I am advising on a new construction senior living project in Central California. Four residential care homes. Fifty eight licensed beds. The operator is a family business that already runs two homes in the same market. Both are full. Both have a waitlist.

Demand was never the hard part. The stack was.

We started by writing down what each party actually needed, then built around that.

One long time investor wanted a simple position. One home. Owned outright. No debt on it. No fractional interest in the other homes. So that investor is acquiring and building the first home and leasing it back to the operator on a triple net basis, the same structure they already use together on the existing homes.

That investor is funding part of the position by selling other property and routing the proceeds through a 1031 improvement exchange into the construction. Anyone who has done one knows the clock is unforgiving. The intermediary and the CPA signed off on the sequence before anyone drafted documents.

The land for all five lots is carried on a short term land loan. It retires when the main construction financing closes.

The other three homes are being financed with an SBA 504 structure for the owner operator. Done right, that structure leaves the operator with a much smaller cash contribution than conventional construction debt would require. That matters for a family operator whose cash is better spent opening well than sitting in a down payment.

Preferred equity fills the last gap. It is the most expensive layer, so we sized it last and kept it as small as the rest of the stack allowed.

Lesson I keep relearning: structure follows constraints. Once the investor rules were clear, one home, no debt, no fractional ownership, the rest of the stack almost designed itself. When we model first and ask later, we end up rebuilding the model three times.

Question for the group: if you have used a 1031 improvement exchange on new construction, how did you handle the timing between the sale, the identification period, and draws? That is the part I see done wrong most often.