In a build-to-suit arrangement, a developer finances and constructs a property tailored to a specific tenant’s needs, who then leases the completed facility. Typically, the tenant assumes the financial responsibility through lease payments that cover the developer’s costs, including construction, financing, and a profit margin. For example, a large retail chain might contract with a developer to build a distribution center designed to their specifications. The retailer then leases the facility from the developer upon completion.
This approach offers significant advantages for both parties. Tenants benefit from customized facilities without the capital outlay required for construction, enabling them to allocate resources to core business operations. Developers secure a long-term, stable tenant from project inception, mitigating leasing risks. Historically, build-to-suit projects have been particularly prevalent in industries requiring specialized facilities, such as manufacturing, logistics, and data centers, where adapting existing structures is often impractical or cost-prohibitive.
