No buildings available? You might need a build-to-suit

Negotiations are underway as we have a signed letter of intent for a large logistics building outside the Southern California basin.

Our client plans an expansion of their operation into this location. The lure of less expensive land and fewer city restrictions hooked us. The lack of supply nearly capsized us until we decided to buy land and build. This is also called “build-to-suit.”

Recently, we sold a building out of the state of California. Our client is an investor who bought the Texas building in a tax-deferred exchange.

Cash flow, ease of management and the multi-year lease had appealed to the buyer. For the next 10-plus years, our client will enjoy rent payments.

The building is leased long-term to a Fortune 500 company. A build-to-suit was accomplished for the tenant four years ago.

So, what is a build-to-suit and when should one be considered? I believe one or more of the following circumstances would dictate building new vs. buying or leasing an existing building.

Lack of availability

Industrial vacancy in Orange County is the lowest in history. Some 99.5 of every 100 manufacturing and warehouse buildings are occupied. And if your desire is Class A, in many cases there is no supply. If your company needs to grow into a larger building, chances are you’ll be hard-pressed to find one.

The lack of available buildings should suggest a good climate for a build-to-suit.

The trouble is, there is very little undeveloped land in the county. Even if you wanted to build, no vacant land exists to accommodate such a feat.

In the case of the Texas building mentioned above, there were no vacant buildings within the desired city, but there was a surplus of affordable and available buildable land sites. Thus, the choices were to build or consider another city.

Special-purpose building

This is similar to the circumstance of “lack of …read more

Source:: Los Angeles Daily News

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