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.
UPREIT Disadvantages: Tax, Liquidity, Control, and Concentration Risks
An UPREIT can defer taxes and simplify ownership, but it also comes with meaningful trade-offs. The main disadvantages are that taxes are deferred, not eliminated; liquidity may be delayed or limited; you give up direct control of the property; and your risk can become tied to one REIT, management team, or property focus.
UPREIT Companies: How to Compare Programs Before Contributing Property
The best way to compare UPREIT programs is to focus on what you actually receive in exchange for your property: OP unit value, sponsor quality, liquidity terms, portfolio fit, fees, and tax consequences. A strong program should align with your income needs, risk tolerance, and long-term exit plan.
