If you're a business owner, looking for a facility to run your operations, you have several options. You could buy or lease an existing commercial property. You could choose to build your own.

Or, you choose an arrangement known as a build-to-suit lease... :)

A build-to-suit lease is a common arrangement used when businesses want a newly built freestanding property but don't want to come up with the initial capital themselves. Here's an overview of what build-to-suit leases are and why they can be preferable to the alternatives.

What is a build-to-suit lease?

In simple terms, a build-to-suit lease is a type of commercial real estate leasing arrangement under which a developer or landlord agrees to construct a property according to the lessee's requirements, and the lessee agrees to lease the property from the developer upon its completion.

How does a built-to-suit lease work?

Tenants typically commit to leasing a built-to-suit property for a certain length of time (10 to 20 years is common), and they often have the option to extend the lease beyond its initial term. Most build-to-suit properties are freestanding, meaning that they only have one tenant. Build-to-suit leases are typically triple net leases. This means that the tenant is responsible for property taxes, building insurance, and most maintenance and repair costs for the duration of the lease.

The general process starts by the tenant selecting a site for their property, usually in cooperation with a developer. Many developers have a portfolio of undeveloped land that build-to-suit tenants can choose from, or the business owner can find an available piece of land on their own.

Then, the business owner and the commercial real estate developer will agree on terms of the lease, such as how long the lease term will last, how much the rent will be, and when lease payments start. Typically, the rent will be determined by the developer applying a desired percentage return to the costs of the project. These costs include land costs, site improvements such as grading and utilities, the costs of the actual building, legal costs, and several other common expenses and are important for the tenant to know (since they will determine the rent).