Construction and Improvement Exchanges

Construction and improvement exchange support helps Charlotte, NC investors use exchange proceeds to fund construction or improvements on replacement property, not just the purchase price of an existing building. This structure, sometimes called a build to suit exchange, allows an exchanger to acquire land or an under improved property and direct exchange funds toward construction, provided the improvements are completed and the property is transferred to the exchanger within the 180 day window.

How an improvement exchange uses an exchange accommodation titleholder

Because an exchanger cannot direct construction on property they already own using exchange funds without jeopardizing the exchange, an improvement exchange typically uses an exchange accommodation titleholder to hold title to the replacement property while construction proceeds. Exchange funds held by the Qualified Intermediary pay for construction costs during this period, and once improvements reach the value needed for a full value exchange, or once the 180 day deadline approaches, title transfers to the exchanger. All work intended to be part of the exchange must be substantially complete and the property must be transferred within the 180 day window, since improvements made after the exchanger takes title do not count toward the exchange value.

This timeline is the central planning challenge of an improvement exchange, since most construction projects take longer than 180 days to fully complete. We coordinate with contractors and the exchange accommodation titleholder to sequence work so that the improvements completed within the window are sufficient to satisfy the exchange value requirement, even if some finishing work continues after title transfers to the exchanger outside the exchange structure.

Charlotte, NC build to suit and improvement scenarios

Charlotte, NC investors use improvement exchanges in situations such as acquiring raw land and constructing a build to suit property for a specific tenant, or acquiring an under improved property and completing renovations to bring it up to the value needed to fully defer gain. North Carolina applies a flat individual income tax rate, and the improvement exchange mechanics are the same for Charlotte, NC exchangers as elsewhere, though local permitting and construction timelines should be factored into the 180 day planning from the outset.

We coordinate identification of the land or under improved property, planning for construction draws through the Qualified Intermediary, and tracking of the 180 day deadline against the construction schedule. We also track debt and equity matching, since the total value of the replacement property, including completed improvements, must be evaluated against the relinquished property value to assess boot exposure at the time title transfers to the exchanger.

We also help exchangers plan for the possibility that construction costs run over budget or that permitting takes longer than expected, both common risks on any ground up project. Because only the value of work completed by the 180 day transfer date counts toward the exchange, we build a contingency plan identifying which scope items are essential to reach full exchange value and which are lower priority finishing work that can reasonably continue after the exchanger takes title outside the exchange structure.

We also coordinate lien waiver collection and payment application review throughout the construction period, since the Qualified Intermediary disbursing funds for construction draws needs documentation confirming each draw was properly applied before releasing the next payment. This level of financial control protects both the exchanger and the integrity of the exchange, and it mirrors the draw process a construction lender would typically require on a conventional development loan.