A build to suit exchange, also called a construction exchange or an improvement exchange for new construction, allows an investor in Fort Worth, Texas to use exchange proceeds to fund the ground up construction of a replacement property rather than purchasing an existing building. This structure is attractive in a growth market like Fort Worth, where investors often want a purpose built single tenant building on a specific outparcel or corridor rather than settling for whatever existing inventory happens to be on the market. Because the taxpayer cannot hold title to the property being built while exchange funds are still in play, a build to suit exchange is executed through an Exchange Accommodation Titleholder under the same parking framework used for reverse exchanges, with the titleholder holding the land and directing construction draws until the building is substantially complete.
How Construction Value Counts Toward the Exchange
Every dollar of construction cost paid before the property is deeded to the investor counts toward the replacement property's exchange value, but any work completed after the transfer of title does not count, which makes timing the construction schedule against the one hundred eighty day deadline critical. The Exchange Accommodation Titleholder holds title to the land and directs the Qualified Intermediary to release exchange funds to pay contractors, architects, and permitting fees as draws are approved, all while land acquisition, site work, vertical construction, and inspections proceed on a compressed schedule. Because the full one hundred eighty days from the relinquished property closing must cover land closing, permitting, and enough construction to reach the target exchange value, most build to suit exchanges only pencil out when the investor already has entitlements, a general contractor, and a construction budget lined up before the relinquished property even sells. Fort Worth's permitting timelines across the city and surrounding suburbs vary enough that confirming realistic entitlement and inspection windows with the general contractor early is essential to keeping the exchange on schedule.
Identification and Deadline Pressure Unique to New Construction
The investor must still identify the property being built within forty five calendar days of the relinquished property closing, describing the land parcel and, where practical, the scope of planned construction, and the completed value of land plus construction in place must reach or exceed the relinquished property's net sales price by day one hundred eighty to defer the full gain. Because construction rarely finishes exactly on schedule, most build to suit exchanges are structured so that the building only needs to be substantially complete, not fully finished, by the one hundred eighty day deadline, with the investor absorbing any remaining punch list work after taking title. Falling short of the target value at day one hundred eighty creates boot on the shortfall, even if construction is finished shortly afterward, since additional value added after the transfer of title from the Exchange Accommodation Titleholder does not count toward the exchange.
Lender coordination is often the limiting factor on a build to suit exchange, since a construction loan made to the Exchange Accommodation Titleholder rather than to the investor directly requires a lender comfortable with parking structures and willing to close on a compressed underwriting timeline. Investors pursuing new construction on infill sites within Fort Worth city limits, or on outparcels in fast growing suburbs such as Alliance or the western corridor, should confirm site plan approval and utility availability before committing to the exchange structure, since a stalled entitlement can quickly consume the identification window without a shovel ever going into the ground. Because Texas has no state income tax, the deferral achieved through a completed build to suit exchange applies at the federal level only, which keeps the return on the new construction easier to model against comparable acquisitions of existing product in the same submarket.
Our build to suit exchange coordination service works with the Exchange Accommodation Titleholder, Qualified Intermediary, general contractor, and construction lender to align the draw schedule with the one hundred eighty day deadline, and it flags entitlement or permitting risk early enough for the investor to adjust the construction plan. This is process coordination and education only, not tax, legal, or investment advice, and construction cost allocation for exchange purposes should always be confirmed with the investor's CPA before draws begin.
