results from the occupant issuing a request for proposal (RFP) to several developers. The advancement agreement defines the relationship between the proprietor and the renter. That is, the arrangement defines the design of the residential or commercial property, who will build it and who will finance it. Typically, the renter will take sole occupancy of the residential or commercial property, however often other occupants will share the building. The building component is the chief and most complex problem in a BTS agreement. Lease Agreement: The BTS lease defines the terms of tenancy once the developer completes construction. Sometimes, the lease itself will specify the construction arrangements directly or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A construct to fit lease is a significant undertaking for the proprietor and renter. Clearly, they will be dealing with each other over a prolonged duration. Therefore, the BTS arrangement should thoroughly think about each participant's responsibilities:
  
  Landlord: The property manager should examine the occupant's credit reliability. Also, it needs to comprehend the needs of the renter as a guide to style and construction. Frequently, the property owner requires an assurance and money security from the occupant. The property manager needs to specify whether it or the occupant will lead the construction project. Furthermore, the property manager will want a long-enough lease term so that it can recover its investment. Tenant: The tenant establishes the RFP. It needs to assess whether the landlord has the technical competence and monetary resources to provide on time. The examination will include the landlord's previous BTS realty experience, track record, and structure. The occupant needs to decide whether it desires to direct the construction of the structure or leave it to the landlord. It might likewise require assurances and/or a letter of credit to ensure the financing of the building and construction element.
  
  Both parties will want to provide input regarding the choice of architects, engineers, and contractors.
  
  BTS Ask For Proposal
  
  The renter develops the request for proposal and distributes it to several designers. Typically, the RFP will resolve:
  
  - The uses of the residential or commercial property
• The area required
• A calendar timeline for building and occupancy
• The lease variety that the tenant will accept
• Design parameters and information
  
  Usually, the renter distributes the RFP to several residential or commercial property owners/developers. It ends up being more complex if the occupant wants a particular website for the building. Because case, the landowner may be the sole recipient of the RFP. Naturally, the landowner has more impact if the tenant wishes to build on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the renter selects the winning RFP participant, serious settlements can start. Normally, the procedure involves submissions from the property owner's designers that define the style plans.
  
  In return, the tenant's area planners and experts examine the strategy and negotiate modifications. A natural stress is inescapable. On the one hand, the renter wants an area perfectly fit to its needs. On the other hand, the proprietor needs to balance the tenant's needs with the schedule of project funding. The landlord should likewise think about how quickly it can re-let the residential or commercial property once the preliminary lease expires.
  
  Eventually, the build to match lease arrangement emerges from the negotiation process. It defines as much detail as possible about the building construction, the responsibilities of each party, and the lease terms. For instance, the agreement may need the property owner to build a building shell that the renter finishes.
  
  Alternatively, the landlord may need to fit out a turn-key residential or commercial property in move-in condition. If the proprietor delivers only a shell, the agreement ought to specify how the two groups user interface at the turnover time. The occupant can avoid this concern by concurring to use the landlord's developer for the finishing phase.
  
  B. Timetable and Deliverables
  
  Obviously, the build to fit agreement need to specify a task schedule and turn-over duration. Specifically, the agreement will state the delivery information and move-in date.
  
  The expiration of the renter's existing lease may create the need for a set move-in date. Because of that, the parties must work backward from the needed move-in date to set the timetable and turning points. Typical milestones consist of securing the financing, breaking ground, pouring concrete for the structure and putting up the structural steel.
  
  Potential Delays
  
  Delays can be really pricey. The tenant might reserve the right to abandon the offer if hold-ups go beyond a set date. For example, the property owner may discover it tough to fund the project, delaying its start. Other sources of hold-ups include obtaining permits, zone differences, and evaluations.
  
  Perhaps an unanticipated catastrophe will make it impossible to acquire building materials when needed. Or a labor action by the building team may close down the task. Moreover, ecological groups may submit suits that stop building and construction.
  
  Indeed, the opportunities for delay are enormous, and the BTS contract must deal with treatments upfront. The agreement might define charges that will greatly stimulate on the developer. The occupant might discover new methods to inspire the proprietor.
  
  C. Rent
  
  The build to fit lease contract will define the occupant's basic rental rate. The standard rate hinges on the land value, the expense of construction, and the property manager's required rate of return.
  
  Sometimes the contract will permit modifications to the rate if construction expenses exceed expectations. The occupant may request modification orders that include to the cost of building and increase the final rent. If the tenant plays hardball on any lease increases, the task budget and scope need to be exceptionally detailed.
  
  The arrangement must define the modification order procedure and the landlord's right to authorize. The proprietor may resist any changes that include construction costs without a corresponding lease boost.
  
  Alternatively, the arrangement might define that the occupant pays for any accepted change orders. The agreement ought to likewise eliminate the proprietor of penalties due to hold-ups coming from modification orders.
  
  D. Other Lease Considerations
  
  Certain other issues need factor to consider when working out a BTS lease:
  
  Commencement Date vs Construction Date: The proprietor may desire the BTS lease to define a commencement date for the renter to start paying lease. However, the tenant might demand delaying any lease payments up until building and construction is complete. Right to Purchase: Some tenants might desire the option to acquire the residential or commercial property throughout the lease period. At the least, the tenant might want the right of first deal to a proposed sale. Moreover, the occupant may request the right to match any purchase quote. The property owner may agree to these tenant rights as long as it does not lower the best selling cost. Space Migration: In some cases, the BTS residential or commercial property belongs to a commercial park. The occupant might be worried about broadening the amount of area it occupies later on. Therefore, the contract may consist of an option for a new construction phase. Alternatively, if the occupant has too much space, the lease should attend to subletting the residential or commercial property. Warranties: The agreement needs to resolve the warrantied cost of building and construction problems and shortages. The lease should define the guarantee responsibilities for faulty style, 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 standards for leases (Topic 842). The brand-new requirements cover BTS leases, which often utilize sale-and-leaseback accounting.
  
  If the occupant (lessee) controls the possession throughout the building and construction phase before lease commencement, it is the property owner. Upon completion of 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 can purchase the residential or commercial property during building.
• The lessor (landlord) has the right to collect payment for work performed 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 properties under building and construction.
• The lessee controls the land and does not rent it to the lessor or another celebration before construction begins.
• A lessee leases the land for a duration that shows the substantial economic life of the residential or commercial property enhancement. The lessee doesn't sublease the land before construction begins and before reaping the residential or commercial property's financial life.
  
  Under these situations, the lessee is the asset's deemed owner during building. Therefore, it needs to represent construction-in-progress utilizing ASC 360 - Residential Or Commercial Property, Plant and Equipment. The guideline requires the lessee to assume obligation for the construction costs via a deemed loan from the lessor. When construction 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 building, it does not apply sale and leaseback treatment. Instead, it treats payments it makes to utilize the property as lease payments.
  
  For in-depth information 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 suit leasing often outweigh the cons.
  
  Pros of BTS Real Estate
  
  Capital: The renter need not designate the capital required to construct the residential or commercial property itself. The property manager gets to put its capital to work in return for long-term lease income. Location: The occupant can select its area rather than picking from readily available stock. It can pick a place in a high-growth location with simple access. The property manager exploits the land it owns without any danger that a brand-new residential or commercial property will sit uninhabited. Efficiency: The tenant specifies the building size so that it's perfect for its requirements. Furthermore, it can demand high energy performance through contemporary equipment and innovation. The proprietor can use its participation with a green task to burnish its reputation. Branding: The renter may gain from a structure that reflects its character and image. The occupant can pick the architectural style, finishes and colors to amplify its image. Risk: The tenant might be able to ignore the lease if the construction falls substantially behind. The proprietor gain from a locked-in long-term lease when 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 renter sustains a long-lasting commitment that is difficult to leave before the term expires. Typical lease periods run ten years or longer. Financing: Typically, the lessee needs to show it is sufficiently creditworthy to deal with a long-term lease commitment. Cost: It's more affordable for the occupant to find and lease uninhabited space. Many business can not afford to pay for construct to match real estate. Time: It takes longer to construct a structure than to rent area from an existing one. How Assets America ® Can Help
  
  Assets America ® can arrange financing for your BTS job beginning at $10 million, with no upper limit. We welcome you to call us for additional information for our total financial services.
  
  We can assist make your BTS task possible through our network of private investors and banks. For the very best in BTS financing, Assets America ® is the clever option.
  
  What is a ground lease vs. construct to suit?
  
  In a ground lease, the renter rents the hidden land rather than the residential or commercial property. In a build to match lease agreement, the property manager owns the land and the renter rents the building built on the land.
  
  What does construct to suit property suggest?
  
  Often, develop to suit describes business residential or commercial properties. However, it is possible to enter into a build to suit arrangement for a multifamily house. Then, the renter subleases the units to subtenants.
  
  What is a reverse build to match?
  
  A reverse construct to suit is when the occupant oversees the building of the residential or commercial property. Reverse BTS works when the tenant has unique know-how in constructing the kind of residential or commercial property involved. Typically, the property manager finances the reverse BTS deal.
  
  Is a build-to-suit lease contract right for me?
  
  It may make good sense for landlords who have vacant land they want to develop. The BTS contract decreases the danger of developing the land since the lease is locked-in. Tenants protect capital through a BTS lease arrangement.
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  Recent BTS News
  
  If you have an interest in news short articles about recent BTS developments, you can check out this $75 million build-to-suit financial investment or this develop to suit satisfaction center for Amazon. Additionally, you can take a look at this build-to-suit commercial building in Janesville or these requiring develop to suit leases.