Construction
Step-by-Step Guide to the Build-to-Suit Process
Users crave custom products that are catered to them. No matter if it is custom cars, tailored clothing, or custom jewelry, end users like custom products. Commercial real estate is no exception. Tenants appreciate spaces that are customized to their needs and preferences, and that is called build-to-suit. When buying commercial property as a location for your business, it may also be time to consider the build-to-suit process and create a new building that meets specific business needs.
What is build-to-suit?
Build-to-suit is custom building for your tenant’s needs and wants. Similar to a custom home builder creating and implementing a construction project that caters to the homebuyer’s preferences, build-to-suit is the commercial version of that only that the developer owns the completed project and the customer becomes a tenant.
Build-to-suit development refers to a process where a property owner or developer constructs a commercial or industrial building specifically designed and built to meet the needs of an end-user tenant. The end user could be the owner, developer or lessee. Typically, the tenant commits to a long-term lease.
Cory Frank, vice president of Business Development and Project Management for build-to-suit specialist Nigro Construction, Inc., says “Build-to-suit works hand-in-hand with the end user. The goal is to design a space that is not just cost-efficient, but utilizes future resale values and brings the project under, or on budget for what they originally allocated.”
The process is not linear. Parallel tracks are almost always in progress.
What comes first in build-to-suit?
“Show me the napkin,” he said. “(The end user’s) vision comes from sitting down for the first design step. I ask, ‘What do you see for the project?’”
According to Frank, the process combines design, site work, permitting, construction, interior finish, move-in and completion over the project’s life. While this simplifies the process, in reality, there are many steps.
“At this first meeting, I’ll explain the process from A to Z,” Frank said. “It all starts with the design and the site.”
The design process takes the “sketch on the napkin” and starts formulating the amenities, features, and needs with a floor plan. The whole process is a partnership between the tenant and the general contractor (GC), incorporating the design team, the subcontractors, interior design, utilities and the local jurisdiction.
“Specifically, you’re going to tell me, ‘Hey, look, I’ve got a business that needs a custom building,’” said Frank. “So I would start asking all kinds of questions. Is an office or warehouse needed? Do you have a piece of property, and have a building in mind? How about the area or location you would like to be in?”
How does the design process work?
The architect is the first additional member of the project team after the tenant, developer, and/or the GC. The project must be fully designed to nail down a price and obtain tight bids.
“A service vital to construction is gathering all the facts; getting a floor plan together,” Frank said. “That way, you can see something that’s black and white, and it’s a lot easier because most people, including myself, don’t have the gift of being creative. If you’re anything like me, I’ve got to put it on paper, scribble on it, be able to mark it.”
The preliminary floor plan starts the preconstruction phase. This gives a basic design, a timeline and the basis for the cost estimates.
The series of steps in build-to-suit
- Napkin plan
- Site selection
- Process
- Preliminary floorplan
- Best guess cost analysis
- Financing | Design – parallel timing
- Estimates
- Bid Review | Permitting – parallel timing
- Construction
- Inspections
- Certificate of Occupancy
- Punch list
- Possession & occupancy
What is the preconstruction process?
Frank said that the early process involves bringing together a team and examining the site, its constraints and how the building fits on the land. Then, a floor plan and general building design are roughed out.
“The most important part (now) is the cost analysis,” he said. “So, more than anything we talk about, we say this a lot, ROM, ‘rough order of magnitude.’ Very early on when we hit that floor plan I’m sending it to my estimator.”
From this stage, an initial cost analysis is prepared. This estimates the building’s cost so the end user can narrow, or expand building features to fit the needs and the budget.
“At this stage, it’s a best guess,” said Frank. “From there, we lock down the financing, prepare a formal estimate and send it out for bids.”
An experienced general contractor knows where costs should come in and which subcontractors have the skills and quality to contribute to the project. The GC handles the bid review. Once contracts are awarded and signed, the project splits into two tracks: “Money” and “Final Design and Permits.”
How does it work with two tracks at the same time?
Frank says this is one reason a GC with built-to-suit experience is so important. Matching the firm’s size to the size of the project means that the players are in place to help or handle multiple tasks.
Track 1 is the money
Now that the design is in place, it’s time to secure solid financial commitments, whether a cash budget, or one leveraged from a lender. With the bids, the GC and project team can help pitch the funding and set the budget targets for the overall project.
Track 2 is the final design and permitting
Finishing project design to obtain entitlements and building permits can be a tricky part of the project. Many delays happen in this track if the local government isn’t a partner.
“[This is] when construction [site work] starts,” Frank said. “Hopefully, by this time, you’ve already agreed to at least submit to the building department because that’s part of our strategy as well. While we’re bidding everything, if you’re comfortable with the ROM, you’re also comfortable with submitting a $2,000 permit set to start the building (while the building department checks the plans to issue final permits).”
The GC maintains in contact with the planning and building departments. Preliminary plans are shared to find any glaring variations from code requirements. Failing to partner with the permitters can mean lengthy delays in the process.
“We are just trying to communicate to see where the delay is,” he said. “It’s always system error issues. So it’s always technical issues that slow us down in the process.”
Working with the decision-makers ensures that the plans include the numbers or features that the reviewers want.
When does construction start?
Preliminary site work is usually rapidly approved because the standards are readily available and apply to almost every type of construction. While final building plans are being reviewed, the site is being developed—grading, utilities, drainage, streets and parking are incorporated into the site work.
“Once construction starts, our strategy (is that) there are certain things that we can do to save on time,” Frank said. “Our goal is always trying to get…cash flow coming through because they’ve, at this point in the game, they’ve spent so much money already.”
He also said that a clear understanding from the beginning avoids change orders. Changing the project during construction can impact the budget and the timeline.
When is the project delivered?
After all construction, interior work, furniture installation and landscaping are in place, the local government goes through the final inspection stage. This may involve just the building department, or also inspections by public works and fire department inspectors.
The GC assembles the building’s operating manuals, and manages a punch list to ensure structural and aesthetic perfection.
“We’re there to ensure a smooth occupancy,” said Frank. “A tenant might move in during the summer and forget to turn on the gas for the heaters when the weather chills.”
He says a good GC will fix the problem and warrant any other building issues. “Once the building is done, we get the certificate of occupancy from the building department,” Frank said. “That’s when the owner gets the keys to move in and furnish the place.”
The GC is there whenever the end user moves into a new facility because, during the break-in period, there will always be dings, dents, and other things.
The well-planned and executed build-to-suit process helps mitigate cost overruns, manage delays, and keep the project within budget. For the tenant, it means letting the pros do the work while monitoring the budget and timeline. It takes a lot of weight off the user.
