The Build-to-Suit 1031 — Ordering Your Replacement Property

“Build-to-suit” in exchange practice covers two different moves — commissioning construction inside your exchange, or buying a developer’s build-to-suit product — and confusing them costs either fees or opportunities. Both routes end at the same place: a new building as replacement property.

Route one: construction inside the exchange

The improvement/build-to-suit exchange proper: an accommodation titleholder holds the site, your funds build during the 180 days, and you close on land-plus-completed-work. It buys control — your spec, your contractor, your corner — at the cost of structure fees, lender friction, and the day-180 completion ceiling that limits it to fast builds. Fit: buyers with a specific operational need (their own business premises, a family site) and a construction schedule that genuinely fits the window.

Route two: buying someone else’s build-to-suit

Developers construct pads for tenants — the QSR and c-store deals this market runs on — and sell the finished, rent-paying asset. For the exchanger this is just a purchase: normal QI, normal deadlines, and the “build-to-suit” was somebody else’s problem wearing a hard hat. Contract during construction with closing conditioned on lease commencement, and the calendar risk shifts to the developer where it belongs.

Choosing between them

The decision usually takes one question: do you need to control the construction, or do you need a new building with a long lease? Control points to route one with specialist QI counsel; the building points to route two, where inventory already exists and the representation is free. Nine files in ten want route two — the tenth knows who it is.