UPREIT

An Umbrella Partnership Real Estate Investment Trust or UPREIT implements the use of both The Internal Revenue Code Section 1031 and 721. In an UPREIT structure, the investor executes a 1031 exchange TIC into one property in which he/she will co-own for about 12-18 months. At that time the investor will implement a 721 exchange in which he/she will contribute a property to a partnership. At this point the investor receives interest in the partnership called operating partnership units (OP units). 721 exchanges are often used by real estate investment trusts (REITs), which typically own all or substantially all of their assets through a subsidiary partnership with the REIT acting as general partner.

In a 721 exchange or UPREIT structure, rather than taking possession of another property, the investors receive OP units that carry the economic benefits of the REIT’s entire portfolio, including any capital appreciation and distributions of operating income. OP units can be converted later into shares of the associated REIT, and may only be taxable when such a conversion or liquidation takes place.