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Private REIT acquisitions are rising in popularity; however, they come with unique risks compared to a typical real estate transactions. Buyers of a private REIT have a more prudent vetting process than in a typical real estate transaction. In a private REIT deal, buyers need to go through extra steps to ensure that the seller has made followed the correct procedure.

“The buyer of a private REIT specifically needs to make sure that the seller has not made any mistakes in following the detailed technical elements to start and keep its REIT status with the IRS, such as maintaining at least 100 shareholders and satisfying assets, income, and distribution requirements,” Max Brunner, senior counsel at Allen Matkins, tells GlobeSt.com. “Any mistakes before the sale could result in liability to the buyer after closing, so it is very important to make sure that everything was done correctly. Tax due diligence is critical, and we typically see one of the Big Four accounting firms assist in this regard. For additional assurance, it is recommended that the seller’s law firm provides a legal opinion that the REIT complied with all required formalities to be classified as a REIT.”

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Kelsi Maree Borland

Kelsi Maree Borland is a freelance writer and editor living in Los Angeles whose work has appeared in such publications as Travel + Leisure, Angeleno and Los Angeles Magazine.

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