An improvement exchange lets an investor use exchange funds to build or renovate replacement property before taking title, which matters in Washington markets where the available inventory rarely matches an investor's target value exactly.
How an Improvement Exchange Is Structured
Because the investor cannot hold title to the replacement property while construction happens with exchange funds, without triggering constructive receipt issues, an exchange accommodation titleholder holds the property during the improvement period. Construction, permitting, and draws all happen while the EAT holds title, and the property transfers to the investor once work is complete or the 180-day period runs out, whichever comes first, at the improved value that then counts toward satisfying the exchange.
What the Exchange Accommodation Titleholder Actually Does
The EAT's role includes several practical functions that need to be coordinated with the intermediary and lender:
- Holding legal title to the replacement property during construction
- Receiving and disbursing exchange funds for permitted construction draws
- Coordinating with the contractor and lender on the construction schedule
- Transferring title to the investor before the 180-day deadline expires
Washington Construction and Permitting Realities
Permitting timelines vary widely across the state, a straightforward tenant improvement in an existing Kent Valley industrial building moves faster than new construction subject to Seattle or King County land use review, or a seismic retrofit on an older building near the waterfront. Because the 180-day deadline does not pause for permitting delays, the construction budget and schedule have to be planned around a realistic, and often conservative, completion date rather than the contractor's best-case estimate.
Why Timing Discipline Matters More Here Than in a Standard Exchange
Whatever value has actually been added to the property by the time it transfers to the investor is what counts toward the exchange, work that is only partially complete at day 180 does not get full credit for its planned finished value. That makes the draw schedule, contractor performance, and permitting timeline central to whether the improvement exchange actually accomplishes what it was set up to do, rather than a secondary detail handled after the structure is in place.
Coordinating the EAT, Lender, and Intermediary as One File
An improvement exchange effectively runs three parallel relationships, the exchange accommodation titleholder handling title and construction draws, the lender financing the acquisition and improvements, and the qualified intermediary holding the original sale proceeds, and each one needs visibility into the same schedule rather than working from separate assumptions about the completion date. A construction delay reported to the contractor but not relayed to the intermediary can leave the exchange file out of sync with the actual timeline until it's too late to adjust.
Building a single shared schedule that all three parties reference, updated as draws are requested and permits clear, keeps the improvement exchange from becoming three disconnected projects that only get reconciled once the 180-day deadline is already close.
Washington investors using an improvement exchange for a value-add industrial or multifamily property should also confirm early how the lender views the accommodation titleholder's role on title during construction, since some lenders require additional documentation or a different loan structure than they would for a standard purchase. Raising that question with the lender at the same time the EAT and intermediary are engaged, rather than after the construction contract is already signed, avoids discovering a financing obstacle once the project is already underway.
Contractor selection deserves the same early attention as the financial structure, since a contractor unfamiliar with drawing against an exchange account, rather than a standard construction loan, can introduce delays simply from unfamiliarity with the approval process, which is a cost the fixed exchange deadline has no tolerance for.
Building in a buffer of two to three weeks between the contractor's projected completion date and the actual 180-day deadline, rather than planning to the exact day, gives the investor room to absorb a permit delay or a late-arriving material without losing credit for work that would otherwise have been finished in time, which matters most on projects with multiple trades sequenced tightly against one another.
Common 1031 Exchange Questions
Who owns the replacement property while it's being improved?
An exchange accommodation titleholder holds title during the improvement period, not the investor. This structure is what allows exchange funds to pay for construction without the investor having actual or constructive receipt of those funds.
What happens if construction isn't finished by day 180?
Only the value actually completed and in place by the deadline counts toward the exchange. Work that remains unfinished when title transfers does not add value to the exchange, even if it was fully funded and planned.
Can I use an improvement exchange to build on land I already own?
Generally no, an improvement exchange requires the replacement property to be acquired as part of the exchange; improving property the investor already owns doesn't create new like-kind replacement value in the same way.
Does an improvement exchange work with financing?
Yes, but the lender needs to be comfortable financing a property held temporarily by an accommodation titleholder rather than the ultimate borrower, which some lenders are more familiar with than others.
Is an improvement exchange more expensive to set up than a standard exchange?
Generally yes, because it requires a specialized accommodation titleholder structure and closer coordination between the intermediary, lender, and contractor, which typically carries higher fees than a standard forward exchange.