Are UPREIT OP Units Liquid? Lockups, Redemption Rights, and Exit Options
UPREIT OP (Umbrella Partnership Real Estate Investment Trust Operating Partnership) units are not fully liquid in the way publicly traded shares are. They can offer a path to liquidity, but that path usually depends on the partnership agreement, may include a holding period or lockout, and often requires redemption into REIT shares or cash, which can trigger taxes.
How Are UPREIT Transactions Taxed?
UPREIT transactions are generally taxed on a deferred basis, not at the time you contribute property to the operating partnership. In most cases, taxes are triggered later when you convert OP units into REIT shares, redeem them for cash, or when the contributed property is sold and gain is recognized under the deal structure.
What Happens When UPREIT OP Units Are Converted Into REIT Shares?
When UPREIT OP units are converted into REIT shares, the conversion generally triggers a taxable event, ends the tax deferral tied to the original property contribution, and changes your interest from operating partnership units into stock. After conversion, the shares may be easier to sell, but they are no longer real estate and are not eligible for a future 1031 exchange.
How Do You Convert Property to an UPREIT Structure?
You convert property to an UPREIT structure by contributing appreciated real estate to a REIT’s operating partnership through a Section 721 exchange and receiving operating partnership, or OP, units instead of cash. The property must be acceptable to the REIT, and the transaction is typically structured with legal, tax, valuation, and debt review before closing.
How Do You Find a Qualified 721 UPREIT Advisor?
Find a qualified 721 UPREIT advisor by focusing on experience, licensing, and process. You want someone who understands Section 721 exchanges, can explain how OP units differ from direct real estate ownership, evaluates REIT sponsors carefully, and works alongside your tax and legal professionals before you commit to the transaction.
Where Can Investors Access UPREIT Investment Opportunities?
Investors usually access UPREIT investment opportunities through a REIT sponsor that accepts contributed real estate in a Section 721 exchange, or through a Delaware Statutory Trust with a built-in UPREIT option. In practice, many property owners reach an UPREIT by first completing a 1031 exchange into a DST and later exchanging that DST interest for operating partnership units.
