Build-to-suit math: when BTS beats existing inventory.

What you're actually paying for

A build-to-suit (BTS) deal is a forward lease on a building that doesn't exist yet. The developer buys the land, builds to your specifications, and you lease the finished product on a long-term commitment. The rent is higher than existing product because the developer is taking development risk and underwriting a fresh return on land + construction + cost of capital.

In a normal market, that premium runs $0.75–$1.50/SF NNN over what comparable existing space would lease for. In a tight construction market (like 2022) the premium widened to $2.00+. In a soft market (like the second half of 2025) it can compress below $0.50 if a developer needs to fill a land position.

The question is never "is BTS more expensive than existing?" The answer is yes, almost always. The real question is "is the premium worth what you're getting in return?"

The three legitimate reasons to do BTS

1. The existing market doesn't have what you need

Heavy power. Cross-dock configurations. 40' clear heights. Cold storage. Outdoor storage with paving and security. Permitted dock counts beyond what speculative product carries. If the market doesn't offer a building that fits your spec, you have two options: compromise (cost), or build (premium). The math is straightforward — compute the operational cost of the compromise (lower throughput, higher labor, more buildings) versus the BTS premium. Whichever is cheaper wins.

2. Long-term occupancy with significant fit-out

If you're going to occupy a building for 15+ years and you're going to spend significant capital fitting it out (racking, conveyors, robotics, refrigeration), the BTS premium amortizes against a long base. The developer can design around your equipment. You don't waste capital fighting an existing building's geometry. The unit economics often favor BTS at that horizon.

3. Expansion path certainty

BTS deals come with a developer who controls adjacent land. If your operation is growing and you need a credible 2x or 3x expansion path locked in at the front end, BTS is structurally the only way to get it. No existing-building landlord can offer you a fixed-price expansion right because they don't control the land next door.

The three illegitimate reasons

1. "We want the building to be new"

Aesthetic preference for new construction is the most expensive reason to do BTS. A 5-year-old building leases at roughly the same operational efficiency as a brand-new one for most distribution and light manufacturing uses. The premium you pay for "new" is pure aesthetic cost.

2. "The developer is offering aggressive concessions"

Developers offer aggressive concessions when they need to fill land. The concessions look big on day one. But the underlying rent is still based on developer return targets, and the lease term is long. Aggressive concessions on a 12-year BTS lease can mathematically cost more over the term than fair concessions on an existing 7-year lease.

3. "We can't find anything available right now"

This is the most common bad reason. Tenant runs a market sweep, doesn't find their first-choice building immediately, and pivots to BTS as a fallback. BTS as a fallback rarely pencils. You're committing to 24+ months of construction delay, higher rent, and a long lease — all because you were impatient. The right move when the existing market is tight is to extend the search, not to pivot.

The math, in numbers

Let's run a concrete example. 200,000 SF distribution operation, 10-year horizon, North DFW.

On those terms, BTS is $800K more expensive over the 10-year horizon — about $0.40/SF/year. The question becomes: is the expansion right and the tenant-capex savings worth $800K?

For a company growing at 15%+ annually, the expansion right alone is worth more than the premium. For a company with stable headcount and no growth plans, the existing building wins every time. The math doesn't have a universal answer — it has the right answer for your situation, which depends on whether you'll use what you're paying for.

The three terms that determine whether BTS works

1. Land cost transparency in the rent

BTS rent is typically built up: land cost ÷ developer return target + construction cost ÷ developer return target + soft costs ÷ developer return target. The developer's return target is non-negotiable. But the inputs are.

If you're entering a BTS deal, your broker should be reviewing the developer's land basis. If they bought the land in 2019 and are pricing the rent off 2026 land values, you're overpaying. If they bought the land speculatively in 2023 at peak pricing and need to recover that, you can negotiate against it. The transparency around land cost is the single biggest negotiation lever in a BTS deal — and the one most tenants never push on.

2. The expansion right specification

A vague expansion right is worthless. "Tenant shall have a right of first refusal on adjacent land for expansion at market terms" is unenforceable language. The expansion right that actually works specifies: the parcel (with a recorded survey), the timing window, the pricing methodology (with a formula, not "market"), and the construction terms (turnkey by the same developer, no re-bidding).

If your BTS deal has a fuzzy expansion right, you're paying for an option you don't actually own. Get it specified or assume it doesn't exist.

3. The substantial completion / delivery date

BTS deals are forward leases. You sign in 2026 for delivery in 2027 or 2028. A lot can go wrong in that window. The deal that protects you specifies: a hard delivery date, a per-day damages structure if late, and a tenant right to terminate (with deposit return) if late beyond a defined threshold.

If your BTS deal has soft delivery language ("developer shall use commercially reasonable efforts"), you have no leverage when construction slips. We've seen tenants paying double rent for 14 months because their existing lease ended and their BTS hadn't delivered. Don't be that tenant.

When to walk

Walk away from a BTS deal if:

• The developer won't disclose their land basis.
• The expansion right doesn't specify parcel, timing, and pricing.
• The delivery date doesn't carry liquidated damages.
• The premium over comparable existing product exceeds $2.00/SF and you don't have a hard operational reason for the BTS (heavy power, cold storage, etc).
• The developer's track record on prior BTS projects is thin or shows delivery delays.