Successful Build-to-Suits in the Successful Build-to-Suits in the Real WorldReal World

Introduction to PresentersIntroduction 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.

IntroductionIntroduction

• Goal: Enhance brokers ability to serve BTS clients.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.

Topics of DiscussionTopics of Discussion

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

Identify and Determine the Identify and Determine the Client’s ScopeClient’s Scope

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

MITRE: A Clear Scope.MITRE: A Clear Scope.

US Postal Service: US Postal Service: Heavy TI’sHeavy TI’s

Compaq: There Will Always Be Compaq: There Will Always Be Change OrdersChange Orders

Choose to work with people you Choose to work with people you trust.trust.

Assemble the Client’s BTS TeamAssemble the Client’s BTS Team

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

Designing the RFPDesigning the RFP

• Understand the Client’s business• Details of location & site parameters• Define Tenant’s scope• Project Business terms (for lease and for sale)• Project time line

Content of the RFPContent 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 Client’s Required Time Line• Developer / Land Owner Credentials & Track Record• Architectural Firms Credentials & Track Record

Typical 3 Story Office Building Typical 3 Story Office Building PSF CostsPSF 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

TI’s $25.00 $50.00

Soft Costs $10.00 $15.00

Total $125.50 $245.00

Typical PSF Costs for a 200,000 Typical PSF Costs for a 200,000 WarehouseWarehouse

Item Low High

Land and Due Diligence $3.00 $10.00Land Improvements $2.00 $5.00Design $0.65 $2.00Shell $17.00 $25.00TI’s $3.00 $10.00Soft Costs $3.50 $8.00Total $29.15 $60.00

How Developers Calculate RentsHow Developers Calculate Rents

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

Yield on CostsYield on Costs

Total costs $40.00

Development Yield 10.50%

Net Rent $4.20Less Vacancy ($0.26)

Less Reserves ($0.10)

Net Operating Income $3.84

Investment Return 9.6%

Profit MarginProfit Margin

Profit Margin Sought = 11%

Net Rent $4.20Net Operating Income $3.84Cap Rate 8.50%Sales Price $ 45.18Sales Costs $ (0.99) 2.0%Net Sales Proceeds $ 44.27Less Total Costs ($40.00)Profit $4.27 11%

Return on EquityReturn on EquityTotal 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%

Comparing CostsComparing 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

Preparing and Reviewing Schedules

Warehouses OfficesTask Fast Slow Fast SlowStart to RFP 4 8 4 12RFP to Developer 3 6 4 8Lease/Reimbursement Agreement

1 5 1 6

Design 4 8 9 20Permits 4 8 6 12Construction 21 32 36 52

Total Weeks 37 77 60 110Fast Track (Overlap)

Exit StrategiesExit Strategies

• Generic Building• Cancellation Options (aren’t free)• Future Uses• Purchase Options• Divisibility• Don’t destroy the Landlord’s Exit Strategy

Best and Final OfferBest 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

The Major Areas of BTS RiskThe Major Areas of BTS Risk

• Clearly determine and identify your client’s 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.