What does “Build to Suit” mean? (with photos)

Commercial properties can be built to cater to retailers who are interested in moving to the area.

Build to suit is an option where the owner agrees to build a facility to the specifications of a prospective tenant, who signs a lease to occupy the property once it is completed. This is a long-term deal as the landlord needs to make a considerable investment in the process, and if the building’s custom features are very unique, it can be difficult to find a replacement tenant. Developers often offer a suitable building option for commercial spaces, although some may build schools and other facilities upon request.

Projects built to fit often include parking lots.

Developers offering this rental option typically advertise it in trade publications and real estate magazines. It is common to place a sign on the land announcing that it is available for a bespoke construction contract. The tenant can contact the developer to close a contract. Once the terms are satisfactory to all involved, the developer can begin construction on the building and hand it over to the tenant for use once it is complete.

For tenants, there are several advantages to this type of tenancy. One of them is the ability to develop a customized facility to precisely meet needs, with a layout suited to the company’s mission and activities. This can be valuable in the long run, especially when compared to the alternative of trying to do generic construction work. Companies may find it easier to expand and reconfigure their operations when they have a custom building to work in.

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There may be reasons why a company does not want to own a property. Real estate can be expensive and building structures requires substantial investment that can be difficult to finance. Additionally, the developer retains responsibility for maintenance on many construction contracts to fulfill, allowing the tenant to focus on space usage. Renting a building to fit the structure can be more expensive, but the advantages can outweigh that.

Developers obtain a committed tenant who will maintain occupancy, allowing the developer to recoup the investment costs associated with purchasing the property and building the structure. This can be a significant benefit in regions where tenant turnover tends to be high.

The terms of a build to suit agreement can vary considerably. All parties must review the agreement carefully and request necessary changes before agreeing. Contract negotiations often require legal services to represent the interests of all involved.

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