An UPREIT, or Umbrella Partnership Real Estate Investment Trust, is a real estate investment structure that allows property owners to contribute their real estate assets to a partnership in exchange for operating units in a real estate investment trust (REIT) that owns the partnership.
UPREITs are commonly used in the United States as a tax-efficient means of diversifying and monetizing real estate holdings. An UPREIT can be done using traditional property ownership or via a structure like a Delaware Statutory Trust.
Here’s how it generally works:
- Property Contribution: A property owner (individual or entity) contributes one or more properties to a partnership controlled by a REIT. In exchange for the contribution, the property owner typically receives operating units in the partnership.
- Operating Units & REIT Ownership: These operating units are generally structured to be convertible into shares of the REIT over time. This conversion can have tax consequences to the owner and should be reviewed with a tax professional.
UPREITs are often used in situations where property owners want to defer capital gains taxes that would be incurred if they were to sell their properties outright. By contributing their properties to an UPREIT, they can potentially defer these taxes and receive operating units that represent an interest in the underlying real estate.
It’s important to note that UPREITs are subject to specific tax rules and regulations, and the tax implications can be complex. Before considering such a structure, property owners should consult with tax and legal professionals to ensure they understand the potential benefits and consequences associated with UPREIT transactions. Additionally, the terms and conditions of UPREIT agreements can vary, so it’s essential to review the specific details of any UPREIT transaction.
