UPREITS: Tax Driven Conversions for Property Owners

One of the more under-discussed aspects of REITs are how they can benefit a seller of real estate. By contributing a property to a REIT you can achieve many of the same benefits associated with a §1031 exchange including deferral of gain recognition. For the owner looking to monetize their investment in a tax advantaged manner with the possibility of additional upside this option deserves some additional examination.

Of the different types of REITs that exist, one sticks out as being particularly useful to sellers of real estate. The UPREIT. An UPREIT (Umbrella Partnership REIT) structure is one that has a REIT at the top of the structure and a partnership, which directly owns the real estate below it. Thus, the REIT simply owns an interest in the underlying partnership and not title to the actual properties themselves.