What is Turnkey in Real Estate?

Turnkey in real estate refers to a state of completion when a building is turned over to the end user. Turnkey is a building, office, or house that has been completed to the point where the future occupant can start utilizing the facilities once he takes possession. Turnkey, as opposed to core and shell, involves completely building out the interior of a space and then furnishing with the selected equipment and furniture.

Function

Turnkey real estate is used primarily by customers who are not experienced in facility construction and furnishing. In these situations, they would pay a developer or contractor to provide a turnkey facility. The developer/contractor would not only build the core and shell of the building, but would also complete the interior tenant improvements and furnishings. This allows the owner to take possession and put the facility to use without having to worry about conducting interior improvements on her own.

Features

Turnkey real estate will involve: construction of the actual outer structure, improvement of the tenant space (including finishes such as flooring and counters), and installation of appliances and furniture. It includes any equipment specific to the tenant's use. For example, for a turnkey restaurant a developer would build the restaurant, install the kitchen and counters, install all required appliances, and install tables, booths and chairs. When the client takes possession of the restaurant, it will be ready for immediate use.

Considerations

Turnkey requires the contractor or developer to outsource many scopes of work for the project to other subcontractors and suppliers. This can lead to added fees being addedd to the base costs. In the restaurant example, the developer would not only hire a builder, but would also contract a kitchen equipment subcontractor and a furniture supplier. The developer would add a markup to these contractors' costs for the burden of having to contract them directly. A typical developer/contractor markup is 4 to 5 percent of the contract value.

Benefits

Often, a developer or contractor is experienced in a particular type of end use for a space (e.g. restaurant, salon, office). An owner can benefit by acquiring a turnkey facility from these companies because they better understand the risks and challenges of completing such real estate projects. An experienced owner could lose a fortune if she is not familiar with how to build the facility required and try to do so on her own. Additionally, turnkey real estate allows an owner to focus on her particular field rather than having to worry about the construction and real estate industry.

Potential

Turnkey real estate is often built without a prior commission from a client. Developers can anticipate the future demand for a particular type of use (e.g. retail store) in an area and then build a turnkey space to later sell/rent to a customer. By having the space already constructed, the developer can take advantage of immediate demand and possibly charge a premium to an eager buyer.