Buy, build, or lease? The 15-year cost of occupying your next facility

The short answer

Rent against a mortgage payment is the wrong comparison. Three questions decide it: where your capital earns more, who wants the building in fifteen years, and how sure you are about those fifteen years. Put every option on the same fifteen-year footing, including the cash up front, the value left at the end, and how soon each one gets you in the door. The cheapest monthly number is often not the cheapest facility.

Why is rent against a mortgage the wrong comparison?

It is the comparison everyone makes first. The lease quote says one number a month. The bank's term sheet says another. Whichever is smaller wins the meeting.

Neither number tells you much. Part of a mortgage payment is principal, which you keep as equity. Part of rent is the landlord's return, which you don't. The payment comparison leaves out the three things that usually decide the answer: the cash you put in at the start, the building you own or don't own at the end, and what it costs to leave in between.

The payment is the easy part. The down payment, the exit and year fifteen are where the money is.

What are the five ways to occupy a building?

Option	Cash up front	Who owns it at the end	Time to occupancy	Flexibility
Buy existing	Down payment	You	Fastest, if one fits	Moderate. You can sell, but slowly.
Develop your own	Equity for land and construction	You	Slowest	Low. You carry construction risk and the exit.
Developer build-to-suit	Little or none	The developer	Similar to developing your own	Low. Long lease, hard to exit.
Conventional lease	Deposit and move-in costs	The landlord	Fast, if one fits	Highest, limited to what exists
Sale-leaseback	Negative. You receive cash.	The buyer	None. You stay put.	Low. You trade the building for a long lease.

Two notes on the list. Buying existing is only an option when something on the market fits, which for specialized operations it often doesn't. See Nothing on the market fits. And a sale-leaseback belongs on the list because it is the same trade in reverse, but it answers a different question. The company already owns the building and is deciding whether to turn it into cash. That gets its own guide.

Holding the building in a separate real estate company you control is a version of owning. It matters most for taxes, and it is covered in The new manufacturing write-off.

What actually decides it?

Is your capital worth more in the building or the business?

This is usually the biggest question, and the least asked. Every dollar in the building is a dollar not in equipment, inventory, hiring or the next acquisition.

The market puts a price on industrial buildings through the cap rate: roughly, the rent a building produces divided by what investors will pay for it. In the first quarter of 2026, single-tenant industrial cap rates ranged from 5.84 percent in the West to 7.20 percent in the Midwest.¹ Treat that as the return a building earns. If your business earns 20 percent on the capital it uses, tying that capital up in something that earns six or seven is expensive. If your business earns less than that, or you have more cash than good uses for it, owning looks better.

Cheap, low-equity debt narrows the gap. In a typical SBA 504 structure, the borrower puts in at least 10 percent, with a bank and an SBA-backed lender covering the rest, on terms up to 25 years.² Some projects require more equity. When the check is small, the capital question matters less.

Who wants the building in year fifteen?

A general-purpose building holds its value. Someone else can use it. A building designed around one process may not, and its value at the end is the value to the next buyer, not to you.

This cuts both ways. If you own a specialized building, you carry the risk that it sells for less than you hoped. If you lease one, the developer knows that risk too and prices it into your rent. Somebody pays for a building nobody else wants. Usually it is the operator.

How sure are the next fifteen years?

A build-to-suit lease commonly runs ten to twenty years and is hard to exit. An owned building can be sold, but not quickly, and a specialized one may not sell well. Either way, you are making a commitment longer than most operators can see.

So ask the same questions as in My plant is full. How much of the volume comes from one customer? How much is under contract? Would the plan still work if demand came in well short of forecast? The less certain the answer, the more flexibility is worth, and the more you should be willing to pay for it.

How do you run the fifteen-year comparison?

Build each option the same way, year by year, and bring it back to today's dollars:

Cash up front: the down payment or construction equity.
Annual cost: debt service, or rent with its escalations.
Operating costs: under a net lease, taxes, insurance and maintenance are yours either way. Note where they aren't.
Taxes: depreciation, and the new first-year deduction for qualifying production buildings. That is covered in the write-off report. It is general information, not tax advice.
The end: what the building is worth in year fifteen after selling costs, or what it costs to leave the lease.
The discount rate: your own cost of capital, not the loan rate. This is the number that carries the first question.
Time to occupancy: if one option gets you in a year sooner, count what the constraint costs you for that year. My plant is full calls this cost to capacity.

A worked example · an illustration, not a benchmark

A $15 million plant. The operator can develop it and own it, or have a developer build it and lease it back at 7 percent of cost: $1.05 million a year, rising 3 percent a year, net. In year fifteen the owned building sells at a 7.5 percent cap rate, less 3 percent in selling costs, for about $21 million. To keep it simple, the example ignores taxes and financing and assumes both options take the same time to build.

Over fifteen years the lease costs about $19.5 million in rent. Owning costs $15 million up front and returns about $21 million at the end. On those totals, owning looks like an easy win.

Bring it back to today's dollars and the answer depends on the operator. At an 8 percent cost of capital, owning is about $2.4 million cheaper. At 12 percent, leasing is about $2.8 million cheaper. They break even near 9.6 percent. Stay only seven years and sell, and leasing wins at both 10 and 12 percent.

Same building, same rent. The answer changed because the operator did.

What changes the answer?

How long you actually stay. Usually the biggest swing. Owning rewards staying; leasing rewards leaving on schedule.
The value at the end. A higher cap rate in year fifteen, or a building only you can use, cuts the owner's payoff.
Interest rates and equity required. Cheap debt with little equity makes owning easier to justify.
Rent escalations. Three percent a year means rent about 50 percent higher in year fifteen than in year one.
Taxes. The first-year deduction helps owners with the taxable income to use it. It does nothing for a company that can't.
The balance sheet. Under current lease accounting, operating leases now sit on a private company's balance sheet as a lease liability and a right-of-use asset.³ Leasing is no longer generally off the books. Lenders and loan covenants may still treat lease liabilities differently from borrowed money. Check your credit agreement, not just the accounting.

What if we're wrong?

If sales grow faster than planned: an owner with land can expand; a tenant negotiates with the landlord or moves.
If sales stay flat: a long lease or an owned plant still has to be paid for. Flexibility you didn't buy is flexibility you don't have.
If the key customer leaves: a specialized building, owned or leased, is the hardest thing to walk away from.
If you sell the company in five years: buyers often value the business and the building separately, and some don't want the building at all. See Separating the business from the building before you sell.

What does waiting cost?

Construction costs drift upward. A tenant's leverage shrinks as the lease expiration gets closer; see Your industrial lease expires in 18 months. And the first-year deduction for production buildings depends on when construction begins, which puts a date on the owning option.

Current rules · as of September 2026

Single-tenant industrial cap rates, Q1 2026: 5.84 to 7.20 percent by region, up 118 basis points from the second-quarter 2022 low of 5.21 percent.¹ SBA 504: 10-, 20- and 25-year terms, typically at least 10 percent borrower equity.² Lease accounting: operating leases recognized on private-company balance sheets since fiscal years beginning after December 15, 2021.³ Refreshed at each annual review.

What questions come next?

Paying for it: A $7 million expansion: four ways to pay for it
The tax picture for owners: The new manufacturing write-off
The lease clock is running: Your industrial lease expires in 18 months
Nothing available will work: Nothing on the market fits
Not sure you need a building yet: My plant is full

Related reports

The new manufacturing write-off: why who owns your building now matters

This is general information, not advice about a specific company, property, or transaction. See the disclaimer.

Sources and disclosure

Northmarq, MarketSnapshot: Single-tenant industrial, Q1 2026. Secondary (brokerage research). Link · Checked September 27, 2026.
U.S. Small Business Administration, 504 loans. Government. Link · Checked September 27, 2026.
EisnerAmper, How to Adopt ASC 842 for Private Companies. Secondary (accounting firm). Link · Checked September 27, 2026.

How Redchip researches and verifies: Method. Disclosure: Dan, who wrote this guide, is a partner in Vanguard Industrial Partners, which develops build-to-suit industrial facilities in the Southeast. Build-to-suit is one of the five options this guide compares. Redchip Ventures LLC also provides advisory services as Arkvera Grove Partners. Paid work never changes a conclusion in a Redchip guide.