Potential Benefits of a DST to UPREIT Transactions:

Increased Distributions: Distributions typically increase based on appreciated value of the DST property being contributed.
Safety Net/Diversification: DST owners have the safety net of a more diversified investment because the REIT owns a much larger portfolio.
Ability to Capture Future Appreciation: Many DST properties would benefit from additional capital improvements to further increase value beyond funds held in reserves.
Transparency: REITs typically provide a high degree of transparency.
Liquidity: OP holders have an option to sell OP units, thereby creating liquidity that is not available in a DST structure.

Retention of Tax Benefits: OP holders retain their tax benefits, including depreciation and other tax deductions.

Long-Term Hold: Properties can be held long-term versus a sale when the mortgage matures.
Ability to Assume Favorable Long-Term Debt: Ability to assume favorable DST loans.
Lower Fees: Lower fee structure to manage and operate.
No Taxable Gain: These benefits are accomplished without any taxable gain (federal or state) under Section 721.

New structures evolve over time. The DST to UPREIT transaction allows investors to upgrade their single property DST investment for an interest in a diversified portfolio of investment grade real estate along with other REIT benefits, all in a tax-advantaged manner. This progression is affording smaller real estate owners many of the benefits previously only available to institutional (REIT) investors. The DST to UPREIT transaction is the next phase in the progression and institutionalization of real estate. This is an exciting time to be in the real estate business.

Instant Insights /

The Next Phase in Tax-Advantaged Real Estate Investments

Related Stories

Recommended For You