How Do You Complete a 721 Exchange? A Step-by-Step Process
You complete a 721 exchange by contributing qualifying investment real estate to a REIT operating partnership, usually after advance underwriting, valuation, legal review, and closing coordination, in exchange for OP units instead of cash. Many investors first complete a 1031 exchange into a property or DST that fits the REIT’s requirements, then later move that asset into the UPREIT.
What Is a 721 Exchange Fund?
A 721 exchange fund is generally an UPREIT structure that lets an investment property owner contribute real estate to a REIT’s operating partnership in exchange for operating partnership units instead of selling the property for cash. The main appeal is potential tax deferral, along with a move from direct property ownership into a more passive real estate investment.
721 Exchange Companies: How to Compare Providers
A good 721 exchange provider offers more than access to an UPREIT. It should offer a clear structure, experienced management, transparent fees, a realistic exit path, and a strategy that fits your liquidity, tax, and income goals. Comparing providers starts with due diligence on both the sponsor and the REIT involved.
721 Exchange Pros and Cons for Rental Property Owners
A 721 exchange can help a rental property owner defer capital gains taxes by contributing appreciated property to a REIT operating partnership in exchange for OP units instead of selling outright. The tradeoff is giving up direct control of the property, accepting REIT-related market and liquidity limits, and recognizing that taxes may be triggered later.
Section 721 Exchange Rules: Eligibility, Contributions, and OP Units
A Section 721 exchange generally allows an investment property owner to contribute qualifying real estate to a REIT’s operating partnership in exchange for OP units without immediate recognition of gain. The core rules center on whether the REIT wants the property, how the contribution is structured, and when later actions—such as conversion to shares or cash—trigger taxes.
UPREIT News and Market Updates
UPREIT activity continues to matter for investment property owners because it offers a way to contribute appreciated real estate to a REIT operating partnership, receive OP units, and defer capital gains tax while shifting from active property management to a more diversified real estate position. The main updates worth watching are liquidity terms, valuation discipline, property selection, and market-driven performance risk.
