Sometimes the ideal replacement property does not exist as-is. An investor exchanging out of a fully stabilized Atlanta asset may want to buy a smaller building and add square footage, or acquire land and construct a purpose-built structure for a specific tenant. An improvement exchange, sometimes called a build-to-suit exchange, allows exchange funds to pay for that construction, but only within the same 180-day window that governs every other exchange, which makes timing the hardest part of the strategy.
How the Structure Actually Works
Because the exchanger cannot hold title to a property while improvements are being funded with unrecognized exchange proceeds, an exchange accommodation titleholder takes and holds title to the replacement property during construction, similar to the structure used in a reverse exchange. The EAT contracts for the improvements, exchange funds pay the contractors and suppliers, and title transfers to the exchanger once the exchange completes, at which point the property has to reflect the improvements that were actually finished and paid for by that date.
The exchanger typically directs the construction decisions day to day even though the EAT holds legal title, working through a qualified exchange accommodation agreement that spells out who approves draws, who signs off on change orders, and how disputes with a contractor get resolved while the EAT remains the party of record on the construction contract.
Why the 180-Day Deadline Is the Real Constraint
Only the value of improvements actually completed and in place by day 180 counts toward the exchange. A partially built structure, materials purchased but not yet installed, or work still in progress does not satisfy the requirement just because a contract was signed and funds were spent. If the replacement property is not worth at least as much as the relinquished property once construction stops at day 180, the shortfall is treated as boot, taxable the same as any other unreinvested value.
This is why improvement exchanges are rarely a fit for ground-up construction on a tight metro Atlanta timeline. Permitting alone in some counties can consume a meaningful share of the available window, and a general contractor's schedule almost never compresses to match a legal deadline instead of the other way around.
What Tends to Fit This Structure and What Does Not
- Interior buildouts and tenant improvements on an existing building, which can often be scoped and completed inside 180 days with the right contractor lined up early
- Site work and expansion on a property the exchanger already controls through the EAT, where design decisions were made before the relinquished property even closed
- Ground-up construction on raw land, which usually cannot clear permitting, site work, and full building completion within the deadline in most Atlanta jurisdictions
- Any project dependent on a single critical-path vendor, since one delayed delivery can consume weeks that were never budgeted for slack
Why Planning Has to Start Before the Relinquished Sale Closes
An improvement exchange cannot be decided on day 40 of the identification period. The construction scope, contractor selection, and permitting timeline need to be far enough along that the exchanger has real confidence the work can finish by day 180, which means the planning conversation usually starts while the relinquished property is still under contract, not after it closes and the clock has already started.
A rough construction estimate obtained during the marketing period of the relinquished sale gives an exchanger a real basis for deciding whether an improvement structure is worth pursuing at all, versus finding an already-improved replacement property that avoids the construction risk entirely.
Common Questions
Can I use exchange funds to finish a building that started construction before the exchange?
Generally only the value added and completed within the exchange period, using exchange funds, counts toward the replacement value. Work paid for and completed before the exchange started does not carry the same treatment.
What happens if construction is not finished by day 180?
Only the completed and in-place value at day 180 counts. Uncompleted work, unfinished materials, or in-progress construction do not count, and any resulting shortfall against the relinquished property's value is treated as boot.
Who actually holds title to the property during construction?
An exchange accommodation titleholder holds title while the improvements are being funded and completed, then transfers title to the exchanger once the exchange concludes, similar to how a reverse exchange is structured.
Is an improvement exchange realistic for ground-up construction?
It is difficult in most cases. Permitting, site work, and full construction rarely complete within 180 days in a typical Atlanta jurisdiction, which makes interior buildouts and additions to existing buildings a more common fit.
When should I start planning an improvement exchange?
Before the relinquished property closes. Contractor selection, scope, and a realistic completion timeline need to be far enough along that the 180-day window is a credible target, not a hope.
