Now firmly established as a Modern Method of Construction, building offsite produces significant benefits over traditional methods - among them are speed of completion, standard of finish, cost predictability, lifetime performance, sustainability and reduced risk. In the 60 years since Terrapin pioneered this field in the UK, offsite construction has developed into a truly high quality alternative - and when clad in traditional materials, such as brick or timber, factory built structures are virtually indistinguishable from other types. Factory built accommodation is perfect for a lasting solution - but it is also ideal for temporary needs.
Capital preservation and predictability are of paramount importance. That said, business needs must be recognised and accommodated in delivering buildings that support the company's image and provide a working environment that improves staff morale through periods of change. In a recent business proposal we presented a number of options for a 90 bedroom budget hotel where offsite construction was the preferred method, as its short build time would enable the developer to start enjoying a revenue income stream sooner than the ‘traditional' alternative. The return on investment for an offsite constructed hotel is greater than that of a traditional build, too. We gave the developer the choice of an outright purchase and a 10-year rental option, opening up new, and previously unconsidered, options for his business model.
A rental option will protect capital, enabling the owner or developer to possibly consider alternative strategic plans and preserve valuable cash flow so that it can be used to drive other important areas of the business operation. As with an outright purchase, if an offsite produced rental option is chosen, it can include an add-on facility; future extensions or additional buildings can be incorporated by simply extending the terms of the hire agreement, with payments flexibly tailored to individual business needs. With the approval of auditors, rental payments can be classed as a revenue expense, providing significant tax benefits.
Renting the building over 10 years can be only marginally more expensive than an outright purchase. In reality, the balance over this period leans more towards hire because an outright purchase is more likely be wholly or partly financed with borrowed funds which attract additional interest charges. A developer opting for a rental option would be able to invest his capital in the business, rather than the property, providing choices that may help deliver against other goals; new/additional revenue streams being the most obvious. On balance, then, renting can be more financially attractive depending on the corporate and economic environment at any time.
Our costing exercise for the hotel also neatly answers a common question: what happens to the building after 10 years? We simply extend the hire agreement and the building remains in place (or reposition it in another place) allowing the customer to plan their future needs through a flexible approach.
We at Terrapin pride ourselves on delivering buildings that look good, meet the space and performance expectations and are meant to last. However, there are applications where wear and tear are greater than the norm, or where corporate needs may demand regular upgrading of facilities. In our hotel example, outright purchase could after 10 years leave the developer with a much depreciated asset and a difficult decision on future action. On the other hand, the rental option actually includes an amount for dismantling the building at the end of the term, if necessary. Rental thus gives the owner the flexibility simply to walk away after 10 years, or to negotiate a new term with refurbishment or even rebuilding - again with minimal capital impact. And even if the hotel were to be completely rebuilt, this could be achieved with minimal disruption to the business.
The Terrapin business model enables us to offer both permanent and relocatable buildings for outright purchase or hire, and this choice extends to every type of building we produce. Rental is not an option for some parts of the public sector, but it should always be a consideration for commercial property requirements. The current economic climate is possibly not a good time to be investing precious capital in new premises - but it's a perfect time to opt for renting an offsite built solution to keep as many options open and available.
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