Leading Edge Build-to-Suit Projects – Special Advertising Section, Site Selection magazine, March 2004

ith office vacancy rates low and rents high on what is available, quality office space is scarce. And, even though vacancy rates may be rising in the industrial property sector, many companies want a custom-designed facility that fits their specific needs, but they do not want to purchase the building. What’s more, lenders and developers are reluctant to construct new buildings unless some of the risk is eliminated via build-to-suit projects where buildings are designed and constructed per a tenant’s specifications.

        In all of the leading edge build-to-suit projects out there today, the buildings are designed and constructed to precisely meet the tenant’s requirements, then the buildings are leased back to the tenant. In short, build-to-suit can be a win-win for all parties, and many are jumping on the build-to-suit bandwagon. Through build-to-suit, real estate lenders and developers enable companies to get their own custom-designed facility without the extra hassles of having to own it.

        Take, for example, Houston, Texas-based Igloo Products Corp. According to Dirk P.D. Mosis III, vice president, real estate investments, for USAA Real Estate Co., Igloo was seeking a way in which to more efficiently run its manufacturing and distribution.

       

Igloo had several distribution facilities scattered in a few different places and the company wanted to streamline its national and worldwide distribution,

Mosis explains.

They also decided it was time to bring together their manufacturing and distribution under one roof.

        Mosis said that Igloo went the build-to-suit route because the firm wanted to utilize land it owned outside of Houston. Igloo broke ground in December 2003 on a 914,195-sq.-ft. (84,929-sq.-m.), 50-acre (20-hectare), Class-A distribution warehouse, manufacturing, and office facility near Katy, Texas. The new facility will serve as the home and world headquarters for Igloo, and includes a two-story, 88,000-sq.-ft. (8,175-sq.-m.) office component, a 380,000-sq.-ft. (35,302-sq.-m.) manufacturing component, and a 446,000-sq.-ft. (41,433-sq.-m.) distribution component. Construction and permanent financing is being provided by USAA Real Estate Co., which has more than US$3 billion of assets under management and provides acquisition, build-to-suit, and development services for corporate and institutional investors. Headquartered in San Antonio, Texas, with offices throughout the United States and Europe, USAA owns or manages assets worth more than $74 billion.

        USAA Real Estate Co. teamed on the project with CORE Real Estate LLC, the Houston-based developer. Powers Brown Architecture is the project’s architect.

       

We knew that USAA’s capital would be protected because we have a well-respected and top-notch contractor, D.E. Harvey Builders, Inc., on the scene,

says USAA’s Mosis.

At the end of the day, USAA serves as co-developer and the owner/landlord.

        Construction on the Igloo projects involves a phased delivery, with the manufacturing component to be delivered third quarter 2004, and the office and distribution components to be completed by fourth quarter 2004.