An arrangement typically involving an
owner of land agreeing to build a structure
of a size, quality of construction, and
overall appearance in accordance with
requirements of a specific tenant. The
owner, as landlord, then leases the
completed structure to that tenant. In
today’s marketplace, design build activities
have expanded and include numerous
arrangements and variations.
Most design build activities begin with
a detailed analysis of the user’s needs,
building and site criteria, and a detailed
costing. Commercial brokerages have
extensive information concerning hard and
soft costs and a range of typical land
values to help in cost estimating. Hard
costs include all structural, mechanical and
electrical components, site preparation
(e.g., excavation, fill, landscaping,
asphalt, and curbs), and contractor overhead
and profit. Soft costs normally include
project management, engineering, legal and
consulting fees, financing charges, and
connection fees.
Brokerage involvement in a design build
strategy can also include analysis of lease
versus own options. Clients may then
evaluate various possibilities including:
ownership by acquiring suitable land and
constructing a building, leasing of a
completed building based on pre-determined
building/site criteria, or acquisition of
suitable land followed by a sale/leaseback
arrangement where a new owner (the
developer), constructs the building and
enters a long term lease with the former
owner (the client), as a tenant.
Design build arrangements are commonly
associated with a seller’s market when
demand for land is high and existing space
is limited. Ease of financing at attractive
rates is also an important element in the
growth of design build activity. Conversely,
such activity is dramatically reduced in
markets where ample lease space exists at
very competitive rates and buildings are
available for sale below replacement cost.
Design build scenarios can be complex
given the particular needs of users.
Commercial brokerage activities will often
include not only detailed costing estimates,
e.g., land and building costs as well as
interim and permanent loan costs, real
estate commissions, closing expenses, and
contingencies, but also detailed pro forma
statements outlining all cash flow
projections, present value estimates, and
internal rates of return. A rent quotation
is established for the tenant following cost
estimates and development of a pro forma
statement.
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