Build-to-Suit Financing for America’s Factory Boom

Factory construction in the United States is experiencing an unprecedented boom. According to The Economist, American factory construction reached $172 billion in the first nine months of 2024—double the amount during the same period in 2019, adjusting for inflation. This surge, initially triggered by tariffs during Donald Trump’s first term and compounded by pandemic-induced supply chain vulnerabilities, reflects a fundamental rethinking of the nation’s industrial strategy. Companies are racing to reshore manufacturing, secure critical supply chains, and align with incentives from landmark legislation like the CHIPS Act and the Inflation Reduction Act (IRA).

For business owners and financial sponsors, this boom presents a unique opportunity—and challenge. The need to modernize and expand manufacturing capabilities is clear, but securing the capital required for such projects without over-leveraging the balance sheet is no small feat. That’s where build-to-suit (BTS) financing comes in.

What Is a Build-to-Suit?

In a build-to-suit, a property is designed and constructed to the specifications of a tenant’s operational needs, financed by a real estate investor or developer. Once completed, the tenant signs a long-term lease for the facility, transferring ownership of the property to the investor while maintaining operational control. It’s a real estate sale leaseback of a facility that has not yet been built.

This strategy offers a range of benefits. It allows businesses to:

• Preserve Capital: Free up cash tied to real estate to reinvest in core operations, R&D, or acquisitions.
• Reduce Risk: Avoid the risk of holding illiquid real estate assets.
• Secure Operational Flexibility: Lock in tailored spaces that meet specific operational requirements without the upfront capital burden of ownership.

For manufacturers seeking to capitalize on the reshoring trend while maintaining financial discipline, the build-to-suit is an elegant solution.

Why Now Is the Time for Build-to-Suit

1. The Reshoring Imperative

The pandemic highlighted vulnerabilities in global supply chains, prompting businesses to bring critical production closer to home. In America, the IRA and CHIPS Act have turbocharged this trend by providing billions of dollars in subsidies for industries like semiconductors, electric vehicles, and clean energy. Companies that fail to expand domestically risk missing out on these incentives and falling behind fast growing competitors.

However, building state-of-the-art facilities isn't cheap. Rising construction costs, labor shortages, and higher than normal interest rates are squeezing budgets. Build-to-suits offer a pragmatic way to bridge the funding gap. By partnering with experienced real estate investors, businesses can secure bespoke facilities without shouldering the financial and operational risks of development.

2. The Rising Cost of Capital

In today’s high-interest-rate environment, financing new facilities through traditional loans can strain balance sheets. Many businesses are already grappling with tighter credit conditions and higher debt-service obligations. A build-to-suit offers an attractive alternative by providing access to 100% financing for the development, allowing businesses to preserve liquidity and keep debt ratios in check.

3. Focus on Core Competencies

Manufacturers thrive by optimizing production and supply chains—not by managing real estate portfolios. Owning and developing real estate ties up significant capital and management bandwidth that could be better allocated to core operations. A build-to-suit allows companies to outsource real estate development and ownership to specialists while maintaining full operational control of their facilities.

The Private Equity Opportunity

Private equity firms are uniquely positioned to leverage build-to-suits in their portfolio strategies. As industrial real estate becomes increasingly integral to value creation, private equity sponsors can use BTS sale leasebacks to:

• Accelerate Growth: Fund expansions and greenfield projects without tapping into fund reserves or overburdening portfolio companies with debt.
• Enhance Valuations: Improve operational metrics by shifting real estate from the balance sheet to an operating lease, which can enhance EBITDA multiples.
• Optimize Exits: Showcase portfolio companies with high-quality, custom-built facilities and minimal debt loads to attract premium valuations.

The Industrial Real Estate Advantage

The industrial real estate market—especially manufacturing facilities—has emerged as one of the most resilient asset classes in commercial real estate. Investor demand for industrial properties remains strong, driven by:

• Energy Transition: Clean energy initiatives are spurring demand for facilities that support renewable energy production and storage.
• Supply Chain Resilience: The need for resilient supply chains is driving demand for localized manufacturing hubs.

For investors, a build-to-suit offers stable, long-term returns backed by creditworthy tenants. For tenants, they provide the facilities needed to compete in today’s fast-changing industrial landscape.

Addressing Common Concerns

“What if I lose control over my facility?”

While a sale leaseback involves transferring ownership of the property, tenants retain full operational control through long-term leases. Lease terms are typically structured to align with the tenant’s business needs, providing stability and predictability.

“Won’t leasing be more expensive than owning in the long run?”

Not necessarily. When factoring in the opportunity cost of capital, potential tax benefits, and the reduction in debt obligations, leasing often proves more cost-effective than ownership. Additionally, businesses can avoid the risks associated with real estate market fluctuations.

“What happens if my operational needs change?”

BTS facilities are designed with tenant input to ensure they meet long-term requirements. However, if needs evolve, leases can often be structured with built-in flexibility, such as options for expansion or early termination.

Conclusion: A Strategic Advantage

The surge in American factory construction signals a transformation in the nation’s industrial landscape. As companies navigate the twin pressures of reshoring and decarbonization, the need for innovative financing solutions has never been greater. Build-to-suit sale leasebacks offer a compelling path forward—one that aligns the interests of manufacturers, private equity sponsors, and real estate investors.

For those looking to seize the moment without compromising financial health, the BTS sale leaseback is more than a financing tool. It’s a strategic advantage, enabling businesses to scale, innovate, and thrive in a competitive global economy.