CRE 101 · deweyluong.realtor

Build-to-Suit Explained: How a Georgia Tenant Gets a Building Built Exactly for Its Business — Without Buying It

A build-to-suit is a deal where a developer builds a brand-new building to one tenant's exact specifications, and the tenant leases it long-term instead of buying it. The tenant gets a building designed around its operation — the drive-thru lane, the ceiling height, the floor drains, the power — with no construction loan and no land purchase on its own balance sheet. The developer gets a long, financeable lease that repays the entire project cost plus a return. On the made-up example on this page, a 12,000 square foot Gwinnett building costs $4,900,000 all-in, and the rent is not guessed from comparable leases: it is the project cost multiplied by the developer's required yield — $4,900,000 × 7.25% = $355,250 a year, or $29.60 per square foot. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498 · dewey.luong@serhant.com · https://deweyluong.realtor

The worked example uses made-up, rounded numbers. Real land, construction, and financing costs vary by site, design, and market. This page is general education only, not legal, tax, or lending advice — a tenant or developer needs a Georgia real estate attorney and its own lender and contractor team.

What a build-to-suit actually is

• Two agreements, signed together: a build-to-suit is really a development agreement and a lease negotiated at the same time. The development agreement covers plans, specifications, budget, approvals, and deadlines. The lease covers everything after delivery — rent, term, escalations, and who maintains what. Signing one without the other settled is how disputes start.
• The tenant commits before the building exists: unlike speculative development, where a developer builds and hopes, a build-to-suit starts with a signed lease from a committed tenant. That commitment is what lets the developer borrow construction money — the lender is really underwriting the tenant's credit and the lease, not the empty building.
• Long term is the price of custom: because the building is designed for one user's operation, it may fit the next tenant poorly. Developers and their lenders therefore require long initial terms — commonly 10, 15, or 20 years — so the full project cost can be recovered through rent even if the space is hard to re-lease later.
• Usually triple net: most build-to-suit leases are absolute or standard triple net (NNN). The tenant pays taxes, insurance, and maintenance on top of base rent, and often carries roof and structure obligations on the longest deals. The base rent number is only part of the occupancy cost.

The three structures a Georgia tenant will actually see

• Developer build-to-suit lease (the standard form): the developer buys or controls the land, finances and builds the project, owns the finished building, and leases it to the tenant. The tenant's capital stays in its business; the developer's return is built into the rent.
• Reverse build-to-suit: the tenant acts as its own developer — it builds on the landlord's land, at the landlord's agreed cost or under the landlord's budget — and the completed building becomes the landlord's, with the tenant leasing it. Tenants with strong in-house construction teams use this to control quality and schedule while still keeping the real estate off their books.
• Build-to-suit to own, or build then sale-leaseback: the user finances and builds the building itself, then either keeps ownership or sells the finished, leased building to an investor and leases it back. The sale-leaseback version converts a construction project into a long-term net-lease investment, which usually prices off the tenant's credit and the lease term — the subject of the sale-leaseback lesson in this series.

How the rent is really set: yield on cost

In an ordinary lease, rent comes from comparable leases nearby. In a build-to-suit, comparables are a sanity check, not the formula. The formula is: annual rent = total project cost × the developer's required yield on cost. Total project cost means everything — land, hard construction, soft costs such as architecture, engineering, permits and legal, financing and carry during construction, contingency, and the developer's fee. If any line is missing from the budget the tenant reviews, the rent math the tenant agreed to is not the rent math that will be charged. This is the same yield-on-cost discipline covered in the yield-on-cost lesson, applied to a single-tenant project.

The worked example: a 12,000 square foot Gwinnett build-to-suit

• The requirement: a made-up Georgia business needs 12,000 square feet built to its own specification — layout, clear height, and site plan that no existing building in its trade area offers. A developer controls a suitable Gwinnett site.
• Land: $900,000.
• Hard construction cost: $275 per square foot × 12,000 square feet = $3,300,000.
• Soft costs: $420,000 for architecture, engineering, permitting, and legal.
• Financing, carry, and contingency: $280,000.
• Total project cost: $900,000 + $3,300,000 + $420,000 + $280,000 = $4,900,000 — about $408.33 per square foot, all-in.
• The rent: at the developer's required 7.25% yield on cost, $4,900,000 × 7.25% = $355,250 per year = $29.60 per square foot per year, or $29,604.17 per month, triple net, on a 15-year initial term with 2% annual escalations. By year 15 the annual rent reaches about $468,745 — which is why the escalation clause deserves as much negotiation as the starting rent.
• What the finished building is worth: an investor buying that rent stream at a 6.50% cap rate pays $355,250 ÷ 6.50% ≈ $5,465,385 — about $565,385, or 11.5%, above the $4,900,000 cost. That spread between yield on cost and market cap rate is the developer's profit, and it only exists because the lease and the tenant's credit make the income dependable. The cap rate lesson shows the same math from the buyer's side.
• The tenant's alternative: second-generation space nearby might lease at $24.00 per square foot — $288,000 a year, $67,250 a year less — but with the wrong layout, no drive-thru, and a landlord allowance that covers cosmetics, not a rebuild. The build-to-suit premium is the price of a building that fits the operation exactly, delivered new, with a 15-year runway.

The clause that decides who pays when costs move: overruns

Construction budgets move. On this example, if hard costs run just 10% over budget, that is another $330,000, the total cost becomes $5,230,000, and rent at the same 7.25% yield becomes $379,175 a year — $31.60 per square foot, an extra $23,925 a year for the tenant, every year, with escalations on top. Whether that happens depends entirely on the structure negotiated before signing: a cost-plus / open-book deal passes overruns into the rent; a fixed-rent deal puts overruns on the developer, who prices that risk into a higher starting yield; a guaranteed maximum price with a rent cap splits it — overruns up to the cap pass through, beyond it they do not. A tenant that negotiates the starting rent hard but leaves the overrun clause soft has negotiated the smaller half of the deal.

Five steps, in the order they actually happen

1. Define the requirement and pick the site: square footage, clear height, parking, dock or drive-thru needs, power, and trade area — then verify the zoning actually allows the use before anyone draws anything. The zoning and entitlements lesson covers why this check comes first in Georgia, where permitting timelines vary widely by county and city.
2. Run competing developers against one budget format: require every proposal on the same cost lines — land, hard, soft, financing, fee — and the same stated yield, so the rents can be compared line by line instead of headline by headline.
3. Sign the lease and the development agreement together: plans and specifications as exhibits, approval rights over changes, a delivery deadline with real remedies, and a defined rent-commencement date.
4. Build, with the tenant watching the change orders: every change order is a rent change in a cost-plus structure. The tenant's approval rights in step 3 are what keep the final rent close to the quoted rent.
5. Deliver, punch-list, and start the clock: rent commencement is usually tied to substantial completion or a fixed date — whichever the lease says. Tenants should negotiate commencement off actual delivery, not a calendar date that construction delays can burn through.

Traps that cost tenants real money

• Specialized means stranded: a building designed around one operation can be worth far less to anyone else. Expect the landlord to protect that risk with term length, escalations, and sometimes a termination fee schedule — and expect renewal rent to be negotiated from strength only if the tenant starts early.
• The purchase option is decided at signing, not later: if the tenant may ever want to own the building, the option price formula — fixed price, fair market value, or unamortized cost — must be in the original lease. It is nearly impossible to add on friendly terms mid-lease.
• Rent commencement before the doors can open: if rent starts on a date instead of on delivery and local permitting slips, the tenant pays for a building it cannot use. Tie commencement to delivery plus a defined fit-out window.
• Change orders without a rent ceiling: in a cost-plus deal, approve a change-order budget cap beyond which the rent cannot rise, or require re-approval of the full rent schedule — not just the change itself.
• Ignoring the ground underneath: many pad-site build-to-suits sit on a ground lease rather than owned land. Who owns the land, what happens to the building when the ground lease ends, and whether the ground rent resets can matter more than the building lease itself.

Cho nhà đầu tư và chủ doanh nghiệp người Việt

Build-to-suit (xây theo yêu cầu) là cách một doanh nghiệp có được tòa nhà mới xây đúng theo nhu cầu vận hành của mình — bố cục, chiều cao trần, làn drive-thru, hệ thống điện nước — mà không phải tự mua đất hay vay xây dựng. Nhà phát triển bỏ vốn xây và làm chủ tòa nhà; doanh nghiệp ký hợp đồng thuê dài hạn, thường 10–20 năm, đa số theo hình thức triple net (NNN).

Điểm quan trọng nhất: tiền thuê trong build-to-suit không lấy từ giá thị trường xung quanh, mà tính từ tổng chi phí dự án × tỷ suất lợi nhuận yêu cầu của nhà phát triển. Trong ví dụ của trang này: đất $900.000 + xây dựng $3.300.000 ($275/SF × 12.000 SF) + chi phí mềm $420.000 + tài chính và dự phòng $280.000 = $4.900.000. Tiền thuê = $4.900.000 × 7,25% = $355.250/năm, tức $29,60/SF, thuê 15 năm, tăng 2%/năm. Nếu chi phí xây dựng vượt ngân sách 10% (+$330.000) trong hợp đồng kiểu cộng chi phí (cost-plus), tiền thuê tăng lên $379.175/năm — vì vậy điều khoản về vượt chi phí quan trọng không kém mức thuê khởi điểm. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý hay tài chính.

Frequently asked questions

What is a build-to-suit lease?

It is a lease, signed before construction, under which a developer builds a new building to one tenant's specifications and the tenant leases it long-term — commonly 10 to 20 years, usually triple net. On this page's made-up example, a $4,900,000 total project cost at a 7.25% yield on cost produces rent of $355,250 a year, or $29.60 per square foot, for a 12,000 square foot building.

How is build-to-suit rent calculated?

Rent equals total project cost multiplied by the developer's required yield on cost. Total cost includes land, hard construction, soft costs, financing and carry, contingency, and the developer's fee. On the worked example: $900,000 land + $3,300,000 construction + $420,000 soft costs + $280,000 financing and contingency = $4,900,000; at 7.25%, rent is $355,250 a year. If hard costs overrun 10% in a cost-plus structure, rent rises to $379,175 a year — which is why the overrun and rent-cap clauses matter as much as the starting rent.

Who owns the building in a build-to-suit?

In the standard developer structure, the developer owns the land and the building, and the tenant owns only its leasehold and its business. In a reverse build-to-suit the tenant builds on the landlord's land and the finished building is still the landlord's. A tenant that wants ownership should negotiate a purchase option — with its price formula — into the original lease, or use a build-to-own or sale-leaseback structure instead.

How long does a build-to-suit take in Georgia?

Timelines vary by use, county, and city permitting, but a tenant should plan on well over a year from signed lease to open doors on a typical project — design, permitting, and construction each carry their own schedule risk. That is why rent commencement should be tied to actual delivery rather than a fixed calendar date, and why the site and zoning check belongs at the very start of the process, before design money is spent.

Build-to-suit (xây theo yêu cầu) là gì?

Là hình thức nhà phát triển xây tòa nhà mới đúng theo yêu cầu của một doanh nghiệp, rồi doanh nghiệp thuê dài hạn thay vì mua. Tiền thuê tính từ tổng chi phí dự án nhân tỷ suất yêu cầu: trong ví dụ của trang này, $4.900.000 × 7,25% = $355.250/năm cho 12.000 SF, tức $29,60/SF, thời hạn 15 năm. Điều khoản quan trọng nhất cần thương lượng là ai chịu chi phí vượt ngân sách và ngày bắt đầu trả tiền thuê có gắn với ngày bàn giao thực tế hay không. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý.