1031 Commercial Deal - Price Reduction or Escrow

[Anwer Shaikh]

I have a friend who is under contract on a commercial property and him and I were discussing his 1031 situation and I thought I would get an opinion from the experts in this forum. 

Property Purchase : $4.0M 
1031 Exchange Money: $1.05M

He has loan approval at 25% down for the commercial property and he will be pretty close to being completely wiped out with attorney fees and other allowed 1031 expenses. 

There are some issues that came up with the property inspection and it needs a new roof, new commercial rtus, and repaving the parking lot. The total credit he is asking the seller for is 300K. He is wondering if he should take the 300k as a price reduction (leading to boot from 1031 as he does not want to go higher than 25% down payment) or if he can avoid boot by keeping the price the same and take the 300k in a capex escrow account with the title company to be used for repairs over the next year (title company and bank are ok with this). His QI is telling him the escrow would also be considered money received at closing but falls in a gray area if audited. The seller doesn't want to do the fixes prior to closing but is ok with the 300k credit. 

Any insights would be appreciated or any other ways to utilize the 300k in credits.