Optimizing Asset Utilization
An optimal exchange strategy provides the most effective asset utilization to the Exchangor. Asset utilization means making assets available to for productive use and it means effectively positioning assets for involvement in an optimal exchange strategy.
For some types of assets, it does not make sense to sell the Old Property – thereby making it unavailable to the Exchangor – if there will be any substantive delay in acquiring the New Property. The classic examples here involve personal property assets such as aircraft. If a company has an airplane used to provide flexible, quick and convenient transportation to its senior executives, it makes no sense to sell the old aircraft before acquiring the new aircraft because the executive would have to fly commercial (like the rest of us!) and they’d fire the person managing the assets. Similarly, vehicles like rail cars or tractor/trailer combinations are productively deployed and to take them out of service without having replacements is likely to be a poor approach to asset management. Investment real estate earning attractive income should be considered similarly, as the example above shows.
Similarly, if a delayed exchange is used, the Exchanger is required to identify replacements in 45 days and acquire from among those identified within 180 days. In many situations, being able to predict the assets that will be required – requirements driven by business opportunities – is very difficult. Furthermore, knowing the availability of assets with timing that conforms to the exchange deadlines is also uncertain. For example, if the Exchanger is a user of heavy equipment and buys from dealers or at auction in response to a combination of project requirements and good deals on required equipment, it may be very difficult, using a delayed exchange, to have new equipment acquired this way included in an exchange that has already started. Using a reverse exchange strategy, new equipment acquisitions start new exchanges with timing that is driven by the need for the new equipment. The 45-day identification requirements are met using Old Assets, assets which are already owned by the Exchanger. The required sale can then be timed to keep the equipment deployed productively as long as possible and controlled by adjusting sale terms.
Optimizing asset utilization results in more return on capital and fewer failed exchanges.