Build-to-Suit & Improvement Exchanges

Build-to-Suit & Improvement ExchangesImprovement Build to Suit Exchange Building Crane Office

It is not unusual to meet with a client who is intending to undertake a tax deferred real estate transaction and who wishes to apply a portion of the sale proceeds towards improving replacement property or constructing upon vacant replacement property. This happens frequently when the exchange balance is going to include more cash than is necessary to acquire the fee interest in the replacement property. Unfortunately, from the client's point of view, you properly advise the client that only the funds which are spent to acquire the replacement property are subject to deferral, and not the excess funds used to improve or construct. This is true even if the improvement or construction is finished within the 180-day limits.

There are several alternative approaches that may solve this dilemma:

  • Induce the seller to make the desired improvements prior to the closing and have those improvement costs added to the sale price. Unless the seller is strongly motivated, it is difficult to obtain the seller's cooperation.
  • Arrange for the developer or contractor to acquire the fee and make the improvements to specification. At the time the improvements are completed, but in no event more than 180 days from the sale of the relinquished property, the client can conclude a purchase with the developer as the seller.
  • Use the services of a parking intermediary or an exchange accomodation titleholder (EAT), as an independent party, to take ownership of the property and to cause the desired improvements to be completed. At the proper time, the improved real estate can then be sold to the clients, enabling the client to expend the full balance in the escrow account representing the proceeds of the disposition of the original property. Oftentimes, a reverse exchange situation and a build-to-suit will be part of a single transaction.

To summarize, in a build-to-suit or an improvement exchange, the property is improved while being held by the accommodator. For exchange purposes a taxpayer is not permitted to improve property already owned by the taxpayer. This technique allows the additional value of the improvements to be added to the purchase price when the property is transferred to the taxpayer.

Contact Us About Structuring Build-to-Suit & Improvement Exchanges

Accruit is a national leader in complex real estate exchange transactions, specializing in reverse, build‐to‐suit and improvement exchanges as well as simple forward exchanges of real estate.  We offer unparalleled qualified intermediary and exchange accommodation titleholder services including:

  • a dedicated real estate team to assist you with every step of your transaction
  • an attorney and Certified Exchange Specialist® to help structure your exchange
  • interest bearing qualified escrow accounts
  • segregated funds
  • 100% funds liquidity
  • adherence to all mandated state regulatory QI guidelines including bonding and insurance

Contact us for more information about our Exchange Accommodation Titleholder services.

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