What is a Build-to-Suit (BTS) Property? A Broker's Guide
As an experienced industrial real estate broker serving Orange County, California, we've worked with countless business owners who needed a specialized warehouse or manufacturing facility. One of the most effective ways to get a custom-built space is through a build-to-suit (BTS) property.
What is a Build-to-Suit (BTS) Property?
A build-to-suit property is a commercial real estate development where the landlord constructs a new building tailored to the specific needs of a single tenant. The landlord will work closely with the tenant throughout the design and construction process to ensure the final product meets all their unique requirements.
This is in contrast to a "spec" building, where the developer constructs a generic warehouse or industrial space without a pre-committed tenant.
Typically, a BTS project involves the landlord acquiring land, obtaining permits, designing the building, and managing the construction. The tenant then signs a long-term lease (often 10-20 years) to occupy the completed property.
Key Benefits of a BTS Lease
There are several reasons why a build-to-suit arrangement can be an attractive option for businesses:
Customized Design: The tenant has full control over the layout, features, and specifications of the building. This allows them to optimize the space for their exact operational needs, whether that's loading dock configurations, clear height requirements, or specialized manufacturing equipment.
Flexibility: BTS leases are typically much longer than standard commercial leases, often 10-20 years. This gives the tenant long-term stability and the ability to amortize any upfront costs associated with the buildout.
Lower Upfront Costs: Since the landlord is responsible for construction, the tenant avoids the capital expenditures required to build out a new facility from scratch. The tenant can simply pay rent on the completed space.
For example, let's say a packaging company in Anaheim needs a 50,000 square foot warehouse with 32-foot clear height ceilings and 20 dock-high loading doors. The total construction cost for this specialized facility might be around $12,000,000. Instead of the business having to come up with that $12 million, they can sign a 15-year BTS lease and pay rent of, say, $1.75 per square foot per month, or $105,000 per month.
Tax Benefits: Tenants in a BTS arrangement can often take advantage of accelerated depreciation schedules for the leasehold improvements. This can provide significant tax savings compared to owning the property outright.
When to Consider a BTS Lease
A build-to-suit property is an excellent option when a business has very specific facility requirements that can't be met by existing industrial space on the market. This is common for manufacturing, distribution, or logistics companies that need customized warehouse layouts, high clear heights, extensive power supply, and other specialized features.
However, BTS deals also require a long-term commitment from the tenant. The landlord is taking on significant risk by constructing a building tailored to a single user, so they'll typically want the tenant locked into a 10-15 year lease at minimum.
So businesses that anticipate significant growth or changes in their operational needs over the next decade may want to carefully evaluate whether a BTS arrangement makes the most sense.
Conclusion
Overall, a build-to-suit property can be an extremely valuable option for industrial tenants who need a highly customized facility. By working closely with an experienced developer, businesses can get a space perfectly suited to their unique requirements while minimizing upfront capital costs.
If you're an Orange County business owner exploring your real estate options, we'd be happy to discuss whether a BTS lease could be the right fit. Give us a call to learn more about the opportunities in your local market.