721 / UPREIT

Sec­tion 721 may pro­vide cer­tain real estate own­ers with a method of tran­si­tion­ing real estate into a part­ner­ship struc­ture asso­ci­at­ed with a REIT.

In an UPREIT trans­ac­tion, qual­i­fy­ing real estate may be con­tributed to an oper­at­ing part­ner­ship in exchange for oper­at­ing-part­ner­ship units. Some DST pro­grams also con­tem­plate a future DST-to-721 trans­ac­tion as a poten­tial exit strat­e­gy.

Poten­tial con­sid­er­a­tions include broad­er diver­si­fi­ca­tion, pro­fes­sion­al man­age­ment, con­tin­ued real estate expo­sure, tax defer­ral at the con­tri­bu­tion stage when applic­a­ble require­ments are sat­is­fied, and pos­si­ble future liq­uid­i­ty fea­tures.

Investors should also con­sid­er val­u­a­tion, fees, lock­ups, redemp­tion restric­tions, REIT per­for­mance, tax report­ing, and the effect the trans­ac­tion may have on future Sec­tion 1031 flex­i­bil­i­ty.

Key Point: A 721 / UPREIT should be viewed as a long-term tran­si­tion strat­e­gy — not sim­ply as an exit or liq­uid­i­ty fea­ture.

Relat­ed DSTNews.org Arti­cles

• IRC Sec­tion 721 Exchange — Two Roads to Trav­el

• DST Exit Strate­gies: What Investors Can Expect at Sale

• Can You Exchange Out of a DST into Anoth­er §1031 Exchange?

Impor­tant Dis­clo­sure: This mate­r­i­al is for edu­ca­tion­al pur­pos­es only and is not tax, legal, account­ing, or invest­ment advice or an offer to sell or solic­i­ta­tion to pur­chase any secu­ri­ty. Pri­vate real estate, DSTs, Oppor­tu­ni­ty Zone invest­ments, pri­vate funds, and UPREIT struc­tures involve risk, includ­ing pos­si­ble loss of prin­ci­pal and lim­it­ed liq­uid­i­ty.