In commercial real estate, Build-to-Suit (BTS) is a development strategy where a property is custom-built for a specific tenant’s needs, typically under a long-term lease. This approach allows businesses to occupy purpose-built facilities without the burdens of property ownership. In this authoritative guide, we explore what build-to-suit means, how it is applied in key sectors like retail (with extensions into hospitality and industrial uses), how leases are structured (often using NNN models), the benefits and risks for all parties involved, and global trends in BTS projects. As a leading CRE marketplace, Brevitas provides a unique perspective on how build-to-suit deals come together and the emerging opportunities in this space.
What is Build-to-Suit Real Estate?
Build-to-suit real estate refers to an arrangement in which a developer (or landlord) constructs a property specifically for a committed tenant, tailored to that tenant’s exact specifications and operational requirements. Instead of the tenant buying land or a building, the tenant signs a lease agreement before construction begins, ensuring the finished building will suit their needs. The result is a custom facility – often a free-standing building – designed for one tenant’s use. This model has been used for decades as companies large and small seek to expand into new locations or upgrade facilities without tying up capital in owning real estate.
The mechanics of a BTS deal typically involve close collaboration between the tenant and the developer. The process might start with a tenant identifying a target market or site and then seeking a developer to undertake the project. Alternatively, a landowner or developer may offer a “build-to-suit opportunity” on a site they control, essentially proposing to construct a building for any tenant willing to sign a long-term lease. In either case, the tenant outlines its requirements (size, layout, design features, technical specs) and the developer secures financing, navigates zoning and permits, and constructs the property to meet those specs. Upon completion, the tenant moves in under the agreed lease terms, which often span 10, 15, or 20 years. This long-term commitment gives the developer confidence to invest in construction, and the tenant gets a turnkey, custom-built property.
Build-to-suit projects are often contrasted with speculative (“spec”) development. In speculative projects, developers build without a specific tenant in place, hoping to attract one later – which carries the risk of vacancy or a mismatch of the building’s design with what tenants want. BTS, on the other hand, starts with a tenant’s commitment, meaning the building is pre-leased and tailor-made. Historically, many corporate headquarters, R&D facilities, and specialized industrial plants have been delivered via build-to-suit arrangements. Over time, the approach has become especially common for certain retail and franchise expansion strategies, as well as large-scale logistics facilities.
Build-to-Suit in Different Sectors
Retail Sector
The retail sector is perhaps the most visibly associated with build-to-suit development. When you see a new stand-alone coffee shop or fast-food restaurant pop up in your town, there’s a good chance it was a build-to-suit deal. Retail tenants – especially national chains and franchises – love BTS because it guarantees their new location will have the exact layout, drive-thru configuration, branding, and technological setup they require. A classic scenario is a quick-service restaurant chain partnering with a developer to construct a store on a pad site: the developer handles permits and construction to the brand’s prototype specifications, then leases the finished building to the restaurant operator. This allows the retailer to expand rapidly into new markets without owning real estate, while ensuring each location meets their corporate standards.
Beyond restaurants, other retail uses like banks, convenience stores, and pharmacies also utilize build-to-suit. For instance, a bank might need a very specific branch format with certain security features and drive-up teller lanes; a build-to-suit lease lets them get that custom branch built. The key in retail is that location and brand image are paramount – BTS ensures the tenant gets a prime site developed exactly right for its customer experience. From small footprint coffee kiosks to big-box retail stores, if a tenant has unique requirements, a build-to-suit can fulfill them. Retail BTS deals often result in highly recognizable freestanding properties that effectively function as the tenant’s branded asset, even though a landlord actually owns the real estate.
Hospitality (Hotel) Sector
The hotel sector also leverages build-to-suit, although it might not always be immediately labeled as such. Many hotel brands (like Marriott or Hilton) rely on developers or franchise partners to finance and build new hotels to the brand’s standards, which the hotel company then operates or franchises. In some cases, these arrangements are akin to BTS: a developer may construct a hotel according to, say, Marriott’s exact design guidelines (room count, meeting spaces, amenities, façade style) and upon completion, the hotel opens as a Marriott under a long-term agreement. The difference from retail is that hotels often involve franchise and management contracts rather than a simple landlord-tenant lease, but the underlying principle is similar – the building is delivered ready-to-use for that specific flag (brand). Build-to-suit in hospitality ensures that the complex needs of a modern hotel (from lobby layout to back-of-house systems) are met, allowing the operator to begin serving guests on day one with a property tailored to their service model.
One example is a franchised hotel owner who partners with a developer: the developer funds and builds the hotel on an agreed site, following the brand’s prototype (for instance, a Courtyard by Marriott design). Once built, the franchisee or the hotel brand leases or operates the property. This approach is particularly useful in expanding into markets where the hotel company prefers not to own real estate but still wants a presence. It gives the hotel brand expansion with limited capital outlay, and the developer gains a long-term operating agreement or lease with a globally recognized tenant.
Industrial and Logistics Sector
The industrial sector – including warehouses, distribution centers, and manufacturing facilities – is another domain where build-to-suit is prevalent. Large corporations with specific operational requirements often can’t find suitable existing buildings in the market, so they turn to a build-to-suit solution. A prime example is Amazon: as an e-commerce giant, Amazon frequently needs massive fulfillment centers with specialized features (extra high ceilings for rack storage, abundant docking bays, conveyor systems, parking for fleets of delivery vehicles, etc.). Developers around the world have engaged in BTS projects to deliver these customized warehouses for Amazon on long leases. Similarly, logistics companies (FedEx, UPS, DHL) and manufacturers may require custom-built facilities (for example, a plant with specific electrical and floor load capacities, or a data center with particular cooling and power systems).
In a build-to-suit industrial deal, the tenant outlines critical specifications such as square footage, clearance height, site access (for trucks or even airport access), and any unique build-outs (like cold storage areas or automation infrastructure). The developer then constructs the shell and often some tenant improvements as per the plan. Because these facilities tend to be large and expensive, the leases are long-term to help the developer/landlord recover the investment. Industrial BTS projects allow tenants to ramp up operations in a facility made for them, which can improve efficiency and save retrofitting costs. For landlords, having a credit-worthy tenant like an international corporation in a purpose-built warehouse can be a very secure investment. The downside is these buildings can be highly specialized – if the tenant leaves, finding a new user with the same needs can be challenging. Nonetheless, with the continued growth of e-commerce and just-in-time supply chains, build-to-suit developments in the industrial sector remain in high demand for distribution hubs and advanced manufacturing sites.
Typical Build-to-Suit Tenants and Franchise Drivers
Many types of tenants opt for build-to-suit arrangements, but a few stand out for how frequently and strategically they use this model. Below are some common BTS tenant profiles and why they favor this delivery method:
- Quick-Service Restaurants and Retail Chains: Brands like Starbucks and Chick-fil-A often pursue BTS deals to support rapid expansion. For these franchises, a build-to-suit means each new store can be built to the company’s prototype design (ensuring a consistent customer experience) and opened in the optimal location. Franchisees prefer BTS because it reduces their upfront development burden – the developer secures permits, builds the store to spec, and the franchisee steps into a turn-key business. This allows restaurant chains to grow quickly without needing to buy land or manage construction on their own. It’s a win-win: the tenant gets a brand-new, custom-tailored location, and the developer secures a long-term lease with a popular tenant that drives traffic.
- Hospitality Brands: Major hotel companies such as Marriott often rely on build-to-suit-like partnerships for new properties. In these scenarios, a local developer or franchise owner will finance and build a hotel according to the brand’s strict standards (from the architectural style down to interior layouts and amenities). The completed hotel is then operated under the brand’s flag via a lease or franchise agreement. Franchisors favor this model because it accelerates their footprint growth without heavy capital investment. They ensure quality and consistency by having the property built to their specs, and the developer or owner is incentivized by the secure income of a branded hotel with an established reservation system and customer base.
- Industrial and Tech Giants: Companies like Amazon in logistics, or even data center operators, are common BTS tenants due to their highly specific facility needs. By engaging in a build-to-suit, these corporations can get sites that accommodate advanced automation systems, unique power or connectivity requirements, and custom layouts not found in generic industrial buildings. For example, an e-commerce company may need a cross-dock warehouse of a certain size with exact truck court dimensions; a build-to-suit ensures they get it. These tenants prefer BTS development because it guarantees operational readiness – the building is ready for immediate use of their technology and workflow, which is crucial for businesses that operate at scale. Additionally, by leasing the facility (instead of owning), they keep their balance sheet light and can redirect capital to core business investments.
Across these examples, a common theme is that franchises and large corporates use build-to-suit as a strategy to grow or optimize operations with minimal distractions. The International Franchise Association notes that franchised businesses benefit from real estate solutions that let them focus on running the business rather than building management. From the tenant’s perspective, BTS deals provide the flexibility of leasing with the tailor-made advantages of owning. This is why so many well-known names in food, hospitality, and industry have made build-to-suit a cornerstone of their expansion playbook.
Lease Structuring Strategies in BTS Deals
The lease structure in a build-to-suit deal is crucial, as it allocates the costs, responsibilities, and long-term interests between the landlord (developer) and tenant. The most common lease model used in BTS arrangements is a triple-net (NNN) lease. Under an NNN lease, the tenant agrees to pay not just base rent, but also cover the property’s operating expenses – including property taxes, building insurance, and maintenance (the three “nets”). For the landlord, a triple-net lease ensures that once the building is delivered, they have a steady rent stream without worrying about day-to-day upkeep or fluctuating expenses. For the tenant, an NNN structure provides operational control; since they are responsible for maintenance and other costs, they can manage the property as if it were their own, giving them flexibility to maintain brand standards and efficiency.
Build-to-suit leases are typically long-term, often ranging from 10 to 20 years or more, with options to renew. This long duration is designed to allow the developer/landlord to recoup the construction investment over time and to give the tenant stability for their operations. Rent levels in a BTS lease are usually calculated based on development costs plus a fair return to the developer. In practice, the landlord might determine rent by factoring in land acquisition costs, construction expenditures, financing, and a profit margin or yield target. The initial lease rate may also include scheduled escalations (for example, 2% annual increases or periodic step-ups every 5 years) to account for inflation and growth in operating costs, especially since the lease term is so lengthy.
Another feature of build-to-suit leases is often a form of guarantee or credit enhancement. Because the landlord is committing significant capital upfront, they will vet the tenant’s creditworthiness carefully (a point especially important if the tenant is a franchisee or a newer company). Many BTS leases for franchises come with a corporate guarantee from the franchisor or parent company, or at least require substantial security deposits or letters of credit. High-credit tenants like national corporations make BTS projects easier to finance and more valuable, which is why developers are eager to work with them. In addition, lease agreements might include clauses about project delivery: for instance, rent may commence only upon completion and occupancy, or there could be penalties if construction delays occur. The lease essentially doubles as a development agreement in many BTS deals, laying out roles in construction (sometimes called a work letter) and the lease terms once built.
It’s also worth noting that in some build-to-suit scenarios, the arrangement might start as a ground lease if the tenant prefers to construct the building themselves. For example, a franchise like Chick-fil-A might lease land from a property owner (long-term ground lease) and then build their own restaurant on that land. This is a variation where the tenant invests in construction, but it’s still “build-to-suit” in the sense that the site choice and improvements are solely for that tenant’s operation. However, the more traditional BTS model involves the developer delivering a complete building. In all cases, the fundamental strategy is aligning the lease terms with the development so that both parties have a clear understanding of costs, timelines, and responsibilities from day one.
Benefits of Build-to-Suit
Benefits for Tenants
- Customized Facilities: The tenant gets a facility designed exactly for their business – whether it’s a retail store layout optimized for sales, a hotel built to brand standards, or a warehouse tailored to logistic flows. This customization can improve business performance and brand presentation from the moment the doors open.
- Turn-key Operational Readiness: In a BTS arrangement, the tenant can step into a brand-new property that is essentially ready for immediate use. There’s no need to retrofit or remodel an existing space to fit their needs; everything from electrical systems to floor plan is built for their operations. This minimizes downtime and speeds up expansion plans.
- Conservation of Capital: Instead of spending massive capital upfront to buy land and construct a building, the tenant can conserve cash (or credit capacity) by leasing. For franchises and growing companies, this is critical – they can allocate resources to core business investments (like hiring, inventory, or technology) rather than real estate development. The build-to-suit model shifts the financing burden largely to the developer.
- Flexibility and Risk Mitigation: Leasing through a build-to-suit gives tenants flexibility in the long run. They commit to a long lease, but they are not permanently tied to owning a property in case their needs change in 15 or 20 years. At lease expiration, they could choose to relocate or negotiate new terms, depending on what’s best for the business. Additionally, some BTS leases may include options to expand the facility or even purchase the property down the line, offering future flexibility.
- Focus on Core Business: Because the developer handles the complexities of permitting, design, and construction, the tenant can focus on their core business operations. The build-to-suit process still involves tenant input (to ensure the design meets their needs), but the heavy lifting of development is managed by experts on the landlord side. This means less managerial distraction for the tenant’s team and a professional delivery of the real estate project.
Benefits for Landlords and Developers
- Long-Term Stable Income: Landlords in a BTS deal secure a long-term lease with the tenant before breaking ground. This virtually guarantees occupancy and a steady rent for many years, providing stability of income. For investors, such predictable cash flow – often from a high-credit tenant – is extremely attractive, as it’s akin to having a bond-like investment backed by real estate.
- High-Quality Tenants (Credit Tenants): Build-to-suit projects often attract well-established companies, franchises, or corporate clients. These tenants typically have strong credit and brand recognition. For the developer/landlord, having a reputable tenant like a national chain or Fortune 500 company reduces the risk of default and can enhance the property’s value (properties leased to “credit tenants” often command premium prices in the investment market).
- Reduced Leasing Risk: Because the tenant is in place from the project’s inception, landlords don’t face the leasing risk that speculative developers do. There’s no worry about marketing the building post-construction or covering debt with an empty building. This pre-leased nature of BTS means a developer can often get financing more easily and at better terms, and upon completion there’s immediate revenue generation.
- Tailored Development Fee or Profit: Developers can negotiate development fees or lock in profit margins as part of the build-to-suit arrangement. Essentially, the project’s costs and returns are underwritten with the tenant’s commitment. In many cases, once the project is completed and the tenant is in place, the developer might even choose to sell the leased asset to a long-term investor, potentially realizing a profit. The combination of development profit and an exit sale to net-lease investors is a common play in the BTS arena.
- Streamlined Process with Tenant Buy-In: Since the tenant is engaged throughout the design and construction planning, the project is less likely to face change orders or last-minute modifications after completion. The landlord knows the finished product will be immediately accepted by the tenant. This alignment can lead to a smoother construction phase and on-time delivery. Moreover, a satisfied tenant in a well-executed BTS can lead to repeat business – a landlord might become a preferred developer for that tenant’s future expansion, creating a pipeline of projects.
Risks and Challenges for Developers and Investors
- Single-Tenant Dependency: In a build-to-suit, the entire project is typically built around one tenant. This means the landlord’s success is heavily tied to that tenant’s fortunes. If the tenant’s business falters or they unexpectedly default or exit the lease, the landlord is left with a highly customized building and no income stream. The vacancy of a single-tenant property can be more damaging than a multi-tenant property because 100% of rental income is lost. Investors in BTS properties carefully assess the tenant’s credit risk for this reason.
- Specialized Building, Re-Leasing Risk: The very customization that makes a BTS property great for the original tenant can become a hurdle if the tenant leaves. A restaurant building with a drive-thru is perfect for that brand, but if it goes dark, the pool of replacement tenants may be limited to those with similar needs (another fast-food chain, for example). Similarly, a warehouse built with unique automation might need expensive retooling to suit a new occupant. This site- and design-specific nature means the landlord might face longer vacancy or costly renovations to re-tenant the property in the future.
- High Upfront Capital Commitment: Developers must front the costs of land acquisition and construction, often running into millions of dollars, based largely on the promise of future rent from the tenant. This capital is locked in the project. If unforeseen issues arise – construction delays, cost overruns, or changes requested by the tenant – the developer’s finances can be strained. Even with a solid lease commitment, the developer typically doesn’t start recouping costs until the tenant begins paying rent (which is usually after completion). This requires careful financial planning and often significant debt financing, which carries its own risks if interest rates fluctuate.
- Development and Timing Risk: Every real estate development faces risks like permitting hurdles, construction challenges, labor or material shortages, and potential delays from weather or other factors. In a BTS scenario, delays can strain the relationship with the tenant – the tenant might be counting on the building to open by a certain date (perhaps they timed a store opening or a facility launch accordingly). Some BTS contracts include penalties for late delivery, putting added pressure on developers. If a project misses its schedule or budget, the developer’s return on investment can erode quickly, especially if rent commencement is delayed.
- Opportunity Cost: Committing a prime piece of land to a single tenant means you forego other opportunities for that site. For instance, a parcel that could have been developed into a multi-tenant shopping center or a mix of uses is instead used for one build-to-suit project. If the tenant is strong and the lease is solid, that’s a sensible trade-off. But if market conditions shift – say there’s suddenly higher demand for a different property type – the developer can’t easily pivot the project. The decision to do a BTS locks the site’s use for possibly decades. Investors must be confident that the BTS is the highest and best use of the land in the long run, not just in the short term.
Despite these risks, many developers and investors engage in build-to-suit projects because the rewards (stable long-term occupancy and reliable income) can outweigh the drawbacks when executed with the right partner. Mitigating measures, such as thorough due diligence on tenant financials, solid development contracts, and sometimes requiring tenant investment (skin in the game), help reduce risk. Moreover, the involvement of experienced brokers and advisors can ensure that lease terms and contingencies are well structured to protect the developer’s interests.
Global Expansion and Trends in Build-to-Suit
While build-to-suit is a well-established practice in the United States, it is also gaining momentum globally. Companies expanding internationally often find BTS an attractive way to enter new markets, particularly where suitable existing properties are scarce or where they prefer not to purchase real estate due to local regulations or capital considerations. Here are a few global trends and regional highlights for build-to-suit:
- Latin America (LATAM): In Latin American markets such as Mexico, Brazil, and Colombia, build-to-suit deals are on the rise. Multinational retailers and logistics firms see BTS as a way to ensure quality facilities in markets where industrial or retail inventory may be outdated or limited. For example, a U.S. retail chain expanding into Mexico might use a local developer to build stores to its U.S. specs, guaranteeing brand consistency abroad. These arrangements also appeal to Latin American investors who are eager to partner with high-credit international tenants, securing leases often backed by global corporate guarantees. The result has been growth in BTS projects, from distribution centers at key ports and border zones to shopping center outparcels for major restaurant franchises.
- Middle East (Gulf Region): The Gulf states (such as the UAE, Saudi Arabia, and Qatar) have been investing heavily in infrastructure and development, and build-to-suit transactions are part of that boom. With ambitious economic development plans, these countries often attract foreign companies to set up regional headquarters or specialized facilities. Build-to-suit becomes a strategic tool: a local developer (sometimes government-backed) will construct an office campus, a hospital, or a logistics hub for a specific international tenant or operator. For instance, a tech company might have a data center built-to-suit in Dubai to serve the Middle East market. The appeal here is that BTS can be structured to comply with local ownership laws (where the local entity owns the property and leases to the foreign tenant) while delivering state-of-the-art premises for the tenant. The Gulf’s focus on tailored, high-end development has made it fertile ground for BTS, especially in sectors like logistics, corporate offices, and retail malls where international brands require custom layouts.
- Asia (ASEAN and Beyond): Throughout Southeast Asia – in countries such as Singapore, Vietnam, Indonesia, and Thailand – build-to-suit development is becoming more common as economies grow and attract foreign investment. ASEAN nations often have fast-growing consumer markets but might lack specialized facilities for advanced industries. Build-to-suit projects help bridge that gap. For example, a Southeast Asian e-commerce startup might partner with a developer to create a new distribution center in Vietnam built-to-suit for modern fulfillment operations. Or a global automotive manufacturer entering an emerging market might use a BTS arrangement for a new factory or showroom. Additionally, in more mature Asian markets like Singapore or Japan, companies sometimes opt for BTS for new cutting-edge office buildings or R&D centers where they want input into design and efficiency. The common driver is that BTS provides a tailor-made solution in regions where finding the “perfect” existing building is difficult. It also allows international standards to be met in construction, which can be important for companies adhering to global operational protocols.
Across these global examples, build-to-suit offers a way to align diverse stakeholders: international tenants gain footholds in new regions with facilities that meet their requirements, and local developers/investors gain stable, international-caliber tenants. As capital flows into emerging markets and cross-border expansion continues, the BTS model is likely to further expand, facilitated by global commercial real estate services and platforms that connect the right partners for such deals. Industry research from groups like NAIOP and global firms like CBRE consistently highlights build-to-suit development as a growth strategy in markets where demand for modern, customized space outstrips available supply.
Brevitas’ Role in Connecting Build-to-Suit Opportunities
As a premier commercial real estate marketplace, Brevitas plays a strategic role in bringing together the parties involved in build-to-suit deals. BTS transactions require the right match of vision, capital, and need – and Brevitas provides the platform where investors, developers, brokers, and tenants can find that match. For example, a broker or developer can list a build-to-suit opportunity on Brevitas, such as land available for a custom development or a pre-leased BTS project seeking investment. Interested parties from around the world can discover these listings and connect confidentially through the marketplace. This is especially valuable for build-to-suit deals, which often start with a specific requirement (a tenant seeking a type of property in a location) or an offering (a developer with a ready site and financing looking for a tenant). Brevitas efficiently connects those dots by enabling targeted searches and secure communications among verified real estate professionals.
Brevitas’ global reach and professional network make it easier to execute BTS strategies. An investor looking for stable, long-term net lease assets can find newly built properties backed by credit tenants. A franchise operator eyeing expansion can connect with developers who have turnkey sites. And developers can source capital or buyers for completed build-to-suit projects. By providing rich property data, marketing tools, and a collaborative deal environment, Brevitas reduces the friction in build-to-suit transactions. In essence, Brevitas serves as a bridge between the demand for specialized, built-to-order real estate and the supply of developers and capital that can deliver it. With the continued growth of build-to-suit across retail, hospitality, industrial, and global markets, Brevitas stands as a key facilitator – helping advanced investors, brokers, and developers strategically navigate and capitalize on BTS opportunities.
