Investments in Sale-Leasebacks and Build-to-Suits-Due Diligence Considerations

Acquiring properties in a sale-leaseback transaction or which are leased pursuant to build-to-suit leases can present unique issues as compared to acquiring typical office, retail or industrial buildings or projects.  The building has often been entitled and constructed to accommodate the particular tenant's use.  The rent structure may also have been designed to address that tenant's use or to reflect the tenant's contribution to the build-out of the property.  Since build-to-suit tenants or tenants who are looking to complete a sale-leaseback transaction have often taken space to meet a key business need, the functionality of the property for a future use may be constrained in certain respects.  As a result, the due diligence for these types of acquisitions may involve some greater thought than a typical property acquisition: including the applicable requirements affecting the proposed site and use; the rent structure and whether it reflects special arrangements for the tenant; the value of the improvements to a subsequent user; and the duties of the tenant upon surrender of the property.