December 18, 2013
Interviewed by: Privcap
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What is Build-to-Suit Financing?

An expert from W. P. Carey explains an attractive financial solution for growing companies – build-to-suit financing, which fulfills a company’s property needs in partnership with a long-term real estate investor.

An expert from W. P. Carey explains an attractive financial solution for growing companies – build-to-suit financing, which fulfills a company’s property needs in partnership with a long-term real estate investor.

What is Build-to-Suit Financing?

With Kathleen Barthmaier of W. P. Carey

David Snow, Privcap:


Today, we are joined by Kathleen Barthmaier of W. P. Carey.  Kathleen, welcome to the program today. Thanks for being here.

Kathleen Barthmaier, W. P. Carey:         

Hi. Thank you for having me.

Snow:               This topic that we’re going to talk about should be of great interest to people like developers and also corporate owners of real estate, and that is a kind of financing called build-to-suit financing. You are an expert in this type of financing, so I’m fascinated to hear your viewpoint. First of all, a quick definition on what is build-to-suit financing.

Barthmaier:    A build-to-suit transaction is a transaction that enables a company to build a new facility or expand an existing facility in exchange for entering into a long-term lease. Typically, we work with developers and companies to define the specifications of a new project, determine the budget of the facility and the construction schedule.  We’ll come in, purchase the land, fund the construction monthly based upon the work that’s been completed and enter into the long-term lease with the tenant.

Snow:               What are some benefits that a tenant who enters into a build-to-suit situation would realize as a result of this kind of a deal?

Barthmaier:    Absolutely. The tenant is able to get a brand new custom-built facility that meets all of their specifications in a location that works for them and they don’t have to invest any of their own equity or capital into the project. On the flip side of that, I’d say a developer is also able to not have to invest any of his or her own capital into a project. It takes a little bit of the risk out of the process.

Snow:               Can you give some examples of a build-to-suit financing? 

Barthmaier:    A great example of a build-to-suit transaction that we completed was with a company called Sun Products. They’re a portfolio company of the private equity firm Vestar Capital.

Sun isn’t exactly a familiar household name but some of their products are. They manufacture All and Wisk and Snuggle detergents. They were going through the process of streamlining their distribution facilities and realized that they had this one manufacturing facility in Bowling Green, Kentucky, and nine distribution centers. Now, when you’re moving a lot of product, particularly, heavy products like detergent, that’s not very efficient.  They came to us and asked us to build them a brand new distribution facility right next to their manufacturing facility and were able to achieve significant cost savings.

Snow:               Final question for you: In general what kinds of circumstances are driving the desire among certain developers or corporate owners to enter into build-to-suit financing situations?

Barthmaier:    I’d like to point out that we are able to enter into build-to-suit transactions with all types of companies, from investment grade to below investment grade, across all industries, in all geographies-, we’re actually in 19 different countries-, and for all asset types.  From your standard office and industrial to more specialized facilities. I think today we’re seeing companies entering into build-to-suit transactions because they’re going through a growth phase and that could mean that they have outgrown their existing facility, that they are expanding into new markets, that they’re looking for a new corporate headquarters that better matches their corporate culture.

Similar to the Sun Products example, they’re streamlining their distribution operations. A lot of the investment grade companies today are building very large, new distribution facilities, particularly with the motivation of being able to deliver products same-day.

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