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Umbrella Partnership Real Estate Investment Trust
Exclusive and specialized umbrella real estate investment trust .
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Nexus Capital Real Estate is pleased to announce the completion of its latest UpREIT.In completing this transaction the seller is able to defer their capital gains, receive a quality dividend and share in the continued appreciation of this property and our portfolio properties.
What Is An Upreit Transaction
An umbrella partnership real estate investment trust, or UPREIT, is an entity that REITs use to let property owners contribute their real estate property in exchange for operating partnership units that can be converted into REIT shares.
In this way, what is an Upreit and what does it own?
An Umbrella Partnership Real Estate Investment Trust is a partnership formed between the owner of appreciated real estate and a REIT whereby the owner of the appreciated real estate contributes the real estate assets in exchange for operating partnership units in a tax deferred exchange similar to a
Similarly, what is a DownREIT? A DownREIT is a partnership agreement between a property owner and a real estate investment trust in which a property is transferred into a joint venture with the REIT. This is similar in some ways to an UPREIT, which allows property investors to defer capital gains taxes, but there are a few big differences.
In this way, what is Upreit structure?
UPREIT means umbrella partnership real estate investment trust. An UPREIT is a unique REIT structure that allows property owners to exchange their property for share ownership in the UPREIT. However, UPREITs are generally subject to Internal Revenue Code Section 721 exchanges.
What are operating partnership units?
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How It Worksumbrella Partnership Real Estate Investment Trust
Step 1: Completes 1031 Exchange As A Beneficial Interest Holder
Investor completes 1031 exchange as a beneficial interest holder of a Trust and purchases a beneficial interest of a DST Delaware Statutory Trust. Receives quarterly distributions from from the DST property.
Step 2: Hold Ownership for 2-3 Years
Holds ownership of the DST for approximately 2-3 years then Operating Partnership exercises its purchase option. Contribute their beneficial inters of the DST or the REIT
Step 3: Receive OP Units
Investor receives OP Units on the operating partnership . Now owns and interest in a Diversified Polio of professionally managed institutional quality assets while receiving a monthly income distribution.
Step 4: Hold OP Units For 1 Year
Hold OP units for at least one year and has the option to redeem for common stock or cash.
Step 5: Hold OP Units or Shares or Sell
Hold OP units or shares in perpetuity and receive income or sell op units/shares and pay tax on the amount sold in that tax year. Op Units are fully divisible and estate receives a setup up basis upon death.
This is a popular estate planning tool because taxes can be spread out over time, not hit at once. The capital gains taxes are paid only on the amount of shares sold at any given time. If you are preparing to pass your assets down to your family, if suitable, a 721 Exchange is a beneficial strategy because physical real estate can be difficult to sell and lead to conflicts during asset division.
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How Do I Get Income From An Upreit
Investors may use UPREIT structures for their income potential and tax benefits.
If an UPREIT is increasing in value, an UPREIT investor can exchange their units in the trust for shares, which can be sold and cashed out. The majority of UPREITs are publicly traded and are structured like a corporation. When shares are sold and the UPREIT sees profit, the investor will earn the difference between the value of their original share and the value of the share when its sold. Investors can also enjoy potential income from dividends of a profitable UPREIT. However, potential cash flow can fluctuate.
Real Estate Investment Trusts
Our comprehensive REITS team, comprised of real estate and financing, securities law, and tax attorneys, handles REITs and those that transact business with REITSsponsors, investors, operators, property managers, asset and investment managers, development partners, joint venture partners, tax exempt organizations, and lendersacross the full range of asset types, including office, industrial, multifamily, hospitality, health care, and assisted living and data centers. We are familiar with the potential tax and non-tax benefits of the REIT structure, as well as some of its complexities and shortcomings. We assist existing real estate companies in examining whether the REIT and UPREIT structures are appropriate vehicles for the monetization of their existing real estate portfolios, and we work with owners of operating businesses and their advisors to evaluate whether the contribution of some or all of their real estate assets to a REIT-ready structure is a proper vehicle for advancing the company’s overall business objective.
Experience
The number of entities that have been structured as real estate investment trusts has greatly expanded in recent years. The REIT team at Quarles & Brady recognizes the expanding needs of clients in this area and created a team that serves those needs.
In addition to assisting clients contemplating the REIT structure, our REIT practice includes:
- 1934 Act filings
- Use of the UPREIT structure to acquire properties using OP Units
Leasing
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The Company Structure For Sterling Office And Industrial Trust
Sterling Office and Industrial Trust
Sterling Office and Industrial Trust is an unincorporated North Dakota trust formed on March 2, 2016, to invest primarily in a diversified portfolio of freestanding, single or multi-tenant office and industrial properties net leased to creditworthy tenants and other real estate related assets. The Trust elected to be taxed as a Real Estate Investment Trust under Sections 856-860 of the Internal Revenue Code.
Sterling Office and Industrial Properties, LLLP
Sterling Office and Industrial Trust is an Umbrella Partnership Real Estate Investment Trust, and holds all of its properties in a separate partnership, Sterling Office and Industrial Properties, LLLP . The Trust controls Sterling Office and Industrial Properties and acts as its general partner. The Trust uses Sterling Office and Industrial Properties to acquire properties, including through the exchange of limited partnership units for properties.
Sterling Management, LLC
What Is A Reit
A real estate investment trust can be thought of as a portfolio of real estate. A REIT is a type of company that owns, operates, or finances real estate that seeks to produce income. This allows investors to pool money to invest in these properties. Major property types are apartments, office, retail, industrial, and hotels
Because of REITs, smaller investors that otherwise wouldnt have been able to invest in commercial real estate now have access to high-priced commercial property portfolios.
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Primary Benefits Of Choosing A Dfw Upreit
Sure, we’ve discussed that one benefit that comes with choosing a DFW UPREIT structure is that you can avoid the taxation associated with selling your investment property. As the owner, you gain considerable financial freedom in determining how you want to mobilize your real estate assets when you convert them into operating units. Additionally, you offload the responsibilities associated with maintaining your former properties.
However, an added perk that comes with transferring your properties into a DFW UPREIT is that you have tapped into an expansive portfolio collectiveand the added diversity this provides. Unlike traditional property management that often works on a small scale, you are now part of a balanced portfolioand this can be very advantageous for you as an investor.
What Is Upreit Vs Downreit
The terms UpREIT vs DownREIT describe the differences that exist in the corporate structure of REITs. The concept of UpREIT, which stands for Umbrella Partnership Real Estate Investment Trusts, was introduced in 1992. An UpREIT allows long-established REITs to pool all the real estate properties that they own under a new REIT structure without selling any of the properties to the REIT. It means that the new REIT does not directly own any properties.
At the same time, a DownREIT allows an investor to become a partner with a REIT by entering in a joint partnership agreement. Both structures permit investors to defer capital gains taxesCapital Gains TaxCapital gains tax is a tax imposed on capital gains or the profits that an individual makes from selling assets. The tax is only imposed once the asset has been converted into cash, and not when its still in the hands of an investor. on the sale of appreciated real estate properties.
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What Is An Upreit Structure
4.5/5UPREITUPREITstructureUPREITUPREITsanswer here
An umbrella partnership real estate investment trust, or UPREIT, is an entity that REITs use to let property owners contribute their real estate property in exchange for operating partnership units that can be converted into REIT shares.
Likewise, do REITs qualify for a 1031 exchange? Although a REIT can do a 1031 exchange at the entity level, individual REIT shares are considered personal property and do not qualify for a 1031 exchange since only real property qualifies. For tax deferral in a 1031 exchange, a taxpayer must exchange real property for other like-kind real property.
Correspondingly, what is a DownREIT?
A DownREIT is a partnership agreement between a property owner and a real estate investment trust in which a property is transferred into a joint venture with the REIT. This is similar in some ways to an UPREIT , which allows property investors to defer capital gains taxes, but there are a few big differences.
How do you do a 721 exchange?
An UPREIT generally works like this: The investor executes a 1031 exchange for a tenant-in-common interest sponsored by a REIT, then after a period of time the investor will implement a §721 exchange in which he/she will contribute the TIC property to a partnership.
Real Estate Investment Trust
A real estate investment trust is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate.
Most countries’ laws on REITs entitle a real estate company to pay less in corporation tax and capital gains tax. REITs have been criticised as enabling speculation on housing, and reducing housing affordability, without increasing finance for building.
REITs can be publicly traded on major exchanges, publicly registered but non-listed, or private. The two main types of REITs are equity REITs and mortgage REITs . In November 2014, equity REITs were recognized as a distinct asset class in the Global Industry Classification Standard by S& P Dow Jones Indices and MSCI. The key statistics to examine the financial position and operation of a REIT include net asset value , funds from operations , and adjusted funds from operations .
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What Is An Upreit
An UpREIT is an alternative to DownREIT, and it allows property owners to contribute to an umbrella partnership in exchange for limited operating hat units tare equal to the value of the contributed property. The investors are awarded put options, which can be converted into cash or REIT shares after an agreed period in the future.
The proceeds received can be used to acquire more real estate properties, pay up debts, or for other REIT-related purposes. All the management functions are downstreamed to the umbrella partnership, and the new REIT works as a holding companyHolding CompanyA holding company is a company that doesnt conduct any operations, ventures, or other active tasks for itself. Instead, it exists for the purpose of owning.
UpREITs can also be used as an estate planning tool, where investors can transfer their estates to their heirs tax-free. The heirs can postpone exercising the put option until after the owners death when the partnership units are broadened to the market value.
A Guide To Upreits: What They Are How They Work And More
An UPREIT, which stands for Umbrella Partnership Real Estate Investment Trust, allows owners of appreciated real estate to transfer a property from individual ownership into a trust in exchange for shares in the trust. This exchange is also known as a Section 721 exchange, which is designed to allow the investor to defer capital gains taxes.
This structure allows investors to continue to potentially benefit from property even after transferring ownership.
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Federal Realty Investment Trust Announces Holding Company Reorganization
Improves Ability to Acquire Properties in Tax Deferred Structures
NORTH BETHESDA, Md. today announced that it intends to complete a holding company reorganization that would structure the company as an Umbrella Partnership Real Estate Investment Trust , or UPREIT. In the Reorganization, a new holding company would become the publicly traded parent company while the current real estate investment trust would convert to a limited partnership controlled by the holding company.
“This reorganization will align our corporate structure with the majority of other REITS and improve our ability to acquire properties in tax deferred structures, all without any impact to our existing shareholders, lenders and other constituencies,” said Donald C. Wood, chief executive officer.
The holding company reorganization is expected to be effective as of January 1, 2022 , and the conversion of the existing Federal Realty to a limited partnership is expected to be effective on January 4, 2022 . When the Reorganization is complete, the holding company will be a real estate investment trust named Federal Realty Investment Trust , just as the company is today, and its common shares and Series C depositary shares are expected to continue to trade on the NYSE under the symbols FRT and FRT/C, respectively.
For more information on the Reorganization and the Conversion, please see the Form 8K filed by
Safe Harbor Language
Have You Ever Thought
I wonder if I could 1031 Exchange into a real estate investment trust ?
Technically an investor is not able to exchange directly into a REIT as those are not considered like-kind .
However
It can be accomplished by exchanging into a DST property for two years that will eventually be UPREITd into the REIT via a 721 Exchange. Held for two years, the property is then pushed into the REIT on a tax-deferred basis. Now you own shares of the REIT, which can be sold after one year of ownership of the shares.
This structure offers investors the ability to own interest in a diversified real estate portfolio of institutional quality properties that are professionally managed and offer potential diversification, income, tax benefits, liquidity . REITs generally have properties located in many geographic locations, as well as having tenant, industry and sometimes asset class diversification. As a shareholder of the REIT, you would no longer have interests in a single asset. The REIT provides the similar benefits of potential appreciation of the real estate, depreciation tax shelter and income.
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How Does An Upreit Work
In a typical UPREIT exchange transaction, property owners contribute their real estate directly to an Operating Partnership subsidiary of a REIT in exchange for REIT OP units. These OP units can, in most cases, be converted to REIT shares on a one-to-one basis, providing the property owner with an interest in a diversified portfolio of properties and the potential for future liquidity. If the owner had sold his/her appreciated property for cash, that transaction would trigger an immediate capital gain tax liability. In and UPREIT exchange, owners of these OP units are typically able to defer gains on any appreciated property until such time as either the OP units or the underlying property are sold. UPREIT exchange property owners can be individuals or partnerships.
Who Should Use Upreits
An UPREIT can be a useful way for a real estate investor to transfer ownership in appreciated real estate to a REIT without triggering a taxable event. They can gain several benefits by using this structure, including:
- Diversification: Instead of owning a single income-producing property, using an UPREIT allows an investor to hold an interest in a REIT’s entire property portfolio. That added diversification helps reduce risk.
- Steadier income: REITs typically pay out predictable dividends, either on a monthly or quarterly basis. The cash flow from a rental property, on the other hand, can fluctuate wildly due to vacancies and unexpected maintenance expenses.
- Liquidity: Real estate often takes time to sell, which can be a drawback if an investor needs money quickly. However, if an UPREIT investor needs cash, they can convert some or all of their OP units into shares of a REIT, which they can then sell, though that would create a taxable gain.
- True passive investing: By transferring ownership in a property to a REIT through an UPREIT, an investor also hands off the property management duties to the REIT. As a result, it becomes an even more passive investment.
These benefits make UPREITs a way for a real estate investor to turn a valuable property into a more liquid portfolio of passive-income-producing real estate.
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Federal Realty To Reorganize As An Upreit Improving Ability To Buy Properties
- Federal Realty Investment Trust plans to reorganize into an umbrella partnership real estate investment trust, or UPREIT.
- Under the new structure, a new holding company would become the publicly traded parent, while the current REIT would convert to a limited partnership controlled by the holding company.
- “This reorganization will align our corporate structure with the majority of other REITS and improve our ability to acquire properties in tax deferred structures, all without any impact to our existing shareholders, lenders and other constituencies,” Federal Realty CEO Donald Wood said.
- Under Maryland law, the reorganization doesn’t require shareholder approval and will qualify as a reorganization under Section 368 of the Internal Revenue Code of 1986, as amended, meaning that Federal Realty’s shareholders won’t recognize gain or loss for federal income tax purposes as a result of the reorganization.
- Also, the change in structure won’t affect the payment of common or preferred share dividends declared by the company’s board and payable on Jan. 18, 2022.
- The reorganization is expected to be effective as of Jan. 1, 2022, and the conversion of the existing Federal Realty to a limited partnership is expected to be effective on Jan. 4, 2022.
- BMO upgraded Federal Realty to Outperform on Wednesday on its development pipeline’s “compelling” risk-adjusted returns.
