UPREIT FAQ

Non-traded UPREITs offer stability without public trading; OP Units may have redemption options.

You may want to consider a DST to 721 UPREIT transaction if you fall into one of these categories: Those seeking diversification without triggering taxes. Investors prioritizing passive income and potential liquidity. Individuals planning estate transitions to benefit heirs. Those considering a net lease property but would like a more diversified strategy.

Like all investments, a DST to 721 UPREIT transaction carries certain risks: Market Risk: OP Unit or REIT share values may decline due to real estate fluctuations. Liquidity Limits: Conversion of OP Units may be restricted by timing or UPREIT rules. Loss of Control: Investors relinquish direct influence over the DST property. Tax Law Changes: Future legislation could impact tax deferral benefits

The DST interests have been exchanged for OP units ownership in the REIT so it is important to evaluate the debt levels of the REIT when choosing a DST to REIT program. Any non-recourse debt assumed when you purchased the initial DST, is extinguished when you go into the OP units of the REIT phase. Many clients find this feature very attractive as you may have increased your basis and resulting depreciation benefit to the cash flow by acquiring the initial debt in the DST phase but are no longer responsible for any of the debt in the REIT phase.

Section 721 defers taxation for owners of real estate who contribute their property to an OP. The gain that would be recognized in a taxable sale is deferred. The gain is deferred until the owner elects to sell the OP units in a taxable transaction. The owner has the ability to hold OP units indefinitely or time the sale to coincide with tax or financial planning strategies. The tax deferral becomes permanent (the tax is essentially forgiven) upon death. The heirs, upon death of the OP holder, receive a stepped-up tax basis in the OP units (tax basis equal to [...]

Investors may choose to transition from a DST to an UPREIT for several strategic reasons: Further Tax Deferral: Continue deferring capital gains taxes beyond the DST lifecycle. Diversification: Move from a single-property DST to a broader portfolio managed by an UPREIT. Liquidity Potential: OP Units may eventually be converted to REIT shares, and then sold via the REIT’s share repurchase program. Estate Planning: Potential step-up in basis at death, reducing tax liability for heirs.