Build to Suit (BTS) is a solution for businesses that want to inhabit purpose-built residential or commercial property without owning it. In this post, 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 match is an arrangement in which a property manager constructs a structure for a sole occupant. The resulting free-standing building fulfills the specific requirements of the tenant.
  
  Typically, businesses of all sizes set up BTS realty agreements to efficiently obtain and control custom centers. In fact, many commercial structures and retail residential or commercial properties are BTS, although any kind of industrial realty is possible.
  
  How Do Build to Suit Leases Work?
  
  A develop to suit lease is a long-term commitment in between a property manager and a renter.
  
  How To Start a BTS Real Estate Project
  
  The BTS process can start in a few ways. For example, these consist of:
  
  - A prospective renter can look for out a landlord to build a building according to the renter's requirements. Thereafter, the tenant enters into a long-term lease with the property manager.
• A landowner might promote land that it will construct out to support a BTS lease. An interested company can contact the landowner to arrange a build to fit lease arrangement.
• In a reverse BTS, the potential occupant constructs the structure. Typically, the landlord finances the job, but the renter 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 good sense when the tenant has specific building and construction knowledge in the type of center it desires.
  
  Typically, the property manager owns the land or has a ground lease on it. Upon lease expiration, the construct to suit agreement enables 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 includes two elements:
  
  Development Agreement: The designer agrees to build or obtain and redevelop a structure on behalf of the tenant. The agreement results from the tenant providing a request for proposal (RFP) to several designers. The development contract defines the relationship in between the property owner and the occupant. That is, the agreement specifies the style of the residential or commercial property, who will construct it and who will fund it. Typically, the tenant will take sole tenancy of the residential or commercial property, but in some cases other renters will share the building. The building and construction component is the chief and most complex concern in a BTS arrangement. Lease Agreement: The BTS lease defines the regards to tenancy once the developer completes building and construction. Sometimes, the lease itself will define the building and construction arrangements straight or through an accompanying work letter.
  
  The Roles of BTS Participants
  
  A construct to match lease is a significant endeavor for the property owner and renter. Clearly, they will be handling each other over a prolonged duration. Therefore, the BTS plan should carefully consider each individual's obligations:
  
  Landlord: The proprietor should examine the renter's credit reliability. Also, it needs to comprehend the requirements of the tenant as a guide to design and building. Frequently, the landlord requires a guarantee and money security from the occupant. The proprietor needs to specify whether it or the occupant will lead the building job. Furthermore, the proprietor will want a long-enough lease term so that it can recover its investment. Tenant: The occupant establishes the RFP. It should assess whether the property manager has the technical competence and monetary resources to deliver on time. The assessment will consist of the property manager's prior BTS realty experience, reputation, and structure. The occupant must choose whether it desires to direct the building of the building or leave it to the proprietor. It may also and/or a letter of credit to assure the funding of the building and construction component.
  
  Both parties will wish to provide input regarding the selection of architects, engineers, and professionals.
  
  BTS Ask For Proposal
  
  The tenant creates the ask for proposal and disperses it to several developers. Typically, the RFP will deal with:
  
  - The uses of the residential or commercial property
• The space needed
• A calendar timeline for building and construction and occupancy
• The lease variety that the renter will accept
• Design criteria and details
  
  Usually, the tenant disperses the RFP to several residential or commercial property owners/developers. It becomes more complex if the occupant wants a specific site for the structure. Because case, the landowner might be the sole recipient of the RFP. Naturally, the landowner has more impact if the occupant wants to construct on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the renter selects the winning RFP participant, serious negotiations can begin. Normally, the procedure includes submissions from the landlord's architects that define the design plans.
  
  In return, the tenant's area planners and specialists evaluate the plan and negotiate modifications. A natural tension is unavoidable. On the one hand, the renter desires an area completely matched to its requirements. On the other hand, the property manager requires to stabilize the occupant's requirements with the schedule of project financing. The proprietor must likewise think about how easily it can re-let the residential or commercial property once the initial lease ends.
  
  Eventually, the build to suit lease agreement emerges from the settlement procedure. It specifies as much detail as possible about the structure construction, the responsibilities of each celebration, and the lease terms. For instance, the arrangement might need the proprietor to build a building shell that the tenant completes.
  
  Alternatively, the proprietor 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 arrangement needs to define how the 2 teams user interface at the turnover time. The tenant can prevent this concern by concurring to utilize the landlord's developer for the completing stage.
  
  B. Timetable and Deliverables
  
  Obviously, the construct to suit contract should specify a task schedule and turn-over period. Specifically, the contract will state the delivery information and move-in date.
  
  The expiration of the occupant's existing lease might produce the need for a set move-in date. For that factor, the parties should work backwards from the required move-in date to set the timetable and milestones. Typical milestones consist of securing the financing, breaking ground, putting concrete for the foundation and setting up the structural steel.
  
  Potential Delays
  
  Delays can be really pricey. The occupant might schedule the right to abandon the offer if delays go beyond a set date. For example, the proprietor might find it hard to fund the task, postponing its start. Other sources of hold-ups consist of procuring authorizations, zone variations, and examinations.
  
  Perhaps an unanticipated disaster will make it impossible to obtain building products when required. Or a labor action by the building and construction crew might close down the job. Moreover, environmental groups might submit claims that halt building.
  
  Indeed, the opportunities for delay are tremendous, and the BTS contract should resolve solutions upfront. The agreement may define penalties that will significantly stimulate on the designer. The occupant may discover brand-new ways to motivate the proprietor.
  
  C. Rent
  
  The construct to fit lease agreement will specify the occupant's fundamental rental rate. The basic rate depend upon the land worth, the expense of construction, and the proprietor's required rate of return.
  
  Sometimes the arrangement will allow modifications to the rate if building and construction costs surpass expectations. The renter might request change orders that add to the cost of building and increase the last rent. If the renter plays hardball on any rent increases, the task budget plan and scope ought to be incredibly detailed.
  
  The contract must specify the modification order process and the property owner's right to approve. The property manager may resist any modifications that add building costs without a matching rent boost.
  
  Alternatively, the arrangement may specify that the renter spends for any approved modification orders. The contract must likewise relieve the property owner of charges due to delays 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 property owner might want the BTS lease to specify a commencement date for the renter to start paying lease. However, the occupant may firmly insist on postponing any rent payments till building and construction is complete. Right to Purchase: Some renters might want the alternative to buy the residential or commercial property throughout the lease duration. At the least, the renter might desire the right of first deal to a proposed sale. Moreover, the tenant may request the right to match any purchase quote. The property manager may accept these occupant rights as long as it does not lower the finest selling rate. Space Migration: In many cases, the BTS residential or commercial property is part of a business park. The occupant may be worried about expanding the amount of space it inhabits later. Therefore, the contract may include an alternative for a new building stage. Alternatively, if the tenant has too much area, the lease should address subletting the residential or commercial property. Warranties: The agreement must resolve the warrantied expense of building problems and deficiencies. The lease must define the guarantee obligations for faulty design, construction or products. What is Build-to-Suit Financing?
  
  Build to Suit Lease Accounting
  
  The Financial Account Standards Board (FASB) recently released new accounting requirements for leases (Topic 842). The new requirements cover BTS leases, which in some cases use sale-and-leaseback accounting.
  
  If the renter (lessee) controls the property during the building stage before lease commencement, it is the possession owner. Upon completion of building, the tenant offers the residential or commercial property to the proprietor and leases it back. The lessee owns the residential or commercial property if any of the following hold true:
  
  - The lessee has the right to purchase the residential or commercial property throughout construction.
• The lessor (proprietor) can gather 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 construction.
• The lessee manages the land and does not rent it to the lessor or another party before building starts.
• A lessee rents 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 building and construction starts and before enjoying the residential or commercial property's financial life.
  
  Under these situations, the lessee is the asset's deemed owner during building and construction. Therefore, it should 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 deemed loan from the lessor. When construction ends, the lessee follows the sale and leaseback accounting rules.
  
  On the other hand, if the lessee is not the considered owner of the possession during building, it does not use sale and leaseback treatment. Instead, it deals with payments it makes to use the possession as lease payments.
  
  For comprehensive info about develop to suit lease accounting, seek guidance from your accounting and legal consultants.
  
  Pros and Cons of BTS Real Estate
  
  The pros of build to suit leasing often exceed the cons.
  
  Pros of BTS Real Estate
  
  Capital: The tenant need not assign the capital essential to build the residential or commercial property itself. The property owner gets to put its capital to work in return for long-lasting lease earnings. Location: The tenant can select its location instead of choosing from available stock. It can pick a location in a high-growth area with easy gain access to. The property owner exploits the land it owns without any threat that a new residential or commercial property will sit vacant. Efficiency: The tenant defines the structure size so that it's best for its requirements. Furthermore, it can demand high energy performance through contemporary equipment and innovation. The property manager can use its participation with a green project to burnish its reputation. Branding: The tenant might gain from a structure that reflects its character and image. The tenant can select the architectural design, surfaces and colors to magnify its image. Risk: The occupant might be able to ignore the lease if the building falls substantially behind. The proprietor take advantage of a locked-in long-lasting lease when construction is complete. Taxes: The tenant's lease payments are completely deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The tenant sustains a long-lasting commitment that is difficult to exit before the term expires. Typical lease periods run 10 years or longer. Financing: Typically, the lessee requires to show it is adequately creditworthy to handle a long-term lease dedication. Cost: It's more affordable for the renter to discover and lease vacant area. Many companies can not manage to pay for develop to fit genuine estate. Time: It takes longer to build a structure than to lease area from an existing one. How Assets America ® Can Help
  
  Assets America ® can set up funding for your BTS project beginning at $10 million, without any ceiling. We welcome you to contact us to learn more for our total financial services.
  
  We can assist make your BTS project possible through our network of private financiers and banks. For the finest in BTS funding, Assets America ® is the clever option.
  
  What is a ground lease vs. construct to match?
  
  In a ground lease, the renter rents the underlying land instead of the residential or commercial property. In a build to fit lease contract, the proprietor owns the land and the occupant leases the building constructed on the land.
  
  What does build to suit domestic imply?
  
  Usually, construct to suit describes industrial residential or commercial properties. However, it is possible to enter into a develop to suit arrangement for a multifamily home. Then, the renter subleases the units to subtenants.
  
  What is a reverse develop to match?
  
  A reverse develop to match is when the tenant oversees the construction of the residential or commercial property. Reverse BTS is useful when the tenant has unique knowledge in constructing the type of residential or commercial property involved. Typically, the proprietor funds the reverse BTS offer.
  
  Is a build-to-suit lease agreement right for me?
  
  It might make sense for proprietors who have uninhabited land they desire to establish. The BTS arrangement decreases the danger of developing the land given that 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 current BTS developments, you can read about this $75 million build-to-suit investment or this construct to suit satisfaction center for Amazon. Additionally, you can check out this build-to-suit commercial structure in Janesville or these workplace occupants demanding develop to fit leases.