What is Built to Suit Warehouse? Everything you need to Know

A landowner has land, and some company or industrial real estate agent approaches the landowner and said that we are ready to take the warehouse on the lease if you can build it as per our requirement. Then land owner constructs the warehouse as per the client’s specific requirement and handover to him, this is called a built to suit warehouse.

A built-to-suit warehouse is a type of warehouse wherein there is an agreement between the lessor (developer) and the lessee (client) and the warehouse space is customized according to the client’s requirements by the developer. The developer shares all the design and construction requirements at the outset, which when agreed upon, the actual warehouse construction commences.

Advantages of Built to Suit(BTS) Warehouse

1. Choice of convenient location and investment to tenant.
2. Cooperation with a dedicated BTS team.
3. Savings in terms of investment and operating costs to tenant.
4. Consulting in the scope of optimizing logistic processes.
5. Solutions adjusted to the client’s industry profile.
6. The design of the building will be tailored to the exact needs of the tenant with existing needs and future growth options in mind.
7. The developer or land owner is assured of tenancy even before the construction and this gives him confidence and financial security.
8. Project time frame as per client need
9. Rentals start from day 1 which is an ideal scenario for a real estate investor.

Disadvantages of Built To Suit Warehouse

1. Warehouse is specifically made as per client requirement so developer will find difficulty in future to find another tenant easily.
2. The overall timeframe of a BTS can reach out as far as 15-24 months, or longer in some cases, and market conditions changes rapidly.
3. Tenants may view long-term lease deals as a drawback if adequate growth and contraction options aren’t available.
4. New construction is expensive. BTS construction is no exception; you just pay for it in a higher lease rate.

Points to keep in mind while doing BTS warehouse agreement  

1. Be clear about company specification like height, dock. Because it will increase your construction cost.
2. Open area requirement and price
3. Is company is asking for Fire NOC because fire NOC and it’s setup is costly.
4. Leasing time duration and lock-in time.
5. What other amenities company require.
6. Creditworthiness is a must for tenants in a BTS arrangement
7. keep the property title certified by top lawyers/ advocates with a good opinion

How to calculate rent for a warehouse ?

Land cost (/sq.ft rate) + Shed construction rate(/sq.ft) + other amenities rate (fire noc, etc) / total lease time duration = Rent/sq.ft

Why companies choose built to suit warehouse ?

At present, businesses do not want to engage capital in buying a plot and constructing a warehouse and decide to utilize BTS in order to economize on the investment and future maintenance costs. In the BTS model companies get construction specifications as per their own requirement so this is the biggest advantage.

Few reasons why companies are choosing BTS warehouses.

1. Lack of availability of good ready to move in warehouse.
2. The company is looking for their specific requirement, few companies require bigger open area, and few require more constructed area.

Who are the Major clients for BTS Warehouse?

1. E commerce companies
2. 3PL companies
3. Logistic companies

The Average Warehouse Size and The warehouse Construction Cost

The average trending size for warehouse development in metros is increasing from 1-1.5 lakh sq ft to 3-5 lakh sq ft. In non-metro markets, i.e. in tier 2 cities warehouse sizes are between 25000- 50,000 sq ft. The development cost for the warehouse may vary from 1500 to 2200 per sq ft depending upon the specifications.

How can you arrange funds for BTS Warehouse ?

There will always be a minimal amount of funding required for the project to be executed and the same needs to be available as liquid funds – about 15 to 25% of the construction cost to enable approvals, sanctions, site pre-development expenses, and foundation.

Once the LoI(Letter of Intent) or lease agreement is signed with a tenant with a lock-in and a received security advance, financial institutions and the bank will be comfortable to fund the balance money needed to cover the complete expenses. The land will be needed to be offered as security towards such loans and advances.