--- title: How to Convert Your Investment Property Via an UPREIT Process description: Many times, an UPREIT – Umbrella Partnership Real Estate Investment Trust – is mistaken for a specific investment. This isn’t the case. Rather, an UPREIT represents actually a process, partnership, or arrangement that’s authorized under 26 U.S. Code § 721. image: https://www.realized1031.com/hubfs/Images/photo/abstract/window-skyline-industrial-optimized-is000046658406.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # How to Convert Your Investment Property Via an UPREIT Process Posted Jul 20, 2023 ![window-skyline-industrial-optimized-is000046658406](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/window-skyline-industrial-optimized-is000046658406.jpg?width=1140&height=855&name=window-skyline-industrial-optimized-is000046658406.jpg) If you’ve owned real estate for business purposes (i.e., your work or for investment), you might have realized a significant appreciation on that property. This can lead to a good-news, not-so-good-news scenario.   The good news is that you’ll realize a profit on that real estate if and when you sell it. The not-so-good news is that the profit will likely be subject to a bevy of taxes and costs, reducing the amount you actually receive from the sale.  Those taxes and costs are an unfortunate part of real estate dispositions. But another piece of good news is that you could defer many of those costs by contributing your appreciated property to a REIT through an UPREIT arrangement.   ### A Brief UPREIT Explanation  Many times, an UPREIT – Umbrella Partnership Real Estate Investment Trust – is mistaken for a specific investment. This isn’t the case. Rather, an UPREIT represents [actually a process, partnership, or arrangement](https://www.realized1031.com/blog/a-guide-to-upreits-what-they-are-how-they-work-and-more) that’s authorized under [26 U.S. Code § 721](https://www.law.cornell.edu/uscode/text/26/721#:~:text=No%20gain%20or%20loss%20shall,an%20interest%20in%20the%20partnership.) – “Nonrecognition of Gain or Loss on Contribution.”  The actual investment is in a designated REIT, which is [structured as an umbrella partnership](https://www.realized1031.com/glossary/upreit) that attracts limited partners (LPs). The “contribution” is your physical property. And you’re “contributing” it to a REIT that is interested in taking ownership of that appreciated real estate. In exchange for that contribution, you receive operating partnership units (OPs) in the REIT.   Specifically, [the REIT becomes the umbrella partnership](https://www.realized1031.com/blog/how-does-an-upreit-transaction-work) that owns most of the OP units, with the balance of those units held by you and other outside LPs.  ### How it Works  So how, exactly, do you move from direct real estate owner to the recipient of OP units? First, consider the following:  - Locate a REIT that is structured as an UPREIT.  - Be sure that REIT is interested in your property. Keep in mind that most REITs are interested in investment-grade real estate assets.  - Perform your due diligence on the REIT, so you understand its investment philosophies and returns.  Once you’ve contributed your property via the UPREIT process, it’s under the OP’s management. You could also continue receiving income from the OP for that property. And unlike the 1031 exchange, there isn’t a specific timeline involved with a 721 exchange.  If performed properly, the 721 exchange process lets you dispose of your property and defer capital gains or depreciation recapture taxes unless:  - You sell the OP units  - Your OP units are converted into REIT shares  - The REIT sells your contributed property  ### To Summarize . . .  Using the 721 exchange (or UPREIT exchange) to dispose of your appreciated property means finding a willing REIT that happens to be structured as an umbrella partnership, and that’s willing to take ownership of your appreciated property. Disposing of your property through this method could help with a tax and income strategy.  However, the UPREIT process can be complex, so be sure to work with experienced professionals who understand the procedure, the advantages, and disadvantages.     *This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.*  *Investors who have sold real estate and executed a 1031 Exchange into a DST may execute future 1031 Exchanges and continue to defer taxable gains. Alternatively, a client may enter into a transaction pursuant to IRS Code Section 721 (also known as an UPREIT transaction). In an UPREIT transaction, Clients will receive, at the REIT Sponsor’s option, cash or OP units. OP units are units of an operating partnership that is wholly owned by a REIT.  If the client receives OP units, he or she has exchanged into a security and therefore no longer owns real estate and cannot execute another 1031 Exchange out of the OP units and into other real estate. However, pursuant to IRS Code Section 721, the UPREIT transaction into the OP units may qualify as a tax-deferred exchange. The disposition of their interest in OP units will result in a taxable transaction, including the recognition of their deferred capital gain and any depreciation recapture. The client’s gain will only be recognized upon sale or disposition of the OP units. *  *There is no guarantee that an UPREIT transaction will occur. The option for this transaction is at the discretion of the REIT Sponsor. Some DSTs allow the client to choose whether to take OP Units or cash.  Clients should consult the prospectus and their advisor regarding the specifics.*  *A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages.*  *REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.  *  *There are risks associated with these types of investments and include but are not limited to the following:  *  - ** *Typically, no secondary market exists for the security listed above.  * - ** *Potential difficulty discerning between routine interest payments and principal repayment.  * - ** *Redemption price of a REIT may be worth more or less than the original price paid.  * - ** *Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. * - ** *There is no guarantee you will receive any income. * - ** *Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes.  * *This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein.  The offering is made only by the Prospectus.*  *Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.*  A Guide to UPREIT Transactions [![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-250b.png?width=250&height=250&name=UPREIT-eBook-250b.png "Learn more about the UPREIT ...") ](https://www.realized1031.com/blog/how-to-convert-your-investment-property-via-an-upreit-process#blogform) Download eBook ---   --- ### A Guide to UPREIT Transactions ![A Guide to UPREIT Transactions](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/UPREIT-eBook-550b.jpg?width=550&height=600&name=UPREIT-eBook-550b.jpg) Learn more about the UPREIT process. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. 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For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "If you’ve owned real estate for business purposes (i.e., your work or for investment), you might have realized a significant appreciation on that property. This can lead to a good-news, not-so-good-news scenario. The good news is that you’ll realize a profit on that real estate if and when you sell it. The not-so-good news is that the profit will likely be subject to a bevy of taxes and costs, reducing the amount you actually receive from the sale. Those taxes and costs are an unfortunate part of real estate dispositions. But another piece of good news is that you could defer many of those costs by contributing your appreciated property to a REIT through an UPREIT arrangement. A Brief UPREIT Explanation Many times, an UPREIT – Umbrella Partnership Real Estate Investment Trust – is mistaken for a specific investment. This isn’t the case. Rather, an UPREIT represents actually a process, partnership, or arrangement that’s authorized under 26 U.S. Code § 721 – “Nonrecognition of Gain or Loss on Contribution.” The actual investment is in a designated REIT, which is structured as an umbrella partnership that attracts limited partners (LPs). The “contribution” is your physical property. And you’re “contributing” it to a REIT that is interested in taking ownership of that appreciated real estate. In exchange for that contribution, you receive operating partnership units (OPs) in the REIT. Specifically, the REIT becomes the umbrella partnership that owns most of the OP units, with the balance of those units held by you and other outside LPs. How it Works So how, exactly, do you move from direct real estate owner to the recipient of OP units? First, consider the following: Locate a REIT that is structured as an UPREIT. Be sure that REIT is interested in your property. Keep in mind that most REITs are interested in investment-grade real estate assets. Perform your due diligence on the REIT, so you understand its investment philosophies and returns. Once you’ve contributed your property via the UPREIT process, it’s under the OP’s management. You could also continue receiving income from the OP for that property. And unlike the 1031 exchange, there isn’t a specific timeline involved with a 721 exchange. If performed properly, the 721 exchange process lets you dispose of your property and defer capital gains or depreciation recapture taxes unless: You sell the OP units Your OP units are converted into REIT shares The REIT sells your contributed property To Summarize . . . Using the 721 exchange (or UPREIT exchange) to dispose of your appreciated property means finding a willing REIT that happens to be structured as an umbrella partnership, and that’s willing to take ownership of your appreciated property. Disposing of your property through this method could help with a tax and income strategy. However, the UPREIT process can be complex, so be sure to work with experienced professionals who understand the procedure, the advantages, and disadvantages. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Investors who have sold real estate and executed a 1031 Exchange into a DST may execute future 1031 Exchanges and continue to defer taxable gains. Alternatively, a client may enter into a transaction pursuant to IRS Code Section 721 (also known as an UPREIT transaction). In an UPREIT transaction, Clients will receive, at the REIT Sponsor’s option, cash or OP units. OP units are units of an operating partnership that is wholly owned by a REIT. If the client receives OP units, he or she has exchanged into a security and therefore no longer owns real estate and cannot execute another 1031 Exchange out of the OP units and into other real estate. However, pursuant to IRS Code Section 721, the UPREIT transaction into the OP units may qualify as a tax-deferred exchange. The disposition of their interest in OP units will result in a taxable transaction, including the recognition of their deferred capital gain and any depreciation recapture. The client’s gain will only be recognized upon sale or disposition of the OP units. There is no guarantee that an UPREIT transaction will occur. The option for this transaction is at the discretion of the REIT Sponsor. Some DSTs allow the client to choose whether to take OP Units or cash. Clients should consult the prospectus and their advisor regarding the specifics. A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. There are risks associated with these types of investments and include but are not limited to the following: Typically, no secondary market exists for the security listed above. Potential difficulty discerning between routine interest payments and principal repayment. Redemption price of a REIT may be worth more or less than the original price paid. Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. There is no guarantee you will receive any income. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes. This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.", "articleSection" : [ "UPREIT" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2023-07-21T00:00:00+0000", "datePublished" : "2023-07-21T00:00:00+0000", "description" : "Many times, an UPREIT – Umbrella Partnership Real Estate Investment Trust – is mistaken for a specific investment. This isn’t the case. Rather, an UPREIT represents actually a process, partnership, or arrangement that’s authorized under 26 U.S. Code § 721. 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