A build-to-suit is a new facility designed and built for a specific tenant, who leases it on a long-term basis once it is complete. The tenant gets a building shaped around its operation: the right size, layout, loading, power and expansion path. The landlord provides the land, the capital and the development work, and recovers its investment through the lease.
When a build-to-suit makes sense
It makes sense when no existing building meets the requirement, or when adapting one would cost nearly as much as building new and still leave compromises. It is common for distribution and manufacturing facilities with specialized requirements, for headquarters campuses and for single-tenant retail. The trade-off is time and commitment: a build-to-suit takes considerably longer than leasing an existing building, and the lease term is typically long. The decisions with the most leverage over cost and schedule are made before anything is built. The early phases deserve the most care.
The decisions with the most leverage over cost and schedule are made before anything is built.
The phases of a project
Some phases overlap. Design often continues while entitlements are pursued, and site work can begin once grading and foundation permits are in hand, before every interior detail is final. Overlap shortens the schedule, but it also means some decisions must be made earlier than a tenant might expect, so it helps to have an internal decision-maker with authority to approve the design as it develops.
Every project is different, but most move through the same sequence:
- Requirement definition: the operation, its size today and in the future, and the specifications it needs.
- Site selection: candidate sites compared on location, cost, utilities, zoning and timing.
- Preliminary design and budget: a site plan, building plan and outline specification, priced well enough to set the rent.
- Letter of intent and lease: business terms, then a lease with the specifications and schedule attached.
- Entitlement and permitting: zoning approvals, site plan approval and building permits.
- Construction: site work, building shell, then interior and tenant-specific work.
- Commissioning and move-in: inspections, certificate of occupancy, system testing and the tenant's installation of equipment and fixtures.
Site selection and design decisions
Site selection weighs the operation's needs against what each site can deliver. For industrial projects, that usually means access to highways, ports, rail and the customers or suppliers the facility serves, along with the available labor pool. For any project, it means utility capacity (power in particular, which can take a long time to bring to a site), zoning that permits the use, soil and environmental conditions, and any incentives offered by state or local authorities.
Compare shortlisted sites on the same basis, much as you would compare lease offers: estimated rent from the projected project cost, operating costs including taxes, the time to deliver, and the risks attached to each. A site that looks cheaper on land cost may need extensive grading, utility extensions or a lengthy approval process that erases the saving.
Design decisions should follow the operation. Agree the specifications that matter most early and record them in the lease: clear height, door counts, slab, power, fire protection, office area, parking and yard. Distinguish between what is essential on day one and what can be added later, since every requirement adds cost and, through the rent, that cost is paid over the life of the lease.
Where schedules slip
Construction itself is usually the most predictable part of a build-to-suit. Delays more often come from the steps around it. Entitlement can take longer than expected, especially when a site needs rezoning or public hearings. Utility work, particularly new electrical service, depends on the utility's own schedule. Long-lead equipment such as switchgear, generators and specialized mechanical systems can set the critical path. And changes to the design after construction starts are among the most common causes of both delay and added cost.
Plan for these risks rather than hoping to avoid them. Build contingency into the schedule between substantial completion and your required move-in date, order long-lead items early, and settle the design before construction begins. The lease should define what happens if delivery is late: rent credits, extended free rent, or rights for the tenant if a long outside date passes.
How the lease is structured
Build-to-suit leases are usually long-term net or absolute net leases. The tenant pays rent plus the property's operating costs, and in an absolute net lease takes on nearly all costs, including structural repairs. Rent is commonly set from the agreed project cost: land, design, construction, financing and development costs multiplied by an agreed return. That makes the budget, and how changes to it are handled, central to the negotiation.
Expect the lease to attach the specifications, the design approval process and the construction schedule. It should state how tenant-requested changes are priced and whether they adjust the rent, when rent commences relative to substantial completion, and what warranties the landlord provides on the new building.
Planning for the next phase
A facility built for today's operation can be outgrown within the term. Where the site allows, plan for expansion from the start: land held for a future addition, a building designed so a wall can come out and the structure extend, utilities sized for the larger building, and parking and yard laid out with the expansion in mind. An expansion option in the lease can set the process and the pricing in advance.
If you have a requirement that existing buildings cannot meet, tell us about it early through the inquiry form or on +1 (307) 309-3800. The sooner a project starts, the more choice there is in sites and schedule.
General information for businesses considering commercial space, not legal, tax or financial advice. Every lease is different; your lease's own terms govern.
