Build to suit .
The landowner pays for the construction to the specifications of the tenant, and the tenant then leases the land and building from the landowner, who retains ownership. Build to suit is frequently used by tenants who wish to occupy a building of a certain type but do not wish to own the building.
What is a "Build to Suit" Office Lease?
Last Updated January 16, 2017
You have dreamed about a custom home, one with a shimmering pool in your tropical paradise backyard, a media room tricked out with the latest technology, and a double-height den for your hunting trophy displays. While you lie by that imaginary pool, cursing the economy and current stringent credit requirements, extend that customization dream to something just as appealing for your business--custom office space.
Build-to-suit office space has the allure of an office environment exactly suited to a business's needs. It is defined as a building specifically constructed to the design and physical specifications of one user, at the user's chosen location. This kind of arrangement broadens location choice, provides superior space efficiency, and allows the company to better build its brand.
When a company finds that its current space will not be adequate for future growth, it has four options.
1) The business owner might lease or sublease vacant space from available office space. This method is probably the least expensive and the least complicated option, but it limits the business to what is available in the current market.
2) The second possibility is to acquire and renovate an existing building, which is a good option for a business with good credit, presuming any of the existing buildings were a good match.
3) The company might buy land and build its own facility, an alternative that requires extensive capital. With this option, the business owner assumes all of the risk of owning the building.
4) Build-to-suit is another alternative, where a business owner approaches a developer with specifications for the ideal office space. The developer constructs the building and leases it back to the user. This takes the burden of risk off of the business owner and allows him or her to invest the capital saved back into the business.
Is Build-to-Suit Office Space for Me?
Building to suit is not for every company. While leasing existing office space might take six months to a year, depending on company needs, building to suit is a several year process, and therefore requires a long term commitment. Before building, available land must be found, a good developer selected, the design process and construction negotiations begun, and all of this before the foundation is poured. In addition, because the developer is constructing a customized building for one user, the lease term is usually a minimum of ten years in order to spread the risk over a longer period of time.
Pros and Cons
If a company is able to make such a long term commitment, however, build-to-suit leases can be an outstanding option with many advantages:
- Location. Build-to-suit means the company can choose its location, rather than making do with what is available. These buildings are most often constructed in vibrant, high-growth areas with excellent access.
- Space efficiency. Because the building is built to your specifications, it has just the right amount of open space to private office space. The flow of access between departments is ideal for the daily workings of the business. Being able design the office around your business creates maximum space efficiency.
- Brand. Your company's image and personality should be reflected in your office space. Build-to-suit is uniquely suited to display your brand in the colors, finishes, and architectural design of your space.
- New building systems. New buildings have the latest in modern systems, like HVAC, plumbing, electrical, and lighting. They completely avoid the questionable charm of cobbled together fixes and patches that come with older buildings.
- Energy efficiency. With these new systems come cost-saving energy efficiencies. The latest technology for HVAC, lighting, and plumbing fixtures translate into less wasted water and electricity, and more dollars saved.
- That new building smell. In the search for office space, every business owner has toured the unit with frayed carpet, stained ceilings, and odd and mysterious odors. A new building has none of these defects to distract the client from what you offer as a business.
The cons we've already discussed in part. Build-to-suit office space is a long-term commitment, and one that requires excellent credit to procure financing. It is significantly more expensive than finding and leasing vacant space, but companies may realize savings in efficiency, reduced operating costs, and an improved image among clients.
Wouldn't Owning the Building be Better?
At this point, you may wonder, why not just build your own building and own it, rather than contract with a middle man to construct it and lease it back? Constructing and owning the building is a good option for very large companies with plenty of up front capital and big borrowing power. Most companies would find it difficult to invest so much capital in the building, rather than back into the business, where they are sure to receive a better return on investment. In addition, business owners may not want the hassle of managing and operating real estate, or being tied to the building if the company outgrows it in any way.
Build-to-Suit: The Process
The first step in the build-to-suit process is for the tenant to send out request for proposals to various developers, seeking presentations. once the proposal is selected, the lease negotiations begin.
Because the build-to-suit lease binds the landlord and tenant for an extended period of time, this part of the process is complicated and time consuming. The tenant will want to delineate all of its desires and specifications for the building--after all; this is the commercial iteration of a custom dream home. The landlord will in turn want to hold the tenant to those customizations that will both be financeable and later marketable when the tenant leaves the building.
Both landlord and tenant will want a say on who is to design, build, and engineer the building. In this design, describe, and allocate phase, as much detail as possible should be included in the lease documents.
The basic rental rate is fixed at this stage as well, calculated based on the rate of return on the land plus all forecasted costs of construction. The rent is often adjusted after construction, based on actual costs.
once the construction starts, timing becomes critical, as the tenant may have a fixed move-in date. The lease often has provisions for the tenant to walk if delays are onerous. The landlord will want to limit this option to terminate the lease to narrow circumstances, so he or she doesn't get stuck with a half-finished project. Tenants in turn can ask for lease clauses that include liquidated damages for completion delays, which greatly motivate the landlord to keep things on-schedule.
Other lease considerations include the date of the first rent payment. The landlord will want the earliest possible rent date since he or she has invested a great deal of capital and will want some remuneration. The tenant will prefer to pay rent when the building is completely finished. All of these negotiations are important in the process of coming to a lease that is beneficial for both parties.
Moving In: The Payoff
once the building is up and the paint is dry, you can move in to brand new, customized office space. While the process was long and sometimes exhausting, and costs were significantly higher than leasing existing space, it is hard to put a price tag on a perfect fit between your growing business and a customized, efficient, brand-building office space.
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The Build-to-Suit - Is it for you?
Introduction
Are you having a hard time finding suitable office space in your market? Is your office space market so tight that only small blocks of space are available? Do you have a unique or specialized need, which no building currently in your market can accommodate? Does any portion of your business represent a long term commitment?
If any of the above questions reflects your situation, consider designing and building your next facility to suit your needs rather than renewing your current lease or taking an “as is” building available in your area.
For the first time in over a decade, many corporations are inquiring into the feasibility of a build-to-suit facility for their company. With office vacancy rates in the single digits, quality office space becoming scarce, and the spread in rental rates between existing space and new space narrowing, the build-to-suit option appears very attractive. The market surge throughout many real estate markets in the U.S., has driven vacancy rates down, rents up, and made landlords jubilant. Economists predict a drastic under supply of office space in many areas, yet lenders and developers are reluctant to construct new buildings - unless a substantial portion of their risk is eliminated.
Definition
A build-to-suit is a building specifically constructed to meet the design, location and physical specifications of one major user. A building may be developed based on a build-to-suit requirement of one user. Excess space in the building could be leased to additional tenants or set aside for the planned expansion of the original tenant.
A user has several alternatives in which to originate and transact a build-to-suit opportunity. The following three are the most typical:
The user assumes the responsibility of acquiring the land; hires a general contractor to oversee the planning and construction; and assumes the liability of financing, either with debt or equity. Upon completion, the user has the option to continue ownership or sell the property to an investor and lease it back. This is known as a sale-leaseback transaction.
The user approaches a developer with a requirement and transfers the construction, ownership risk and potential profit to the developer.
A hybrid between the above choices, including shared equity and joint venture arrangements.
Cost Factors
Before determining the structure of a build-to-suit, the user must analyze the pre-tax, after-tax and profit/loss impact of the various alternatives. Many factors influence the financial impact of a build-to-suit. Each factor must be sufficiently examined for the optimal structure to be achieved. Below is an abbreviated list of key factors:
Credit of the Tenant
Initially, most build-to-suit opportunities were with users whose credit was classified as investment grade which typically falls in the Standard and Poors classification as BBB- and above. However in today's market, financing is available for tenants rated slightly below investment grade (BB, B). Obviously, the stronger the credit rating of the company, the more favorable rental rate a company can obtain due to the reduced risk assumed by the investor and lender.
Length of Lease
A longer term lease generally allows the developer to achieve more favorable financing, translating into a reduction in rental rate. Reducing the Lender's and developer's rollover risk allows the lender to amortize the loan over a longer time period. In addition, a longer lease term reduces the real estate and property-related risk of the transaction and places greater emphasis on the credit risk of the tenant. However, if a long term lease is structured, the user must ensure the lease meets the operating lease requirements of the FASB 13 (Financial Accounting Standards Board). Most users prefer that the lease remain off their balance sheets to improve corporate key financial ratios such as return on assets and return on equity.
Location and Construction
The cost of a build-to-suit is influenced by the credit of the tenant and the underlying real estate. Upon lease expiration, the developer must assume the risk of releasing the property. In the past this could frequently mean an empty building for one to three years, new interior improvements and many other associated fees. This gamble is minimized if the property is well located and is not constructed as a "special” or “single use" type of structure.
Space Requirements
Most office build-to-suits generally require the user to occupy a minimum of sixty percent or more of the property. A higher occupancy percentage reduces the risk of leasing the remaining space to additional tenants and thereby allows more favorable financing and investment parameters. However, in many markets with limited vacancy, a small percentage of unoccupied space allows the developer to maximize his return by charging higher rents on the initial vacant portions of space.
Lease Structuring
There are various ways a lease can be structured to achieve the needs of the user. Below are the most common types.
Full Service - A full service lease means that the lease rate includes all operating expenses of the building and requires no additional payment from the tenant. A hybrid of this lease requires the tenant to pay their prorata share of any increases in expenses from the time of occupancy.
Net, Net, Net Lease - A Net, Net, Net lease (triple net or NNN) means the tenant's rate does not include building expenses. All prorata operating expenses and taxes for the property will be paid by the tenant. However, the landlord is responsible for any structural and capital repairs. The tenant may terminate the lease in the event of a casualty subject, of course, to provisions in the lease.
Bondable Lease - Similar to a NNN lease, but the tenant is responsible for all expenses of the property including capital items. In addition, the rental rate may be affected by changes in the financial condition of the tenant. The tenant assumes certain lease responsibilities and signs certain corporate covenants resulting in the lease being regarded by lenders and investors more as a corporate bond than a real estate loan. The result is a financing cost at or near the corporate bond rate.
Synthetic Lease - This lease is structured as an operating lease for GAAP purposes and a capital lease for tax purposes. The synthetic lease allows the tenant to finance its occupancy cost at a lower rate and still achieve the benefits of off balance sheet financing due to certain reversion risks at the end of the lease term. This somewhat controversial structure can be fairly costly to create and has considerable technicalities, but can greatly reduce the rental costs. It was derived for use in real estate after a proven track record in the equipment leasing area. one potential risk of using the synthetic lease is that it may be subject to a re-evaluation by the Financial Accounting Standards Board at some point in the future.
In addition to the above, there are many other creative lease structuring methodologies including leveraged, joint venture and equity leases that should be explored by the user and it's advisor.
Team Structure
As with any successful endeavor, the right project team needs to be established to ensure the user makes the most informed decision.
Typically the user initially hires a broker/advisor to set direction and orchestrate the necessary team. The first major task of this advisor will be to select and coordinate the formation of a “steering committee” within the user firm. This steering committee should include the highest level of leadership available and will need a focal chairperson. If the project is a headquarter location, the Chief Financial Officer and Director of Administration should be present, with senior representation from the legal and public relations departments. The committee will need to be small enough to be available on a regular basis and must be empowered by the Chief Executive Officer and Executive Committee to make decisions on behalf of the corporation. The committee will need to be sufficiently engaged in the selection and understanding process to feel confident in their many choices.
The advisor will then arrange interviews, prepare requests for proposals, negotiate with, and advise in the selection of other necessary team members who will be involved on an as-needed basis. These other specialties can be either from an outside firm or integrated as part of the advisor’s firm, but will report through the advisor to the head of the steering committee. The first such specialty will be a strategic planning function, to provide space sizing and growth studies, as well as other views on the impact of alternative workspace utilization. Technology advances and attitude changes may also warrant studies into the effects of implementing programs such as hoteling, virtual officing, team rooms, and other modern occupancy concepts. Other necessary “watchdog” team participants members will be a construction advisor and a real estate attorney. Each of these specialties will be necessary throughout the search, selection and negotiation process of the build-to-suit.
The real estate advisory and brokerage firm itself must be able to counsel the corporation on all possible land and building sites available, current market conditions, comparable rental rates and the financial impact of a build-to-suit as contrasted to other alternatives. The advisor, must be able to calculate on an after-tax and/or profit & loss basis both the corporate user’s and the developer's financial perspectives to assist in negotiation, financing and/or a forward commitment from a lender. These real estate financial engineering professionals should be capable of convincing investors of the potential gains if the corporation or developer desires to sell the property.
The negotiation and documentation of a build-to-suit transaction will take significant time and planning, being considerably more complex than the negotiation of a typical office lease. In a build-to-suit lease transaction, provisions relating to transaction structure, rental pricing, project control, construction issues, performance standards, environmental issues, title, non-disturbance and subordination all play a very major role. Tenant concerns relating to early termination, renewal, expansion and contraction are also frequently found in a build-to-suit lease. An experienced real estate advisor will assist in ensuring all these items are addressed to the corporate user’s advantage.
Advantages
A build-to-suit can offer several advantages to a relocating tenant. First, a build-to-suit allows the tenant to achieve maximum space efficiency since the space is designed specifically for the tenant. Second, new construction allows a developer to incorporate the most cost-effective energy systems in the project resulting in a reduction in operating costs of the property and lower occupancy costs to the tenant. Third, the tenant will have maximum design input to create a building that will project the desired company image. Fourth, a build-to-suit project will allow the user space for future expansion.
Disadvantages
A build-to-suit is not a short term solution. A user must make a long term commitment to the property to acquire financing. Second, it is not a transaction that can be completed quickly. The entire process may take several years to complete. Third, a build-to-suit generally is still considered a more expensive alternative than leasing existing vacant space, particularly if the size required is readily available on the open market. However, the additional cost may be offset by savings in space efficiency, reduction in operating costs, and improved company image. Fourth, due to the cost and time commitment of a build-to-suit, a tenant must reasonably forecast future expansion needs to ensure the property will meet the company's long term needs.
Conclusion
Build-to-suits represent one of the alternatives available to companies in today’s complex commercial real estate environment. Many executives in charge of procuring space for their companies find the build-to-suit option advantageous, while others prefer more traditional approaches to meeting space needs. Build-to-suits make the most sense when the company can make a long-term commitment to a property, can handle the initial costs, and when the firm is seeking to maximize efficiency and possible expansion potential.
Mark Larsen, a CCIM and Senior Vice President of CB Richard Ellis, is currently negotiating various large build to suit assignments. Paul Kramer, a CPA and Vice President/Regional Manager with CB Richard Ellis’ Financial Services Group, leads the financial consulting group for CB Richard Ellis’ Northeastern Division. Both are based in the Washington, DC area. CB Richard Ellis Corporate Real Estate Group is a group of highly trained, experienced real estate advisors who design and implement creative approaches to corporate real estate issues. Services include strategic real estate planning, acquisition and disposition services, property valuation and location advisory services.
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References in periodicals archive?
The facility, which will be
built to suit the customer's specific requirements, is expected to be completed in November 2012;
While Built to Suit appears to be a term more frequently used by industrial agents in recent times, go back 15 years or so and this approach to creating warehousing was very much the norm, says Jones Lang LaSalle's industrial partner, Carl Durrant.
As a result, Built to Suit or Design and Build, whichever term you wish to use, was relatively quiet, apart from very large and specialist warehouse buildings built for retailers like Sainsbury's and Tesco.
And so with the market focused on the take-up of existing stock created in the boom years, supply has begun to decline and once again we're getting back to our industrial roots of Built to Suit.
In 2010, the share of speculative and Built to Suit changed significantly, although speculative development still accounted for more than half the floorspace taken-up.
In the first quarter of 2011 - when only four units were taken-up - Built to Suit developments accounted for 65 per cent of the floorspace taken-up compared with 35 per cent for speculative floorspace.
It's not to say that Built to Suit is definitely the new speculative though, but it is gathering pace with the likes of Prologis, Gazeley and Goodman active in this sector.
Other notable Built to Suit projects include circa 450,000 sq ft for the co-op in Nottingham, 40,000 sq ft in Erdington, Birmingham for Selco Builders Merchants and two giant deals - one million square foot for M&S at East Midlands Distribution Centre and 840,000 sq ft at Daventry Industrial, Rail and Freight Terminal.
And there are a number of other occupiers in the market with requirements who are highly likely to go down the same Built to Suit root.
Three 11,000 s/f floors are immediately available for lease and will be
built to suit.
This state-of-the-art building offers 6,000 square feet per floor that may be
built to suit individual specifications.
Stephen Smith, WestJet President and CEO, said that "We have been exploring numerous options over the past year, including building our own facility, leasing one currently built, or having one
built to suit our needs.
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General Questions
What is a build-to-suit lease?
A build-to-suit lease is a common arrangement whereby the landlord constructs a free-standing building to meet the specifications of a particular client, who then becomes the sole occupant of the building. It offers an efficient method for a business to acquire and control a custom facility meeting its specific needs, and is used by all kinds and sizes of business, from the smallest to the largest.
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What are the advantages of leasing, as opposed to owning my own property?
For some, there is an emotional satisfaction with owning business real estate. For others, there is a vague idea that owning real estate is economically superior to leasing, often based on the presumption that the real estate will appreciate in value. While appreciation is a possibility, it is important to recognize that it is not a certainty, and that the value of the real estate is determined by factors unrelated to the success or failure of your business, and that over the period of time you own the property, its location may gradually fall into disfavor as growth and new construction moves away from you.
While leasing may not be best for everyone, thousands of businesses, from the smallest to the largest, find its advantages compelling, including the following:
- Preservation of capital: A build-to-suit facility allows a business to preserve and re-invest its capital in its business operations, rather than in real estate. Since the rate of return on capital invested in a successful business is almost always greater than the rate of return earned on capital invested in real estate, many business owners logically prefer to keep their capital productively invested in the operation and growth of their business, rather than in real estate.
- Tax deductions: 100% of your rent payments on leased property are tax deductible, while only the interest portion of your mortgage payments are deductible. Additionally, while the tax deductibility of depreciation is commonly thought of as a great reason to own real estate used for business, two factors severely limit its tax benefit. First, a significant portion of the real estate cannot be depreciated at all - namely the land. Second, most of the remaining improvements are required to be depreciated over a very long period - a period which the IRS continues to lengthen, and which is currently 39 years for most improvements. This means that only a very small fraction of the cost may be deducted each year. Before relying on tax considerations in deciding whether to own or lease, consult with your tax adviser.
- Flexibility: Due to its inherently illiquid nature, ownership of real estate requires a long term investment commitment. A tenant's commitment to leased property, on the other hand, is limited to the term of the lease. This shorter term commitment offers more opportunity to deal effectively with the evolving nature of the facility requirements of the business. Changes in those requirements commonly arise from:
- Business growth;
- Changes in the business model;
- Changes in technology;
- Changes in the demographics of the business's target market;
- Changes in business ownership; and
- For closely held businesses, changes in the health, goals, interests and other circumstances of the owners and their families.
- Timing and ease of disposition: Because the value of real estate is determined by factors unrelated to those affecting the value of your business, the best time to sell your business is rarely the best time to sell the real estate, and vice versa. Leasing allows your business decisions to be made without regard for the conflicting considerations posed by the underlying real estate. Additionally, it is almost always easier to sell a business than to sell both a business and real estate.
- Sticking with what you know: Leasing allows you to focus on what you know and do best. Commercial real estate and its management and market valuation are governed by factors unrelated to those affecting your business. It is a business unto itself, requiring a distinct set of skills and knowledge to be effectively managed, introducing a new element of risk which the typical business operator has little means of controlling.
- Administrative relief: Leasing relieves you from the burden and distraction of managing and operating the real estate, and from the costly results of overlooking important management issues related to the real estate.
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What are the advantages of a new building, as opposed to one previously occupied?
- Because the facility is designed to your specifications, you lease only the facility need - no more and no less.
- A new facility is designed exactly to your specific requirements, allowing you to operate with less space than you would need for an existing building that does not as efficiently meet your needs. It also results in greater functional efficiency and productivity in the day to day operation of your business.
- The selection of colors and finish materials allows your facility to reflect who you are, and to help establish your own business identity.
- New projects are typically located in areas vibrant with growth and activity, often with better roads and more convenient access for employees and customers.
- The heating and cooling system for new space is designed specifically for your use, and employs modern equipment in top condition, resulting in greater comfort than is possible with a system that has been patched together over the years as older space is remodeled, often resulting in thermostats in inappropriate locations, oddly split and unbalanced heating and cooling zones, and marginally effective equipment.
- New buildings reflect modern ventilation design practices, ensuring a continuous and adequate supply of fresh air and a healthy environment.
- The restroom fixtures, and other plumbing, electrical and lighting equipment is of course new and employs the latest technology, offering quieter, more reliable operation.
- The roofing system is new, ensuring that rain and snow do not mean stained ceilings and the aggravation and risk of property damage.
- New space is more attractive and inviting than previously occupied space, for both employees and visitors. There are no stains, fraying or wear patterns in the carpet; no holes, patches, marring or mismatched coloring of the walls; no defects, fading or accumulated grime on the ceiling system and heating ducts; no musty or stale odors; no peculiar and serpentine layouts reflecting years of floor plan adaptation; no cracking or potholes in the parking lot; no faded, stained or mismatched paint on the building exterior - in short, nothing that reflects poorly on the image presented by your facility to your employees and customers.
- New facilities comply with laws governing access for the disabled, removing the risk of your becoming involved in disputes or claims arising from access issues.
What is involved in creating a build-to-suit facility?
There are six main steps:
- Select a site.
- Establish the terms of the lease.
- Prepare plans for the improvements.
- Obtain a building permit.
- Construct the improvements.
- Move in.
What sites are available?
In addition to the existing locations that we currently own (see our available land section), we can assist you in locating and acquiring a site meeting your specific criteria in virtually any area of the Treasure Valley.
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How long is your lease document?
Our lease is typically only about seven pages long (rather than the 40 to 50 pages often comprising commercial leases), and is widely regarded as a clear, concise and fair document. Although the lease is very straightforward, unless you are experienced in commercial real estate, we recommend that your attorney review it as a matter of good business practice. Because we do not employ our own attorneys for most leases, we are able to quickly prepare the lease (usually within a day or two of request), and promptly respond to any comments you and your attorney may have.
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How long is the lease term?
Because each facility is designed to the unique requirements of one particular user, and involves a substantial expenditure for that purpose, the minimum term for general office uses is typically ten years to allow a reasonable earnings period for that investment. The term will be longer for special-purpose uses or designs.
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I would like to eventually own my own building. Can I have a purchase option?
Yes, if ownership is a goal, a purchase option can be included in the lease giving you the future right to buy the project based on its value at the time the option is exercised.
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How is the rent determined?
The rent is typically based on a rate of return applied to the project costs, with that rate governed in part by the current market conditions, the type of facility, and the user's credit standing. For full service leases, the rent will also include a component to cover operating costs. Since the rent is proportionate to costs, it is important to understand the related cost issues, as discussed below.
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Do you charge percentage rent for retail projects?
No, in most cases we do not. We believe that a tenant's success is more a measure of the tenant's own efforts, rather than a measure of anything the landlord has provided that isn't already adequately compensated for by the minimum rent. (See the glossary entry for a definition of this term.)
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Is a lease guaranty required?
A lease guaranty is typically required only if the entity signing the lease (often a corporation or limited liability company) is legally distinct from the entity or individuals who are operating and funding the business, or if the party signing the lease is relying on the credit of a third party. Lease guaranties, like loan guaranties, are very common and do not reflect poorly on the character of the parties involved, but simply represent a means of managing risk.
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Design
How does the design process work?
The design effort is a collaborative process involving you, the architect, the structural, mechanical, electrical and civil design consultants, and the construction value-engineering team members. one or two initial meetings with this design team is typically required to establish your design criteria and objectives, followed by review and refinement of the resulting intermediate plans until the final design exactly meets your requirements.
Our goal during this process is to minimize the time required on your part to professionally design improvements tailored to your specific needs.
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Do you provide help in selecting finishes and colors?
Yes, we provide a design consultant to help select coordinated interior and exterior colors and finish materials that are compatible with your preferences and design objectives.
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What is your sign criteria?
The sign criteria is governed by several factors, including the type of facility (for example, retail vs office), the provisions of any restrictive covenants governing the selected site, and local governmental sign restrictions. Signs appropriate to the location and type of facility being provided are rarely an issue.
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Construction and Costs
How much will my facility cost?
This of course depends on the location, size, type of building, required parking ratio, the level of improvement and finish, and the construction market at the time priced. We can provide accurate estimates of cost based on preliminary plans, followed by firm pricing based on detailed construction drawings.
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What if the costs (and therefore the rent) exceed my budget?
We share your interest in avoiding the late discovery, after much time and expense has been incurred, that project costs (and therefore the rent) are simply not feasible for your business model. Depending on the type of facility, we can often provide a preliminary range of likely cost without the necessity of incurring design fees. Additionally, we often recommend that preliminary outline plans be prepared for the purpose of obtaining an accurate estimate of costs, and with only a minimal investment in design fees. If these preliminary costs aren't feasible, and the project criteria can't be modified to bring the costs within the necessary range, we have both avoided a costly mistake.
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How much do you add to construction costs for a developer fee?
We do not add any markup of any kind: no developer fee, no construction management fee, no administration fee, and no overhead fee. The only costs included in our pricing are direct costs that we actually pay to third party vendors. We consider our services to be an included, integral part of any lease with our firm. Additionally, all costs underlying our pricing are available for your review.
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An acquaintance tells me he can build my space for much less than you have estimated. How can that be?
For those not experienced in commercial real estate, construction cost estimates are probably the single most common source of confusion and disappointment, and can often lead to disastrous results when the real costs aren't determined until it is too late to change course. Estimates are often given freely based on incomplete plans and specifications, with no meaningful definition of scope, without verification of current labor and materials costs, and sometimes for the purpose of enticement.
Our estimates include consideration of all sources of cost, not just the actual construction. Before relying on any estimate, consider the experience and reputation of the estimator, whether it is based on a defined set of plans and specifications, and whether it includes consideration of the following costs based on current market conditions:
- Land cost
- Site improvements costs (site utilities, fire hydrants, staking, grading, paving, drainage, landscaping, site lighting)
- Building construction costs based on approved specifications
- Design fees (architectural, structural, mechanical, electrical, civil)
- Materials testing and inspection fees
- Utility connection, meter and transformer fees
- Building permit and plan review fees
- Impact fee
- Bonding, if required
- Legal, brokerage and financing costs
- Course-of-construction insurance
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Can I build my own space, or use my own contractor?
Yes, you or your contractor may provide for the construction of your facility. However, unless you and your contractor have considerable experience with commercial construction, we recommend that you not attempt that undertaking. Aside from the substantial burden involved with the proper administration of any construction project, when compared with residential construction, commercial construction involves a different class of sub-contractors and materials, involves different construction techniques, is subject to different building codes and inspection requirements, and often has more serious consequences in the event of delay.
We have no economic incentive to provide construction services. We do not assess any administrative charge or other fee for this service, instead regarding it as a fundamental component of any lease with our firm. Our only reason for recommending that you allow us to provide construction services is the resulting assurance of the professional and timely completion of your facility with no unpleasant surprises.
Also bear in mind that all commercial general contractors rely on the same limited pool of qualified commercial sub-contractors within each trade, and that we provide for bidding among those sub-contractors, assuring you of competitive pricing when using our construction services.
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How long will construction take?
Again, this depends on the type and size of the facility, and the extent of any long-lead-time materials involved. Typical construction times range from four to eight months. However, remember to allow time for preparation, review and approval of construction plans (four to eight weeks), and time for obtaining a building permit (four to eight weeks).
In those cases where time is of the essence, we are able to expedite this process: We can coordinate close and timely participation by all team members during the design process; we enjoy excellent relationships with the permitting agencies and can ensure the plans spend minimal idle time within each approving department; we can identify and order long-lead items early in the design process; we can employ an early-start process in which we begin construction of the improvements prior to full permit issuance; and we can employ critical-path construction scheduling techniques to minimize actual construction time.
In any event, we commit within the written lease to a completion schedule, and you can rely on that schedule as the outside date for completion - we have never failed to meet our commitment.
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Can my telephone and data cabling vendors, and my equipment installation vendors, access the space during construction?
Yes, these vendors customarily have access to the space at the appropriate stage of construction.
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Occupancy
What services are included in the rent?
Most build-to-suit leases are net leases, in which the occupant is responsible for the costs of operating the facility. However, for office projects we can structure the lease as a full service lease, in which we provide some or all of the following services, depending on your preferences:
- Property taxes
- Building insurance
- Electricity
- Natural gas
- Water service (both domestic and irrigation)
- Sewer service
- Trash service
- Exterior and structural building maintenance
- Heating and cooling equipment maintenance
- Landscape and grounds maintenance
- Property management services
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Is janitorial service available?
Yes, janitorial service is available at a cost of from 10¢ to 12¢ per sq ft per month, depending on the size of the facility and the frequency of service. We have found that many occupants don't need or want regularly scheduled janitorial service, but we make it available for those who do.
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When is the base year?
(See the glossary entry for a definition of this term.) For full service leases, your lease will typically establish the base year as the first calendar year of occupancy. Until the year following the base year, we pay the operating costs included in the rent. After the base year, the occupant pays only for any increases in those costs.
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WOW Logistics
Avoid the big capital costs of building
- In distribution, there’s only one thing more complicated than running a warehouse and that’s designing and building one. Companies that have identified a need to develop their own facility often lack internal expertise when it comes to construction design and engineering. Knowing where to make compromises regarding construction elements and materials presents its own challenges.
- The biggest hurdle, however, is the significant capital outlay. In most cases, companies could better utilize that money in other areas of the business.
- WOW’s Build-to-Suit program gives companies a true solution to managing and financing their own warehouse project.
The WOW Solution
- Location efficiency. WOW will perform a network study to determine the optimal location of the warehouse based on geographic logistics efficiencies, including transportation costs and distribution requirements.
- Free needs analysis. Our needs analysis and construction engineering services are offered at no cost, saving you thousands of dollars.
- Identifying incentives. WOW’s land and economic development professionals engage with local and federal agencies to secure financial incentives, which help reduce development costs.
- Lower costs. We offer lease options that don’t require a large capital outlay – freeing up cash to utilize in more strategic areas of your business.
The WOW Difference
- Experience. We have a strong relationship with a general contractor possessing more than 35 years of experience constructing more than 4.3 million square feet of light manufacturing, cheese production, paper converting and warehouse facilities.
- Food-grade experts. Our expertise in storing and handling food-grade products is unparalleled. That’s why we are the only 3PL in the U.S. that is ASI audited at the food processor level and consistently rated above 90 percent.
- Efficiency experts. We provide a free optimization of storage, and inventory flow analysis to maximize safety, material handling equipment, ergonomics, and racking.
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Build-To-Suit Lease Accounting – Part 1 – What is a construction project?
Before getting too far into build to suit accounting, let me just say that this is one of the most surprising and frustrating pieces of the accounting guidance today. It often catches people off guard, and is completely foreign to even the most experienced accountants. I do want to provide some much needed information, but I highly suggest letting us walk you through this one on one, helping you develop your build-to-suit excel schedules, and write up a memo to help support your positions. Please navigate here (http://www.popularaccounting.com/consultant/) to inquire further as to how we can get the ball rolling helping you out on a one-on-one basis.
One of the most complicated areas of lease accounting is this crazy idea of “build-to-suit” (BTS) leases/accounting. (Note, it’s build not built, and it’s suit not suite). I always like to explain topics generally in a way where I can marry the logic that underlies the rules with the actual accounting guidance. However, with build-to-suit leases, I find it difficult at times to do this. The guidance itself can be very judgmental, cumbersome, and frankly a little complicated. Therefore, I have decided to start a journey to try to explain, if at nothing else, the basics, which will get you to a better understanding of what to look out for and how the accounting works. My guess is that many of you, if you’ve found this post via a Google search, are trying to figure out what the heck your auditor is talking about since they’ve just come back to you mentioning that you may have to bring the entire fair value of a building (that you don’t own, nor will own, by the way) onto your books. This did tend to catch people off guard, and frankly, there’s no real great guidance for build-to-suit accounting. Hence, I will try to build a skeleton for people to work off of, and my hope is that I can fill in some of the gaps as questions come in.
So first and foremost, let me tell you the high level steps that I will be walking through over the next few posts, and how the accounting guidance comes together to make what we know as “Build-To-Suit guidance”.
First and foremost, people think that this build-to-suit guidance is in and of itself, an actual complete thing. While this is partially true (there is some guidance in the form of implementation guidance and sporadically throughout the codification that does make the majority of what we refer to as build-to-suit guidance), it is not completely true. In order to understand the real accounting implications, one needs to consider sale leaseback accounting. Build-to-suit guidance covers everything from the point a company concludes that there is a construction project, to the point that the construction project has been completed. Once the construction project is complete, then from an accounting perspective, you no longer own the project and you simultaneously sell the project back to the landlord and begin to lease it. This portion of the transaction is then accounted for as a sale leaseback transaction and mostly falls under ASC 360-20 more than ASC 840. We’ll get more into this later, but just keep in mind that if you are looking for the guidance that prescribes the goals of a complicated build-to-suit excel schedule that someone has provided you, the guidance is sale leaseback guidance (most likely specifically FAILED sale leaseback where gains/losses from the sale are deferred), and will not be found in ASC 840.
I promised a high level overview, and here it is. These are the basic steps when trying to understand your leasing transaction, and whether or not build-to-suit / Sale Leaseback accounting needs to be considered, or if the more traditional operating vs capital lease tests should be your concern.
Step 1. Determine if there is actually a construction project (This post below will cover this)
Step 2. If there is a construction project, you have to determine who the deemed owner of the project is (I may break this up into multiple posts, as there are numerous ways to do this)
Step 3. If you (lessee) are deemed the owner, account for the construction project while under construction.
Step 4. Post construction, there is deemed to have been a sale and simultaneous leaseback of the construction project. This needs to be assessed for normal sale lease back in accordance with ASC 360-20 and ASC 840-40-25-9. (Typically these fail for a variety of reasons, and therefore accounting in accordance with non-normal/failed sale leaseback guidance is mostly appropriate).
Construction Project – Do I have one?
So I’m definitely starting off slow, as you can see. This should be a really straightforward question correct? Well, mostly yes, but there are one or two things to consider. The following is from the FASB codification (which btw I think I legally have to tell you is a copyright of FASB, which is garbage because the SEC has incorporated it into law, and therefore, I’m pretty sure it shouldn’t be protectable under copyright laws as it should meet the definition of “works of government”, but I digress).
840-40-55-44
Construction activities have commenced if the lessee has performed any of the following activities:
- Begun construction (broken ground)
- Incurred hard costs (no matter how insignificant the hard costs incurred may be in relation to the fair value of the property to be constructed)
- Incurred soft costs that represent more than a minor amount of the fair value of the leased property (that is, more than 10 percent of the expected fair value of the leased property).
I think points one and two above are pretty self explanatory. If you actually start constructing physically, or you spend even one penny on anything that is considered to be a “hard cost” (actual cost to construct vs planning to construct), then a construction project has been deemed to have begun. Nothing too crazy here, except that if you are still finalizing some final wording in a lease/contract, and someone goes and sticks a shovel in the ground, this could trigger build-to-suit accounting much earlier than you expected, so be careful.
The real point of emphasis here is #3. If you’ve incurred soft costs equal to more than 10% of the EXPECTED fair value of the leased property (meaning post construction), then you’re construction project has begun. The theory here is that if you’ve spent such a large amount of money on multiple rounds of fancy architectural mark ups, obtaining permits, etc., then it can be considered to be reasonably assured that this is a construction project that is well underway (clearly, if more than 10% of the total future value of the building has been spent on just soft costs, then those soft cost related activities were significant and should be considered at least as important as the first shovel in the ground). Of course, we can debate whether or not this makes sense, but this is the rule, so definitely watch out for it. Also, the other wrench this can throw at you is that the future value is judgmental, which introduces a whole other set of things to consider depending on your auditors (how much evidence is your auditor going to want to see to support your estimated future fair value? Are they going to want documented controls? As this is an estimate, many audit teams, especially if PCAOB reviewed in 2014, will most likely want to see documented key controls to support the data, methods, and assumptions used in arriving at fair value estimate of the completed property).
That pretty much is all you ne
ed to know on whether or not you technically have a construction project that needs to be assessed with ASC 840 or not. However, I would also caveat this with the fact that this should only be applied to construction projects whereby the landlord will be the owner of the final assets. i.e., if you lease a space, and install your own AC unit, or additional HVAC system that you plan on taking with you when you leave, then these are just assets to you and have nothing to do with the building itself (as the property will be returned in the same manner with which you rented it). Follow regular leasehold improvement guidance (of course, consider any lease incentives), but I have never seen regular tenant improvements be the sole catalyst to launch someone into build-to-suit accounting. However, from a theoretical point of view, if you do not take title to these tenant improvements, and the landlord is therefore involved with the construction, you will want to assess if there is some reason you should be considered the owner of the project. This can be possible before an entity has even reached lease inception (see lease inception post), although it would be rare, in my experience, that the assessment would lead you to be the owner in this fact pattern.
Please stay tuned for Part 2 – Determining who should be considered the owner of the construction project. Also, please feel free to submit questions and comments in the meantime.
I’ve been getting a lot of very specific questions regarding individuals’ situations. Again, I recommend that you check out how we can help you on an individualized basis, please navigate here (http://www.popularaccounting.com/consultant/) to reach out to us to so that we can help you through this very tricky accounting literature, including memo and schedule preparation.
If individualized help is not something you are looking for, but you found this post helpful, please consider donating here (or click the “Donate” button below), as this website is 100% supported and maintained out of the personal funds of those who contribute to content such as this! Even $1 helps keep the lights on!
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Build To Suit – Determining the owner of the project
In Part 1, we discussed how to determine whether or not we “have a construction project to begin with”. If you haven’t read this post, I recommend reading that first. Click hear to be redirected to Part 1. Part 2 will focus on determining who the owner of the construction project will be.
First, let me tell you that I will break up this extremely important topic into multiple posts in order for the information to be in a format that is easier to digest. However, let me intro the topic with a high level reminder of where we are in the guidance.
Step 1 – Do we have a construction project? If so, move to step 2. (This really isn’t what I would consider “Build to suit” guidance).
Step 2 – Determine who the owner of the construction project is. If you, the lessee, are considered the owner, then now you are under build to suit guidance.
Step 3 – Accounting during construction (as if you are the owner)
Step 4 – Accounting for the “sale” and subsequent “leaseback” of “your” construction project
So clearly here, we have a ways to go.
Overview
Keep in mind, that this post is meant to give you a high level overview of the build to suit guidance, and in sufficient detail so that most of you can take it and directly apply it to your situation. However, this is by no means an all encompassing explanation of everything “build to suit” as the meat of the guidance would be lost in the details. However, please feel free to ask your particular questions, and if I get enough of them, I will revise this post as necessary. I would always recommend running your specific situation by your auditors before making an accounting conclusion. This advice is meant to be general in nature, and not CPA advice on your specific situation.
Involved vs Owner
Many people will use these terms synonymously. For the most part, this is fine as there is no meaningful distinction in practice. In theory, however, there is a big difference as you can be “involved” with construction, and not deemed the “owner” of the project. Being considered the “owner” is the only thing that matters for all intents and purposes.
First a couple words of warning. Just because you have not signed a lease, does not mean that anything that happens before it is signed is fair game. For example, PwC finds that certain payments made on behalf of the lessee by the developer or lessor should be evaluated under ASC 840-40-55-44 (which should be familiar to you if you read Part 1 of this series). Essentially it is PwC’s position, at least back in 2013, that these costs should be considered the lessee’s costs (and thus be evaluated to see if a construction project has begun and will be included in the maximum guarantee test to be discussed below). Deloitte’s 840-40-55 (Q&A 01) states that costs that the lessee incurs prior to a lease are absolutely fair game to trigger build to suit recognition and the subsequent lease arrangement would fall within the scope of ASC 840-40-15-9 (Sale Leaseback guidance). I won’t reproduce their Q&A here without their permission, but if you are their audit client, you can ask them to provide this to you. The point of this paragraph is to bring to your attention that just because pen has not hit paper on your lease agreement, does not mean you are safe from the effects of the build to suit guidance.
There are two main ways that a Company will be considered the owner of a construction project.
- Maximum Guarantee Test
- Automatic Indicators of ownership
Maximum Guarantee Test
I don’t want to skip over this test in its entirety, but for now I’m going to due to the fact that in the 30+ build to suit cases I’ve seen, 100% of the time where the lessee (Company) was surprised or shocked by this guidance, it was because the auditor clung onto one of the automatic indicators of ownership. Rarely will there be a situation where a Company will not assume that they are the owner of a building, yet the auditor will raise a huge stink about built to suit accounting on behalf that the Company fails this test. I will expand on this test in Part 3 of the build to suit series.
Automatic Indicators of Ownership
In my experience, these are the bad boys you have to watch out for. Perhaps it’s because the 90% test (which I know hasn’t been fully explored as of the writing of this) is judgemental, or perhaps because when there’s something black and white like an automatic indicator of ownership it’s harder for an audit firm to go along with anything but build to suit accounting (Think risk, plausible deniability, reasonable assurance). So without further ado (not adieu for all you who would make Shakespeare rollover in his grave), I give you ASC 840-40-55-15.
Automatic Indicators of Ownership
a. The lessee or any party related to the lessee that is involved with construction on behalf of the owner-lessor makes or is required to make an equity investment in the owner-lessor that is considered in substance an investment in real estate (see paragraph 976-10-15-4 for examples of equity investments that are in substance real estate). In accordance with paragraph 840-40-55-45, the fair value of an option to acquire real property transferred by the lessee to the lessor would be considered a soft cost incurred by the lessee before entering into a lease agreement. In addition, loans made by the lessee during the construction period that in substance represent an investment in the real estate project, such as those loans discussed in the Acquisition, Development, and Construction Arrangements Subsections of Subtopic 310-10, would indicate that the lessee was the owner of the real estate project during the construction period and therefore would be required to apply this Subtopic.
b. The lessee is responsible for paying directly (in contrast to paying those costs through rent payments under a lease) any cost of the project other than as follows:
- Pursuant to a contractual arrangement that includes a right of reimbursement (regardless of the frequency of reimbursement)
- Payment of an environmental cost as described in (c)
- Normal tenant improvements. For this purpose, normal tenant improvements exclude costs of structural elements of the project, even though unique to the lessee’s purpose, and equipment that would be a necessary improvement for any lessee (for example, the cost of elevators, air conditioning systems, or electrical wiring). A requirement that the lessee pay more of the cost of tenant improvements than originally budgeted for if construction overruns occur could, in effect, obligate the lessee to pay for 90 percent or more of the total project costs. Therefore, normal tenant improvements also exclude any amounts included in the original project budget that the owner-lessor agrees to pay on the date the contract terms are negotiated regardless of the nature of such costs.
c. The lessee indemnifies the owner-lessor or its lenders for preexisting environmental risks and the risk of loss is more than remote. The lessee should follow the guidance in paragraphs 840-10-25-12 through 25-13 for any indemnification of environmental risks.
d. Except as permitted by (c), the lessee provides indemnities or guarantees to any party other than the owner-lessor or agrees to indemnify the owner-lessor with respect to costs arising from third-party damage claims other than those third-party claims caused by or resulting from the lessee’s own actions or failures to act while in possession or control of the construction project (as is noted in paragraph 840-40-55-9(d) any indemnification of [or guarantee to] the owner-lessor against third-party claims relating to construction completion shall be included in the maximum guarantee test). For example, a lessee may not provide indemnities or guarantees for acts outside or beyond the lessee’s control, such as indemnities or guarantees for condemnation proceedings or casualties. If the lessee is acting in the capacity of a general contractor, its own actions or failure to act would include the actions or failure to act of its subcontractors. See the following paragraph for an analysis of the indemnity-guarantee guidance in this Subtopic.
e. The lessee takes title to the real estate at any time during the construction period or provides supplies or other components used in constructing the project other than materials purchased after lease inception (or the date of the applicable construction agreement, if earlier) for which the lessee is entitled to reimbursement (regardless of the frequency of reimbursement). The costs of any such lessee-provided materials would be considered hard costs (see the guidance beginning in paragraph 840-40-55-42).
f. The lessee either owns the land and does not lease it or leases the land and does not sublease it (or provide an equivalent interest in the land, for example, a long-term easement) to the owner-lessor before construction commences. If the transaction involves the sale of the land by the lessee to the owner-lessor, that sale would have to occur before construction commences. If the land is sold to the owner-lessor and subsequently leased back with the improvements, the sale of the land would be subject to the requirements of this Subtopic even if the lease of the improvements was not considered to be within the scope of this Subtopic pursuant to this guidance.
In 99% of all build to suit cases, it is one of these automatic indicators of ownership that prompted that conversation with your auditor and resulted in you scurrying to Google where you finally landed on this post. Of that 99%, 90% of those times is because of subparagraph b. 3. above. The firms are VERY strict on this point. PwC specifically stated in guidance given to multiple of my clients that even $1 spent on “non-normal tenant improvements” directly to the contractor will automatically cause the lessee to be considered the owner of the entire construction project. We haven’t discussed the definition of “non-normal tenant improvements” as of yet, however, I want you to contemplate the potential impact. You, as the lessee, agree to pay the contractor directly to buttress the load bearing capacity of a particular room on the second floor that you know you want to put a heavy generator in. The costs to you for this structural amendment is 20k, but the total building in this downtown location is worth $200M. Congratulations, you just became the proud “owner” of a $200M asset (and financed obligation by the way).
Some quick notes about the automatic indicators of ownership.
a) This one I have never seen used, but it seems fairly straightforward to me.
b) This is by far and large the MOST common. If you are paying for the costs directly for any non-normal tenant improvements, you are on VERY shaky ground.
c) Rare, but I have heard of this in the oil industries, but in the tech industry (my industry) the only time this has come up is in the datacenter space whereby underground diesel tanks have been known to leak from time to time. However, even then the situation is rare whereby the lessee would agree to indemnify AND the risk of loss is more than remote.
d) To get to the economics of this one, what it’s trying to get at is if you are essentially taking on risk of ownership. If you own a building, it’s an inherent risk that it may be vandalized, or an earthquake may strike, or a fire breathing dragon may burn it to the ground (in which case I think the insurance companies would consider this an act of God, but that’s for another post). If you indemnify the owner or even a third party against these types of risks (those beyond your control), then you are assuming risk of ownership, and THAT in and of itself would indicate your ownership interest in the project. It’s very verbose and wordy language, but that is the essence.
e) Straight forward, rarely happens. If it does, generally you are already on board with the whole “I have to account for this as if I own it” concept because you will own it afterall if you are receiving title. Personally, I have not seen a situation where a company contributes its own materials that it has already had on hand, but you can see how this is economically equivalent to paying directly for costs (similar to b. 3).
f) You can’t be in control of the land before you have someone else start building on it. Basically that simple. If you are, make sure to take a hard look at this one, but this won’t be applicable to most of you.
I’m going to focus the rest of this post on the most pertinent question, “What is a normal tenant improvement?”
Clearly based on the guidance above, we know that a normal tenant improvements are NOT “costs of structural elements of the project, even though unique to the lessee’s purpose, and equipment that would be a necessary improvement for any lessee (for example, the cost of elevators, air conditioning systems, or electrical wiring). ” However, I will be the first person to tell you that there is no hard and fast answer on this, and each firm, and potentially even different teams within each firm, may have different opinions on this. The answer to this question can SIGNIFICANTLY impact your build to suit accounting implications.
For example, Deloitte has a series of questions that the propose when considering this question (ask them about ASC 840-40-55 Q&A 27). Their questions mostly center around whether the construction modification / project in question will modify any significantly the structure of the building. So Deloitte brings in a little bit of judgement here. Juxtapose this with PwC’s view that there is no materiality threshold when it comes to the automatic indicators of ownership so even $1 could trigger build to suit accounting (Ask them about ARM 4650.252). Deloitte will also consider other things such as whether or not the functionality or value is being impacted significantly, as well as whether or not the timing of such lessee involvement would be close to the original construction of the asset in question.
So with that being said, the good news here is that there is room to argue. I will give you my own personal experiences when it comes to build to suit accounting. Firstly, demising walls do not count as structural. This is very very well established (at least in the Silicon Valley). Also, even though the definition above specifically calls out air conditioning systems and electrical wiring, most firms will agree that this is when the building is bare, and the initial installation of AC systems or electrical wiring throughout the building needs to be completed. This does not mean you want an electrical plus in a demising wall, or reroute an AC duct into a newly created conference room. The electrical wiring / air conditioning work needs to be extensive in order to be considered non-normal. If you need to connect your building to the main power grid, this is typically considered structural in nature. If anything load bearing is being moved or supplemented, this is typically structural. Therefore, elevator shafts and additional stair cases most likely will trigger build to suit accounting. If is includes concrete, this is a warning sign that something structural is going on. Although PwC doesn’t recognize materiality when it comes to automatic indicators of ownership, they do recognize that not everything is structural. Materiality certainly has come into question when having this discussion, however. (The argument being something like, “We’re spending $10k, clearly a structural change would cost more than this.” or the auditor’s remark may be something like, “You’re telling me you’re going to spend $10M and none of this is structural? I’m going to need to see the detailed construction budget.”) This leads me to my last point, you need your construction managers to be informed of the accounting implications of build to suit accounting. They are the ones that your auditors are going to reach out to, they are the ones that you should be reaching out to in order to truly understand the types of construction activities being performed. Lastly, the argument with your auditors should never be about how bad you fail one of the automatic indicators of ownership, but instead whether or not you fail at all, which generally means that you are arguing over the nature of the works being performed, versus the materiality.
Stay tuned as I still need to walk through the maximum guarantee test, assessment for sale/leaseback, and the actual accounting (the good stuff) for what it looks like if you find yourself in a position where you are being asked to bring an asset that you legally don’t have title to onto your books.
Please remember that this information should not be solely relied upon, and that you should consult with your hired professional.
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