Successful Build-to-Suits in the Real World

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Successful Build-to-Suits in the Real World
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Introduction to Presenters

• Ted Anspacher, SIOR, Anspacher Commercial Real
  Estate Services
• Tim Gallagher, SIOR, Clayco Construction Company
• Tom Mercer, AMB Property Corporation
• Robert Whittelsey, SIOR, Colliers Bennett
  Kahnweiler, Inc.

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Introduction

• Goal Enhance brokers ability to serve BTS
  clients.
• Methods for achieving this goal
• Reviewing all aspects of BTS process.
• Review real-life examples.
• Detailed take-home materials on a CD.

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Topics of Discussion

• Identify and determine the clients scope.
• Assemble the clients BTS team.
• Preliminary site selection and land control.
• Points to remember in preparing RFPs.
• Projecting and analyzing costs.
• How rents are calculated by developers.
• Preparing and reviewing schedules.
• Exit Strategy.
• Understand and anticipate risks.

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Identify and Determine the Clients Scope

• Qualify Build-to-Suit Prospect
• Understand the Clients business.
• Learn the Clients goals and activities.
• Understand Clients time constraints.
• Office Space program.
• Industrial Space program.

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MITRE A Clear Scope.
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US Postal Service Heavy TIs
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Compaq There Will Always Be Change Orders
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Choose to work with people you trust.

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Assemble the Clients BTS Team

• Single Point of Contact with Client
• Legal Counsel
• Architectural Services
• Engineer
• Municipality Liaison / Economic Development
• Title Officer
• Project Manager Representation
• Team Requirements

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Designing the RFP

• Understand the Clients business
• Details of location site parameters
• Define Tenants scope
• Project Business terms (for lease and for sale)
• Project time line

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Content of the RFP

• Turnkey Development Sale Price Lease Terms
• Estimated Operating Expenses
• Lease Extension Quote
• Hold Over Clause
• Legal Issues
• Answer Site Specific Questionnaire
• Respond to Clients Required Time Line
• Developer / Land Owner Credentials Track Record
• Architectural Firms Credentials Track Record

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Typical 3 Story Office Building PSF Costs
Item Low High
Land and Due Diligence 17.50 40.00
Land Improvement 5.00 12.00
Design 3.00 8.00
Shell 65.00 120.00
TIs 25.00 50.00
Soft Costs 10.00 15.00
Total 125.50 245.00
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Typical PSF Costs for a 200,000 Warehouse
Item Low High
Land and Due Diligence 3.00 10.00
Land Improvements 2.00 5.00
Design 0.65 2.00
Shell 17.00 25.00
TIs 3.00 10.00
Soft Costs 3.50 8.00
Total 29.15 60.00

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How Developers Calculate Rents

• There are three ways for developers to calculate
  rents
• Yield on Costs
• Profit Margin
• Return on Equity

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Yield on Costs
Total costs 40.00
Development Yield 10.50
Net Rent 4.20
Less Vacancy (0.26)
Less Reserves (0.10)
Net Operating Income 3.84
Investment Return 9.6
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Profit Margin
Profit Margin Sought 11

Net Rent 4.20
Net Operating Income 3.84
Cap Rate 8.50
Sales Price 45.18
Sales Costs (0.99) 2.0
Net Sales Proceeds 44.27
Less Total Costs (40.00)
Profit 4.27 11
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Return on Equity
Total Costs 40.00
Equity 8.00 20
Rate of Return on Equity 15
Rent Required to Cover ROE 1.20

Debt 32.00 80
Interest Rate on Mortgage 7
Years of Amortization 25
Debt Service (Rent Required for Mortgage) 2.75

Vacancy (0.25) 5
Structural Reserve (0.10)
Total Net Rent 4.30 11
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Comparing Costs

• Getting Apples to Apples Comparison
• Require the responses to follow your format
• RFP must be thorough and specific to obtain a GMP
  and/or Guaranteed Rent
• Make a side-by-side analysis

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Preparing and Reviewing Schedules
Warehouses Warehouses Offices Offices
Task Fast Slow Fast Slow
Start to RFP 4 8 4 12
RFP to Developer 3 6 4 8
Lease/Reimbursement Agreement 1 5 1 6
Design 4 8 9 20
Permits 4 8 6 12
Construction 21 32 36 52
Total Weeks 37 77 60 110
Fast Track (Overlap)
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Exit Strategies

• Generic Building
• Cancellation Options (arent free)
• Future Uses
• Purchase Options
• Divisibility
• Dont destroy the Landlords Exit Strategy

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Best and Final Offer

• Negotiating Tactics Talk to Everyone
• Bring-up Changes in Scope
• Get Apples to Apples Comparison
• Getting to the Lease
• Development/Indemnity Agreement
• Straight to Lease / Purchase Agreement
  Negotiations

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The Major Areas of BTS Risk

• Clearly determine and identify your clients
  scope.
• There will be change orders
• Understand the risks to schedule
• Response time from client or other parties
• Site Entitlements
• Weather
• Construction
• Long lead time items.
• The cost risks should be borne by the developer
  with the possible exception of site conditions.
• Choose to work with people you trust.