UPREIT any personal experience?

9 Replies

Very interesting question. Looking forward to hearing from the pros on it. It seems clear that it is in lieu of a 1031 since UPREITs are under sec 721 so the two don't mix. The aspects that would make me look very hard are: 1) how do I ever actually get my $$ back out of the UPREIT?, 2) it manages the properties directly so there are many hands in the cookie jar, and 3) how/when/impact if "they" decide to liquidate properties and what would be the exact impact to me? 

@Christopher Smith @glenna

The 721 space has changed dramatically in the last year. A number of the top REITS have found a technique that lets the investor initially 1031 into a DST on a temporary basis and after 2 years the REIT absorbs the DST and the investor receives the equivalent of shares in the REIT which makes the investment liquid. It's a game changer. Only downside is that you can never 1031 the 721 proceeds again. If you sell shares you pay taxes. However, you still get the same step up in basis upon your passing. As more top REITS enter the space the investor will be able to build a diversified portfolio of REITS and not worry that any one REIT will turn into a dog.

Best part is that unlike the old UPREIT that triggered a tax if the initial property is sold, today’s structure is immune.

@Glenna Wood , They're actually in conjunction with a 1031. The 1031 positions the investor into a property that the REIT absorbs as @Joe Sera said in the 721 conversion.  So all of the gain and depreciation recapture are initially still tax deferred.

However, like Joe said, the down side is later when sold you lose the 1031 option. the client will pay tax on all gain and depreciation recaptured from before the 1031 also. So in my mind it would be best used as a last move into a REIT you never sell.

Originally posted by @Dave Foster :

@Glenna Wood , They're actually in conjunction with a 1031. The 1031 positions the investor into a property that the REIT absorbs as @Joe Sera said in the 721 conversion.  So all of the gain and depreciation recapture are initially still tax deferred.

However, like Joe said, the down side is later when sold you lose the 1031 option. the client will pay tax on all gain and depreciation recaptured from before the 1031 also. So in my mind it would be best used as a last move into a REIT you never sell.

Thanks @Joe Sera and @Dave Foster very helpful. 

A couple of follow up questions. 

1) After the 1031 exchange, and then after the follow on 721 contribution, I own an interest in a partnership held by the UPREIT. No tax so far I think.

2) If I convert that partnership interest into shares in a PUBLICLY traded UPREIT I trigger tax on the deemed sale/exchange of the partnership interest into stock of the REIT?

or

3) If I convert the partnership interest into a private UPREIT, then I trigger tax if/when I sell the Shares in the REIT?

just trying to figure out how this thing really works.

PS Dave. Picked up some Palantir on the dip below 20, better late than never? I guess we will see :)





Originally posted by @Joe Sera :

@Christopher Smith when you 721 into the UPREIT you receive Operating Partnership Units (OP Units). Converting OP units to shares of the REIT creates a taxable event.

Ok thanks. Are there many REITs that currently regularly engage in this type of feeder based structuring for a investors? If so is there a typical investor profile?

 

@Christopher Smith there are many...but in my opinion really only three companies out there that offer the ability to 721 into a large and diversified REIT that i'd feel comfortable with. Of the three options we really like two of them. I don't want to name the REIT we dislike, but if you want to talk more about this offline shoot me a DM.

As far as investor profile, it really comes down to someone's individual circumstances and what they're trying to achieve.