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Build to Suit (BTS) is a solution 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 fit is an arrangement in which a property manager constructs a structure for a sole tenant. The resulting free-standing structure meets the specific requirements of the occupant.
  
  Typically, businesses of all sizes arrange BTS realty arrangements to efficiently acquire and control custom-made facilities. In truth, lots of industrial buildings and retail residential or commercial properties are BTS, although any type of industrial genuine estate is possible.
  
  How Do Build to Suit Leases Work?
  
  A build to fit lease is a long-lasting dedication in between a property owner and a renter.
  
  How To Start a Estate Project
  
  The BTS procedure can start in a couple of methods. For example, these include:
  
  - A potential renter can look for a property manager to build a building according to the occupant's specs. Thereafter, the occupant gets in into a long-lasting lease with the property manager.
• A landowner might advertise land that it will build out to support a BTS lease. An interested company can contact the landowner to arrange a build to suit lease contract.
• In a reverse BTS, the prospective occupant constructs the building. Typically, the property manager funds the task, but the occupant runs the project. Then, the renter takes occupancy 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 competence in the type of center it desires.
  
  Typically, the property owner owns the land or has a ground lease on it. Upon lease expiration, the develop to fit contract permits the proprietor to re-let the residential or commercial property to a different renter.
  
  Components of a Build to Suit Lease Arrangement
  
  Essentially, a BTS plan consists of two parts:
  
  Development Agreement: The developer accepts construct or obtain and redevelop a structure on behalf of the renter. The agreement results from the occupant issuing a request for proposition (RFP) to one or more designers. The advancement agreement specifies the relationship in between the property owner and the tenant. That is, the agreement specifies the style of the residential or commercial property, who will develop it and who will finance it. Typically, the occupant will take sole occupancy of the residential or commercial property, however in some cases other tenants will share the structure. The building part is the chief and most complicated problem in a BTS agreement. Lease Agreement: The BTS lease specifies the terms of tenancy once the developer completes building and construction. 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 suit lease is a major endeavor for the property owner and occupant. Clearly, they will be dealing with each other over an extended period. Therefore, the BTS arrangement should thoroughly think about each individual's responsibilities:
  
  Landlord: The landlord must examine the occupant's creditworthiness. Also, it needs to comprehend the needs of the occupant as a guide to style and construction. Frequently, the property owner requires a guarantee and money security from the occupant. The property manager must define whether it or the renter will lead the construction task. Furthermore, the property owner will desire a long-enough lease term so that it can recoup its investment. Tenant: The tenant establishes the RFP. It should examine whether the landlord has the technical know-how and funds to provide on time. The evaluation will consist of the property owner's prior BTS genuine estate experience, reputation, and structure. The tenant must choose whether it wishes to direct the building of the structure or leave it to the property manager. It may likewise require warranties and/or a letter of credit to ensure the financing of the construction part.
  
  Both parties will desire to supply input regarding the choice of designers, engineers, and specialists.
  
  BTS Request for Proposal
  
  The renter produces the demand for proposition and disperses it to several developers. Typically, the RFP will address:
  
  - Usings the residential or commercial property
• The area needed
• A calendar timeline for construction and occupancy
• The lease variety that the tenant will accept
• Design criteria and details
  
  Usually, the occupant disperses the RFP to multiple residential or commercial property owners/developers. It ends up being more complicated if the renter wants a specific site for the structure. Because case, the landowner may be the sole recipient of the RFP. Naturally, the landowner has more influence if the occupant desires to build on the owner's land.
  
  What is Build-to-Suit Financing?
  
  A. Negotiating the Deal
  
  Once the occupant selects the winning RFP participant, severe negotiations can begin. Normally, the procedure includes submissions from the property manager's architects that specify the design strategies.
  
  In return, the tenant's space coordinators and experts review the plan and work out changes. A natural stress is inescapable. On the one hand, the renter wants an area perfectly matched to its needs. On the other hand, the property manager requires to stabilize the tenant's requirements with the accessibility of project financing. The property owner must likewise think about how quickly it can re-let the residential or commercial property once the initial lease ends.
  
  Eventually, the develop to fit lease agreement emerges from the settlement process. It defines as much information as possible about the building construction, the tasks of each celebration, and the lease terms. For instance, the arrangement might need the proprietor to build a structure shell that the renter completes.
  
  Alternatively, the property owner may need to fit out a turn-key residential or commercial property in move-in condition. If the landlord delivers just a shell, the contract must define how the 2 teams user interface at the turnover time. The renter can avoid this problem by concurring to utilize the property manager's developer for the finishing phase.
  
  B. Timetable and Deliverables
  
  Of course, the build to suit agreement should specify a project schedule and turn-over duration. Specifically, the contract will specify the delivery details and move-in date.
  
  The expiration of the tenant's existing lease might develop the requirement for a set move-in date. For that reason, the parties must work backward from the required move-in date to set the timetable and turning points. Typical turning points include securing the financing, beginning, putting concrete for the foundation and setting up the structural steel.
  
  Potential Delays
  
  Delays can be very expensive. The occupant may book the right to desert the deal if delays go beyond a set date. For instance, the property manager may discover it challenging to fund the job, delaying its start. Other sources of delays include procuring authorizations, zone variations, and evaluations.
  
  Perhaps an unforeseen catastrophe will make it impossible to obtain building products when needed. Or a labor action by the building and construction team might close down the project. Moreover, ecological groups might submit claims that halt building and construction.
  
  Indeed, the opportunities for delay are tremendous, and the BTS contract ought to attend to remedies upfront. The agreement may specify charges that will greatly stimulate on the designer. The tenant may find new methods to inspire the landlord.
  
  C. Rent
  
  The construct to suit lease contract will define the renter's fundamental rental rate. The basic rate depend upon the land value, the expense of building, and the property owner's required rate of return.
  
  Sometimes the agreement will permit modifications to the rate if building and construction costs go beyond expectations. The tenant may ask for modification orders that add to the expense of building and construction and increase the final rent. If the occupant plays hardball on any rent increases, the job budget and scope ought to be extremely detailed.
  
  The arrangement needs to specify the change order process and the property manager's right to approve. The proprietor may resist any changes that add construction costs without a matching lease increase.
  
  Alternatively, the contract may define that the occupant spends for any approved change orders. The agreement must also alleviate the landlord of penalties due to hold-ups stemming from modification orders.
  
  D. Other Lease Considerations
  
  Certain other concerns require factor to consider when negotiating a BTS lease:
  
  Commencement Date vs Construction Date: The proprietor might desire the BTS lease to specify a start date for the renter to start paying lease. However, the occupant might demand delaying any lease payments till construction is complete. Right to Purchase: Some occupants may desire the option to buy the residential or commercial property during the lease duration. At the least, the renter may want the right of first offer to a proposed sale. Moreover, the occupant may ask for the right to match any purchase bid. The proprietor might accept these occupant rights as long as it does not lower the very best asking price. Space Migration: In many cases, the BTS residential or commercial property becomes part of a business park. The renter might be worried about expanding the quantity of area it occupies later on. Therefore, the agreement may include an alternative for a new building and construction phase. Alternatively, if the renter has too much space, the lease should resolve subletting the residential or commercial property. Warranties: The arrangement should attend to the warrantied cost of construction problems and shortages. The lease needs to define the guarantee responsibilities for malfunctioning style, construction or materials. What is Build-to-Suit Financing?
  
  Build to Suit Lease Accounting
  
  The Financial Account Standards Board (FASB) just recently released new accounting standards for leases (Topic 842). The new requirements cover BTS leases, which in some cases use sale-and-leaseback accounting.
  
  If the renter (lessee) manages the property during the building phase before lease start, it is the property owner. Upon completion of construction, the occupant sells the residential or commercial property to the landlord and rents it back. The lessee owns the residential or commercial property if any of the following are true:
  
  - The lessee has the right to buy the residential or commercial property throughout building and construction.
• The lessor (landlord) has the right to 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 enhancements, or the non-real-estate properties under building.
• The lessee controls the land and doesn't lease it to the lessor or another party before construction starts.
• A lessee leases the land for a duration that reflects the considerable economic life of the residential or commercial property enhancement. The lessee doesn't sublease the land before construction begins and before enjoying the residential or commercial property's economic life.
  
  Under these situations, the lessee is the possession's considered owner during building. Therefore, it must represent construction-in-progress using ASC 360 - Residential Or Commercial Property, Plant and Equipment. The guideline needs the lessee to presume obligation for the building costs by means of a deemed 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 considered owner of the asset during building and construction, it does not apply sale and leaseback treatment. Instead, it deals with payments it makes to use the property as lease payments.
  
  For in-depth details about build to match lease accounting, seek guidance from your accounting and legal advisors.
  
  Benefits and drawbacks of BTS Real Estate
  
  The pros of develop to match leasing frequently surpass the cons.
  
  Pros of BTS Real Estate
  
  Capital: The renter need not designate the capital necessary to build the residential or commercial property itself. The landlord gets to put its capital to work in return for long-lasting lease earnings. Location: The occupant can select its place rather than selecting from readily available stock. It can select a place in a high-growth location with simple access. The landlord makes use of the land it owns with no danger that a brand-new residential or commercial property will sit vacant. Efficiency: The renter defines the structure size so that it's best for its needs. Furthermore, it can demand high energy efficiency through modern devices and innovation. The property manager can utilize its involvement with a green job to burnish its reputation. Branding: The renter might take advantage of a building that shows its character and image. The occupant can select the architectural design, finishes and colors to amplify its image. Risk: The renter might be able to ignore the lease if the building and construction falls considerably behind. The landlord gain from a locked-in long-term lease once construction is total. Taxes: The tenant's lease payments are fully deductible over the life of the lease. Cons of BTS Real Estate
  
  Commitment: The renter incurs a long-term dedication that is hard 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 manage a long-lasting lease commitment. Cost: It's less expensive for the renter to find and rent uninhabited space. Many companies can not afford to pay for build to fit property. Time: It takes longer to construct a structure than to rent space from an existing one. How Assets America ® Can Help
  
  Assets America ® can organize funding for your BTS job starting 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 job possible through our network of private financiers and banks. For the very best in BTS financing, Assets America ® is the smart option.
  
  What is a ground lease vs. construct to match?
  
  In a ground lease, the occupant leases the hidden land rather than the residential or commercial property. In a build to fit lease agreement, the property manager owns the land and the tenant rents the building constructed on the land.
  
  What does develop to fit property imply?
  
  Often, construct to match describes commercial residential or commercial properties. However, it is possible to participate in a develop to match arrangement for a multifamily house. Then, the tenant subleases the systems to subtenants.
  
  What is a reverse build to suit?
  
  A reverse develop to suit is when the occupant manages the construction of the residential or commercial property. Reverse BTS is helpful when the renter has unique know-how in constructing the type of residential or commercial property involved. Typically, the property owner finances the reverse BTS deal.
  
  Is a build-to-suit lease agreement right for me?
  
  It might make sense for proprietors who have vacant land they wish to establish. The BTS contract minimizes the danger of developing the land considering that the lease is locked-in. Tenants protect capital through a BTS lease arrangement.
  
  Recent BTS News
  
  If you're interested in news articles about recent BTS developments, you can check out this $75 million build-to-suit investment or this build to suit satisfaction center for Amazon. Additionally, you can examine out this build-to-suit commercial building in Janesville or these office tenants requiring construct to suit leases.