A Build-to-Suit Exchange, also known as a “Construction Exchange” or a “Build-to-Suit Improvement Exchange,” is a type of 1031 exchange that allows a taxpayer to use the proceeds from the sale of a relinquished property to construct or improve a replacement property that is tailored to their specific needs.
In a Build-to-Suit Exchange, the taxpayer identifies a qualified intermediary who holds the proceeds from the sale of their relinquished property in a segregated account. The taxpayer then identifies a replacement property and enters into an agreement with a qualified third party (known as the “Build-to-Suit Facilitator”) to construct or improve the replacement property to their specifications.
The Build-to-Suit Facilitator holds title to the replacement property during the construction or improvement period, and once the improvements are complete, the taxpayer acquires the replacement property from the Build-to-Suit Facilitator using the proceeds from the sale of their relinquished property. The taxpayer must complete the acquisition of the replacement property within the 180-day period allowed under the 1031 exchange rules.
Overall, a Build-to-Suit Exchange can provide a taxpayer with greater flexibility and control over the replacement property they acquire, as well as the ability to customize the property to their specific needs. However, it is important to consult with a qualified tax professional to ensure that a Build-to-Suit Exchange is the right strategy for a particular situation and to comply with all applicable tax laws and regulations.