Improvement Build to Suit Exchange

An improvement exchange, sometimes called a build to suit exchange, allows a Los Angeles investor to use exchange funds not only to purchase a replacement property but also to fund construction or renovation on it before taking title, which is useful when the ideal replacement is raw land or a property that needs substantial work to reach its target use.

Because the exchanger cannot receive title to the replacement property before improvements are complete without ending the exchange's tax deferral, an exchange accommodation titleholder holds title during the construction period, using exchange funds to pay for the work, and transfers title to the exchanger once the improvements are finished or the one hundred eighty day period expires, whichever comes first.

Because the accommodation titleholder generally cannot hold the property beyond the one hundred eighty day exchange period, any planned construction or renovation needs to be substantially complete, or at least far enough along that the value added qualifies as like-kind property, within that same window, which is a tight timeline for any meaningful ground-up construction project.

An improvement exchange works best for renovation projects or smaller build-outs that can realistically finish within the exchange period, rather than for large ground-up developments that typically take well over one hundred eighty days, since only the value of work actually completed within that window counts toward the exchange.

Because every dollar of construction cost needs to flow through the accommodation titleholder and be documented as part of the exchange, we help coordinate contractor draw schedules and construction timelines against the one hundred eighty day deadline from the outset, rather than treating the construction plan and the exchange deadline as separate tracks.

Given how unforgiving the one hundred eighty day deadline is for a construction-based exchange, we encourage building meaningful schedule contingency into any planned improvements from the outset, since permitting delays or contractor scheduling issues that would be manageable on an ordinary Los Angeles construction project can jeopardize the entire exchange under this compressed timeline.

Because the accommodation titleholder cannot hold the property beyond the exchange period, we help exchangers evaluate whether a candidate contractor has genuine experience delivering work on a compressed, deadline-driven schedule, since a contractor accustomed to open-ended project timelines may not be the right fit for an improvement exchange regardless of the quality of their work.