BuildtoSuit

Build-to-suit is a real estate development model in which a builder constructs a facility tailored to meet the specific requirements of a prospective tenant. The tenant is usually a single user, such as a manufacturer, distributor, retailer, office company, or data center operator. The resulting building is designed to match the tenant’s space, layout, and performance needs, rather than being built on speculation.

The process typically begins with the tenant outlining space requirements, site selection, and performance specifications. A developer or landlord arranges financing, designs the facility, secures permits, and constructs the building. Upon completion, a long-term lease is executed, and occupancy begins. Ownership of the property may reside with the developer or with a separate ownership entity that leases the space to the tenant. In some cases, the tenant may obtain an option to purchase the property at a later date.

Financially, build-to-suit projects rely on the capital stack of equity and debt, with the tenant’s lease payments serving as the primary source of repayment. The arrangement reduces the tenant’s upfront capital expenditure and provides a space precisely aligned with operations, while offering the developer a secured, long-term lease income. In practice, BTS agreements vary in terms of ownership, lease structure, and any tenant purchase options.

Common BTS applications include office campuses, industrial and warehouse facilities, retail spaces, and data centers. Risks include construction overruns, schedule delays, shifts in tenant requirements, and long-term occupancy commitments.