Custom Industrial Facilities, Zero Capital Burden

To compete with and meet rigorous market and regulatory requirements, many industrial operators require new purpose-built facilities that precisely match their specific process flows, utility demands, and site conditions.

The question is how to balance the competing capital needs of high-return, high-dollar priorities, such as automation, equipment, inventory, or market expansion, against the cost of developing and constructing a modern, high-performing, customized facility.

Indeed, owner-developed, financed construction models carry significant capital exposure and development risk, while retrofitting an existing warehouse can mean costly tenant improvements and operational compromises.

This article examines the build-to-suit triple-net (BTS NNN) lease as a viable option to preserve (or leverage) capital and deliver a turnkey facility engineered to your specifications.

Why Operators Choose BTS NNN

• Purpose-Built Performance: Process flow, building layout, utility requirements, site layout, and specialized systems (e.g., ammonia refrigeration, ESFR sprinkler, etc.) are integrated as part of the design in lieu of retrofit compromises.
• Capital Preservation: Enables the allocation of scarce capital to operating needs that historically generate higher returns compared to real estate yields.
• Risk Transfer & Accountability: Development and construction risks are assumed by the landlord/developer, creating a single point of accountability.
• Schedule Certainty: Up-front acceptance criteria and integrated tenant-provided equipment compress time to validated operations.
• Control Under NNN: Operator-established maintenance standards, OEM and vendor selections, and day-to-day facility management with minimal landlord interference.
• Flexibility for Growth: Future expansions and phased build-out can be designed into the plan.
• Tax Simplicity: Rent is generally fully deductible as an operating expense. By leasing, you also avoid potential Section 163(j) interest-deduction limits tied to owner financing (confirm with your tax advisor).

BTS NNN vs. Alternatives: Quick Comparison

How a BTS NNN Lease Works

In a build-to-suit (BTS) triple-net (NNN) lease, the project follows a structured path from defining the tenant’s operating needs to turning over a fully functioning facility.

• Program the Facility: The tenant defines process flow, utilities (power, water/wastewater, gas), site-specific needs, and other building-specific requirements to support the business.
• Site and Concept: The developer and design-build contractor identify sites that meet access, zoning, and utility constraints. Conceptual plans are developed.
• Budget & Lease Economics: The lease rate is set from a yield-on-cost model. Early rough-order-of-magnitude (ROM) estimates keep scope and budget aligned.
• Design & Approvals: Detailed design proceeds with permitting and entitlements. Acceptance criteria and commissioning/validation plans are agreed upon up front.
• Construction & Equipment Coordination: The developer funds the project. Tenant-provided equipment (TPE) can be integrated during construction, so the facility is operational at lease commencement.
• Delivery & Rent Commencement: Lease payments begin at substantial completion. Under a NNN structure, the tenant covers operating costs (taxes, insurance, maintenance) and operates the building as if owner-occupied.

Lease Terms to align early

Early discussion of lease terms facilitates alignment among stakeholders, enabling efficient resource utilization, setting clear expectations, and mitigating risk.

• Target rent via yield-on-cost, lease term, and annual escalations.
• Acceptance criteria, commissioning/validation plan, and turnover plan.
• TPE scope and interface points.
• Maintenance standards under NNN (roof, refrigeration, slab, paving).
• Expansion options and site plan allowances for future growth.

Ready to Explore a Custom BTS NNN Lease?

Will a build-to-suit, triple-net lease be a good fit for your situation? We would be happy to schedule a confidential meeting or call with you to learn more about your situation.

Leverage our consultative approach and Assured Delivery Program certified to ISO 9001:2015 for reliable speed to market and a financing structure that best meets your current and future needs.

Hansen-Rice, Inc. partners with Arrowrock Development Group to deliver turnkey build-to-suit projects across the US. Thank you to the Arrowrock team for contributing to this article.