Understanding Build To Suit Leases

In a build-to-suit transaction, a developer (landlord) builds the improvements for the tenant and in return that tenants signs a long term lease. The tenant has full operational control of the custom-built facility and the landlord now has a long term lease in place with a strong tenant. While some developers do hold onto the assets for passive rental income, most sell the buildings (with this brand new lease in place) upon completion so they can roll the proceeds into a new project. Typical buyers of these build to suit projects are passive investors and 1031 exchange clients. These projects are a win for the developer, tenant, and new owner. Tenants preserve capital that would otherwise be tied up in construction costs and can fund further growth in their business. Developers take most of the risk but are able to make some money on the sale of the asset. Private investors are able to purchase these assets almost as if they are bonds. They are receiving a reliable check, have zero landlord responsibilities, and a tenant who is profiting from a custom built brand new building. A win win situation for all parties involved (Developer, Tenant, New Owner)