The Details of the Deal
A year and a half ago a prospective client was referred in to us for a Reverse Improvement Exchange. After reviewing the client’s objectives, status of the properties involved and the nature of the market at that time it became apparent to us the timelines would be very difficult, if not impossible to work with.
Instead of structuring the exchange as a Reverse Improvement Exchange as originally planned we proposed structuring a Leasehold Improvement Exchange when the relinquished property had a sale in the future. Our assumptions were correct and nearly eighteen months later the rental house was in escrow. The property was closed and roughly $250k in exchange proceeds were received. Improvements on the replacement property totaled many times the value and equity of the relinquished property and our strategy would clearly work.
The sale of the relinquished property was structured as a basic delayed exchange and a lease for the replacement property was drawn. We created a new EAT (exchange accommodation titleholder-LLC) to enter into the 30-year lease. The EAT entered into contracts for the improvements and the $250k of work was completed, satisfying the 1031 exchange.
Leasehold Improvement Exchanges are terrific solutions for exchangors wishing to improve property that is already owned by the exchangor. Call us today for details on this powerful tool, we are the guys with the answers…