Terms

Here you will find common terms when discussing 721 exchanges (UPREITS), 1031 exchanges and investment terms.

Contact us for more information on the 721 Exchange process and if it is right for you.

OPTION

The Operation Partnership may require that the Beneficial Owners exchange their Interests for units in the Operating Partnership (the “FMV Option”). The Operating Partnership is not required to exercise its Fair Market Value Option1 (FMV Option) to acquire DST properties. In the event this occurs, investors will continue to own beneficial interests in the DST property and will not receive the OP Units.

OP UNITS

If the FMV Option is exercised, Beneficial Owners will receive units in the Operating Partner (“OP Units”) in an amount equal to the fair market value of the Beneficial Owner’s Interests in the Trust.

OPERATING PARTNERSHIP

The sponsor’s REIT, held as a Delaware limited partnership.

TRUST

Purchasers will purchase interests in a Delaware Statutory Trust (the “Trust”).

MASTER TENANT & MASTER LEASE

Each Property will be 100% lease to a special purpose entity, wholly owned by the Operating Partnership (the “Master Tenant”), pursuant to a triple net lease master lease agreement (a “Master Lease”) with the Master Tenant. The Master Tenant will be the sub-lessor of the Property to the tenant(s) occupying the space.

TRANSFER DISTRIBUTION

If the Manager determines that a Master Tenant has defaulted in paying rent, a Property is in jeopardy of being lost due to a default on a loan, and in certain other circumstances, the Manager may determine to terminate the Trust or a specific Property Trust and title to the Property will transfer (a “Transfer Distribution”) to a limited liability company.

GUARANTY

The Operating Partnership, as guarantor (in such capacity, the “Guarantor”), will enter into a guaranty agreement whereby the Guarantor will guaranty (the “Guaranty”) to the Trust as lessor under the Master Lease.

PROPERTY

Each Delaware statutory trust will hold on residential or commercial property (each, a “Property” and collectively, the “Properties”).

TOTAL EQUITY AMOUNT

To participate in an Offering under the Program, a Purchaser must, make the minimum equity investment for an interest (i.e., the minimum cash purchase price for an interest) in the amount specified in the Property Supplement (the “Equity Amount,” and the sum of all Purchasers’ Equity Amounts in am Offering, the “Total Equity Amount”).

BENEFICIAL OWNERS

Purchasers of Interest pursuant to this Offering (defined herein) will become beneficial owners of the Trust (each, a “Beneficial Owner” and, collectively, the “Beneficial Owners”).

INVESTOR SERVICING FEE

Beneficial Owners will pay an ongoing Investor Servicing Fee (the “Investor Servicing Fee”), paid quarterly to the Dealer Manager (all or a portion of which we expect to be re-allowed to participating broker-dealers) for ongoing services rendered to the Beneficial Owners.

MEMORANDUM, OFFERING AND PROPERTY SUPPLEMENT

The Delaware Statutory Trust Program Memorandum, (the “Memorandum”) describes the key features of the Program including a description of a number of risks related to an investment in the Interests Specific information relating to the offer of Interests in a Trust (each, an “Offering”) and the Property held by such Trust (or Properties held by Property Trusts, as applicable) will be further described in a separate supplement to the Memorandum (the “Property Supplement”) relating to such Trust and Property or Properties, which will be provided to you in conjunction with or subsequent to your receipt of the Memorandum.

1031 EXCHANGE

A transaction that permits taxpayers to sell an asset held for investment or business purposes, use the proceeds to purchase a like-kind investment and defer paying capital gains taxes. A 1031 exchange is also known as a deferred 1031 exchange, 1031 tax exchange and 1031 deferred exchange or Starker Exchange.

ACCELERATED DEPRECIATION

A method of depreciation that allows you to deduct a greater portion of the cost of the depreciable property in the first years after the property is placed in service, versus spreading the cost evenly over the life of the asset, as with the straight-line depreciation method.

ACCOMMODATOR

The unrelated third party that facilitates a 1031 exchange. Also known as the qualified intermediary, QI, facilitator, qualified escrow holder.

ADJUSTED BASIS

The net cost of an asset after adjusting for various tax related items. Adjusted Basis = Purchase Cost + Improvements + Fees (selling costs and legal fees) Accumulated Depreciation Other Losses. This is used in calculating capital gains when an asset is sold and also known as the Adjusted Cost Basis.

BOOT

Property or cash the taxpayer receives in the 1031 exchange that is not considered “like-kind” and thus is taxable.

CAPITAL GAIN

The difference between the selling price of a property or asset and its Adjusted Basis.

CAPITAL GAIN TAX

Tax levied by Federal and State Governments on investments such as commercial real estate income properties that are held for one year or more.

CAPITAL IMPROVEMENTS

The expenses of upgrading a commercial property rather than repairing it or maintaining it. The costs of the improvements are added to the basis of the property. If the building is being depreciated, the improvements also should be depreciated over the same useful life as the building.

CASH AND CASH RETURN

A property’s annual cash flow, divided by net investment, expressed as a percentage. For example, if the net cash flow from a property is $10,000, and the cash invested in the property is $100,000, then the cash-on-cash return is calculated to be 10% ($10,000 / $100,000). Cash on cash does not include property appreciation, which is a non-cash flow item until the year of sale.

CONSTRUCTIVE RECEIPT

This refers to the exchanger having direct access to the funds of the relinquished property. A constructive receipt invalidates a 1031 exchange and also known as Actual Receipt.

COOPERATION CLAUSE

Language included in the Purchase and Sale Contracts for both relinquished and replacement property that states the transaction is part of an intended 1031 exchange and requires all parties to cooperate in completing the 1031 exchange.

DEFERRED EXCHANGE

A transaction that permits taxpayers to sell an asset held for investment or business purposes, use the proceeds to purchase a like kind investment and defer paying capital gains taxes. A deferred exchange is also known as a deferred 1031 exchange, 1031 tax exchange, 1031 deferred exchange or 1031 exchange.

DELAWARE STATUTORY TRUST (DST)

A Delaware Statutory Trust, also known as a DST, is a separate legal entity created as a trust under Delaware statutory law. Delaware law permits a very flexible approach to the design and operation of the entity. A DST may be used in a Section 1031 tax-deferred exchange private placement program if structured in accordance with the provisions of IRS Revenue Ruling 2004- 86.

DELAYED EXCHANGE

A 1031 exchange where there is a period of time between the closing of the relinquished property and the closing of the replacement property.

DEPRECIATION

The reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion or other such factors. One is allowed to deduct depreciation from income on his or her income tax return.

DEPRECIATION RECAPTURE

The procedure used by the IRS for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation. In other words, because the IRS allows a taxpayer to deduct the depreciation of an asset from the taxpayer’s ordinary income, the taxpayer has to report any gain from the disposal of the asset (up to the recomputed basis) as ordinary income, not as a capital gain.

FRACTIONAL INTEREST

A fractional interest is an ownership share in real estate.

PRIVATE PLACEMENT MEMORANDUM (PPM)

A private placement memorandum (PPM) is a legal document provided to prospective investors when selling stock or another security in a business. It informs potential investors about the opportunity to buy a company’s securities and outlines the deal terms, risk factors, and objectives of an investment made under the private placement offering.

QUALIFIED INTERMEDIARY (QI)

The unrelated third party that facilitates a 1031 exchange. Also known as the accommodator, facilitator, or qualified escrow holder.

QUALIFIED USE

In a 1031 exchange, the exchanger must have the intent to hold the property for investment or for income production in order to satisfy the qualified use test.

RELINQUISHED PROPERTY

In a 1031 property exchange, the original property being sold by the exchanger.

REPLACEMENT PROPERTY

The 1031 replacement property being purchased in a section 1031 exchange.

RULES OF IDENTIFICATION

Guidelines that must be followed when identifying properties in a 1031 deferred exchange. They are the 95% Rule, 200% Rule, and Three Property Rule.

LEVERAGE

The use of borrowed capital to increase the potential return on an investment. It involves using debt to finance the purchase of a property rather than paying the total upfront. By doing so, investors can purchase more expensive properties with a smaller initial investment, amplifying their potential profits (or losses) from the property’s appreciation in value or rental income.

NNN ALSO KNOWN AS TRIPLE NET LEASE

A triple net lease (also known as NNN lease) is a real estate agreement in which a tenant agrees to pay property expenses related to management and repairs, such as maintenance, real estate taxes, and building insurance. The only responsibility of the owner is to pay the mortgage on the property.

REAL ESTATE INVESTMENT TRUST (REIT)

A trust that invests in real estate and mortgages and passes income, losses, and other tax items to its investors. REITS are typically classified as a security and are therefore not exchangeable.

SELLER CARRY-BACK FINANCING

When the buyer of a property gives the seller, a note secured by a deed of trust or mortgage. In a 1031 tax free exchange this type of financing is treated as boot unless it is sold on the secondary market or used as a down payment for the property.

STEP UP IN BASIS

Step up in basis is a tax provision that adjusts the cost basis of an inherited asset to its fair market value on the date of the previous owner’s death.

STRAIGHT-LINE DEPRECIATION METHOD

A depreciation method that spreads the cost or other basis of property evenly over its estimated useful life.

TAX DEFERRED EXCHANGE

The procedure outlined in Internal Revenue Code Section 1031 that allows capital gains tax to be deferred as long as all the regulations are followed. Also known as 1031 exchange, delayed exchange, like-kind exchange, section 1031 exchange, tax-free exchange, nontaxable exchange, real estate exchange, real property exchange, Starker exchange.

TENANCY IN COMMON (TIC)

Tenants in Common, also known as a TIC, is fractional ownership interest in a piece of property.

THREE PROPERTY RULE

In 1031 tax exchanges the exchanger may identify up to three properties without regard to their value.

95% RULE

In tax-deferred exchanges, the exchanger may identify any number of properties without regard to their value as long as the exchanger purchases 95% of the fair market value of the properties identified.

200% RULE

The exchanger may identify more than three properties provided their fair combined market value does not exceed 200% of the relinquished property in a 1031 exchange.

UMBRELLA PARTNERSHIP REAL ESTATE INVESTMENT TRUST (UPREIT)

An umbrella partnership real estate investment trust (UPREIT) is a real estate investment trust (REIT) formed to but income properties or mortgage loans and pay its owners in partnership units instead of cash.