Finding the right commercial space is a challenge for any business owner or executive. Those starting specialized companies or buying into franchises, in particular, may have very specific needs for the property that they acquire.
Finding a turnkey property can be very difficult in some markets. Commercial development companies and property owners have learned to monetize that need for specialized commercial space by offering build-to-suit leases. There are several different types of build-to-suit lease arrangements.
Such arrangements generally involve a contract where the business leasing the property provides specific standards, and the landlord or property developer builds the unit or remodels it to exactly meet the tenant’s needs. How can those investing in a new business enterprise determine if a build-to-suit lease is the best option available?
Evaluate pricing and long-term obligations
Commercial leases usually last for multiple years. A build-to-suit lease may leave a business tenant effectively locked into a specific property indefinitely.
The party constructing the unit or remodeling an existing one typically intends to recoup the investment made over the duration of the lease. Looking at the long-term commitment and the costs over time can help business leaders determine if a build-to-suit lease is a practical and cost-effective solution.
Explore the long-term needs if the company succeeds
Simply gaining access to acceptable business space is not sufficient for the protection of a new business startup. There need to be growth opportunities as well.
In some cases, expanding into an adjacent unit or working with the same landlord to establish new build-to-suit facilities in other locations could be options. Other times, the long-term goal may be to acquire property permanently after proving that the business model works.
Discussing whether the landlord might consider selling a build-to-suit unit to the tenant eventually could help leadership prepare for future success. They may also need to look into other options to expand their operations if the company proves successful.
Evaluating the details of a build-to-suit lease and the unique needs of the company can help business leaders make the right decisions when acquiring commercial property. Commercial leases are costly, long-term agreements that require careful consideration for the protection of business tenants.
