Understanding the Build-to-Suit Opportunity - Warehouse Summit MENA 2019 Abdul Kader Monla Director, Capital Markets MENA
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Understanding the Build-to-Suit Opportunity Warehouse Summit MENA 2019 Abdul Kader Monla Director, Capital Markets MENA 29 April 2019
What is a build-to-suit (BTS)?
• Development of a new real estate
asset for occupier
• Asset developed as per occupier’s
requirements
• Development cost is fully funded by
third party real estate
investor/developer
• Pre-agreed lease terms dictated by
occupier
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 2
Why do a BTS?
Advantages Disadvantages
• Lack of suitable properties • Long-term commitment
• Custom-built : maximize efficiency and • Long-term liability
minimize costs
• More expensive than debt
• No development expertise required
• Some loss of control
• No capital required
• Don’t benefit from capital
• Funds can be reinvested in core appreciation of asset (if any)
business (organic growth, M&A, debt
repayment, etc.)
• No ownership risk
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 3
Where are BTS structures used?
Most commonly used for single-let properties
Industrial / Warehousing Office Staff / Student accommodation
Healthcare Education Retail portfolios
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 4
Where have BTS structures been used?
Lulu Hypermarkets Jaguar Land Rover
Central DC CEVA Logistics DC Regional HQ
Muscat, Oman JAFZ, UAE Dubai Silicon Oasis
49,000 sq. m. (BUA) 65,000 sq. m. (BUA) 14,000 sq. m. (BUA)
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 5
How does it work?
Typical build-to-suit structure
1 Occupier prepares the specifications for the development
Investor develops the property as per the occupier’s
2
specifications
Corporate Real Estate
Occupier Investor
Occupier enters into a long term lease on the
3
property
4 Investor receives rental payments from the occupier
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 6
What about for existing properties?
The sale-and-leaseback: similar structure for existing (built) properties
1 Occupier sells built property to investor at fair market value
2 Occupier received 100% of sale proceeds
Corporate Real Estate
Occupier Investor
Occupier enters into a long term lease on the
3
property
4 Occupier pays rent during the lease term
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 7
Examples of sale-and-leasebacks
Azizia Panda Central Safi Danone HQ and Transworld Logistics Dammam Cold Storage
Distribution Centre Distribution Centre Distribution Centre Warehouse
Riyadh, KSA Riyadh, KSA JAFZ, UAE Dammam, KSA
92,000 sq. m. (BUA) 15,000 sq. m. (BUA) 20,000 sq. m. (BUA) 2,700 sq. m. (BUA)
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved.
Key Factors
Each build-to-suit is structured differently to meet your strategic, operational and financial requirements
• Level of tenant specificity
Type of
• Tenant improvements
Facility
• Lease term
Occupational • Rental escalation
Location Lease Term
• Guarantees
Deal
Structure
• In-house development Operational
experience & Strategic
Land • Freehold
Requirements Tenure • Leasehold / Unexpired Term
• Strategic lease vs. own
preferences
• Future expansion Availabilit
requirement y of • Occupiers' availability of capital
Capital
• Alternative uses of capital
• Cost of capital
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 9
Build-to-Suit Structures
Occupational cost reflective of level of risk occupier is willing to take in the development
Build & Sell Occupier-Driven BTS Developer-Driven BTS
Design
Finance $ $
Develop
Sale and Leaseback
Own
Risk for Occupier
Responsibility Cost for Occupier
Occupier
Developer / Investor 10Typical lease structure
Most BTS are structured as Triple Net or FRI leases
Occupier Landlord
• Building Rent • Insurance (in case of double-net lease)
• Ground Lease (if applicable)
• Operating Costs
• Property upkeep and maintenance
• Insurance (for triple-net lease)
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 11Typical lease structure
Flexibility to match lease terms to business requirements
• Flexibility to negotiate terms Liquidate long-term assets, thus improving the balance sheet while
Purpose
matching your requirements: retaining control over the property.
Usually strong middle-market to investment-grade corporate ownership
- Lease term Tenant or corporate holding companies. Triple-net leases (lessee pays all costs
associated with the operation of the property).
- Rental rates and escalation Calculated as a percentage of the purchase price or gross development
Rental rates
pattern (ie. fixed or inflation value, usually with embedded escalations throughout the lease term.
indexed) Sale and Leaseback: 10 years and above.
Term Build-to-Suit: 15 to 25 year lease terms.
- Payment frequency
Options to include renewal periods.
- Ability to sub-lease Advance
100% of fair market value (for sale-and-leaseback) or 100% of
construction costs (for build-to-suit)
- Renewal options
Property Freehold ownership. Ground leases are exceptions.
- Future improvements and / or
property expansion Preferred
Office, industrial, retail, medical and education.
properties
- Buy-back options
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 12Maintaining Control
Flexible buy-back options can be pre-agreed
Sellers can maintain control over the asset by way of a variety of structures:
• Long Term Leases: Leases typically run from 10 to 25 years with renewal options
• Right of First Refusal: Lessee retains pre-emption right in the event the lessor wishes to
sell the property during the lease term
• Sale Restrictions: In the case of strategic assets, restriction on sale of the property to
direct competitors
• Buy-back Options: The lessee retains an option to buy back the property during or at
the end of the lease term
• Reversion at Lease Maturity: Ownership of the property reverts to the lessee at the end
of the lease term
• Land Lease Structure: Only the building is sold and the lessee retains ownership of the
land which is in turn leased under a long term lease to the new building owner
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. 13Abdul Kader Monla
Capital Markets MENA
+971 4 426 6962
+971 56 370 1749
abdulkader.monla@eu.jll.com
© 2019 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to JLL and shall be used solely for the purposes of evaluating this proposal. All such documentation and
information remains the property of JLL and shall be kept confidential. Reproduction of any part of this document is authorized only to the extent necessary for its evaluation. It is not to be shown to any third party without
the prior written authorization of JLL. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.
14You can also read
