What UpREITs Offer High Net-Worth Investors

Jonathan Hipp on why Umbrella Partnership REITs can be an attractive alternative to traditional 1031 exchanges.

 

To paraphrase an old TV ad, in commercial real estate, it is never about what you earn. It is, however, about what you keep, especially after taxes, and particularly in uncertain economic environments.

Enter the UpREIT, a vehicle that surprisingly gets little attention but can provide an interesting option for tax deferral, particularly for high-net-worth investors, on a property sale that 1031 like-kind exchanges cannot.

Before we delve further into the benefits of an UpREIT, let’s define our terms. Simply put, in an UpREIT, or Umbrella Partnership REIT, an individual property owner can contribute their property for operating partnership units in the REIT. The REIT, for its part, simply owns an interest in that partnership without title to the actual property itself. The property owner’s OP units are transferable for shares of the REIT’s stock, typically on a one-for-one basis. Price and sales terms are going to be like a traditional sale of your property, but in this case, because you get OP units and not cash, there’s very little out of pocket for the REIT and that may be advantageous for them.

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