By: Shannon Kinnard
A build-to-suit exchange, also known as a construction exchange or improvement exchange, offers an exchanger the opportunity to use exchange funds for construction and improvements/renovations to the property they’re acquiring. In a build-to-suit exchange, like in a reverse exchange, an Exchange Accommodation Titleholder (“EAT”), which is typically a limited liability company owned by a Qualified Intermediary or QI affiliate, temporarily holds title to the replacement property. There are two types of build-to-suit exchanges—a deferred build-to-suit exchange and a reverse build-to-suit exchange—which we explore below:
Note: this structure is typically used if the replacement property must close quickly, such as in a competitive market or if the seller will be doing their own 1031 exchange and has a replacement property lined up to close.
Overall, a build-to-suit exchange offers investors the ability to tailor the property to suit their needs—they can customize the design or offer amenities and finishes which can increase their market value or attract specific tenants. A few factors to consider with a build-to-suit exchange include that the construction/improvements must be completed within the 180-day exchange period, it can be more costly than a standard 1031 exchange, and in a reverse build-to-suit structure, the investor or their lender must front the funds necessary to acquire the replacement property. The 1031 exchange process can be complex, but strategic planning with your tax advisor and our team of experts at Genesis Bank Exchange can help maximize the potential of your investments.
If you’re interested in learning more about the 1031 exchange process and how it may benefit you, connect with the Genesis Bank Exchange team by calling 800.797.1031, or explore further details on our website: https://www.mygenesisbank.com/1031Exchange.
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