1031 exchanges are a powerful tool for real estate investors.

You get to charge the one tenant above-market rent (in exchange for them being allowed to sublet), the lender gets the one single lease that they know how to understand, everyone wins.

You want to keep paying cheap rent but get an A-class rental in exchange.

Crystal mentioned a Structured Installment Sale may be a good soution along with possibily a 1031 Exchange.

As part of that exchange they will be taking $500K in cash "boot". 

You also should ask them if its possible to do with a reverse 1031 exchange.

If the project is co-owned in a limited partnership with them with them as the active partner as "developer" and you as a limited partner having no active role in the actual development process, this would be treated as capital gains income and you should absolutely use a 1031 Exchange to avoid these taxes.

.- 1031 Exchange: Utilize a 1031 exchange to defer capital gains taxes when selling properties, allowing you to reinvest the full amount into new investments.9.

And as long as you work out the % ownership correctly they'll be able to complete their 1031 exchange successfully

Any experienced 1031 exchanger can provide some insight into this scenario?