Build-to-Suit & Improvement Exchanges
Rhythmic Exchange ServicesA Build-to-Suit Exchange (BTS) is where an Exchanger purchases land to build the desired structure as the Replacement Property. An Improvement Exchange entails purchasing Replacement Property with the intention to improve the structure. Once the Exchanger takes title, any improvements are considered payment for labor and materials, not like-kind property, which is why special structuring is required.
Why Consider This Strategy?
Utilize All Exchange Funds
When the replacement property costs less than the relinquished property, improvements can absorb excess funds, avoiding taxable boot.
Meet Specific Criteria
When you need a specific type of business property, like a factory or place of business, that doesn't exist on the market, you construct it.
Competitive Market
Build-to-Suit exchanges expand your pool of potential replacement properties since you can customize vacant land.
Cost Savings
Sometimes acquiring vacant land and building costs less than buying a comparable constructed property.
How It Works
An Exchange Accommodation Titleholder (EAT) creates a Special Purpose Entity (SPE), typically an LLC, to take legal title to the property during construction. The SPE "parks" the title until the earlier of:
- Construction or improvements being completed
- The 180th day of the exchange period
Once the EAT transfers ownership to the Exchanger, the Exchanger has acquired improved like-kind real estate including the increased value of the improvements. Exchange funds must be used for construction costs within the 180-day period, though construction doesn't need to be completed.
Forward vs. Reverse Structure
Forward Parking
Sell relinquished property first. The EAT funds property acquisition and improvements from exchange funds held from the sale.
Reverse Parking
Acquire replacement property first. The Exchanger provides funds personally or arranges a bank loan, repaid when the relinquished property sells.
Need to structure a build-to-suit exchange?
Contact Joshua Oliver at (919) 371-8497
Contact Us1031 exchange services are provided by a qualified intermediary that is a wholly owned subsidiary of Accruit LLC, an Inspira Financial solution. The provider of these materials is not an agent or employee of, nor otherwise affiliated with, the qualified intermediary.