22. What is a “build-to-suit” or construction exchange?

"Construction" or improvement exchanges are for replacement property to be built and are formally sanctioned by the new IRS Code. They consist of transactions in which the replacement property is built-to-suit, or in the case of already improved property, is further altered, etc., to the specifications of the exchanger. In a construction exchange, A Troika Consortium, Inc. usually acquires the replacement property, causes the improvements to be built during its ownership, and conveys the improved property to the exchanger. The building is done in accordance with the building specifications outlined in the purchase contract, and/or escrow instructions, prior to the substitution of A Troika Consortium, Inc. as the buyer. The exchanger approves all work done before disbursement of funds by A Troika Consortium, Inc. and exchangers may use the contractor of their choice, as long as they are not a "disqualified" person under the Regulations.

While real property improvements need not be completed within the Exchange Period, the value of any portion of the improvements not completed within the Exchange Period, will not qualify as replacement property. The 180-day Exchange Period may be manipulated by delaying the transfer of the relinquished property. This may allow some time for work to begin on construction of improvement on the replacement property. Property "to be produced" in a construction exchange, which is not completed within the 180-day Exchange Period, must be part of the standing structure to be considered real property under local law. A load of raw building material delivered to the building site, will not qualify as improved real estate.

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