A build-to-suit facility allows a business to preserve and re-invest its capital in its business operations, rather than in real estate. Since the rate of return on capital invested in a successful business is almost always greater than the rate of return earned on capital invested in real estate, many business owners logically prefer to keep their capital productively invested in the operation and growth of their business, rather than in real estate.
100% of your rent payments on leased property are tax deductible, while only the interest portion of your mortgage payments are deductible. Additionally, while the tax deductibility of depreciation is commonly thought of as a great reason to own real estate used for business, two factors severely limit its tax benefit. First, a significant portion of the real estate cannot be depreciated at all - namely the land. Second, most of the remaining improvements are required to be depreciated over a very long period - a period which the IRS continues to lengthen, and which is currently 39 years for most improvements. This means that only a very small fraction of the cost may be deducted each year. Before relying on tax considerations in deciding whether to own or lease, consult with your tax adviser.
Due to its inherently illiquid nature, ownership of real estate requires a long term investment commitment. A tenant's commitment to leased property, on the other hand, is limited to the term of the lease. This shorter term commitment offers more opportunity to deal effectively with the evolving nature of the facility requirements of the business. Changes in those requirements commonly arise from:
Because the value of real estate is determined by factors unrelated to those affecting the value of your business, the best time to sell your business is rarely the best time to sell the real estate, and vice versa. Leasing allows your business decisions to be made without regard for the conflicting considerations posed by the underlying real estate. Additionally, it is almost always easier to sell a business than to sell both a business and real estate.
Leasing allows you to focus on what you know and do best. Commercial real estate and its management and market valuation are governed by factors unrelated to those affecting your business. It is a business unto itself, requiring a distinct set of skills and knowledge to be effectively managed, introducing a new element of risk which the typical business operator has little means of controlling.
Leasing relieves you from the burden and distraction of managing and operating the real estate, and from the costly results of overlooking important management issues related to the real estate.