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CandleFocus Glossary Editor
An UPREIT, or Upward Partnership Real Estate Investment Trust, is a special type of real estate investment trust (REIT) structure designed to provide property owners with the opportunity to convert their property into share ownership in the UPREIT. UPREITs are also known as "umbrella partnerships" and are governed by Section 721 of the Title 26 Internal Revenue Code.
In an UPREIT arrangement, the REIT can issue Ownership Certificates (OPC’s) or Operating Units (OU’s) to the property owners. In exchange for their property, the owners receive OPCs or OU's, which can be traded publicly on the stock market. With this transfer, the owners also become part-owners of the UPREIT and benefit from its growth. The cash proceeds from the sale of property may also be used by the REIT to buy other properties as needed.
The main benefit of an UPREIT is that it provides property owners with the chance to avoid hefty capital gains taxes associated with a sale of the property. Under Section 721, no immediate tax is due on the transfer of real estate to an UPREIT — instead, the tax is deferred until the UPREIT issues taxable distributions to the owners. However, any future distributions received by the owner from the UPREIT are subject to the standard taxation rules applicable to REITs.
In addition, one major advantage of an UPREIT is that it offers the property owner the potential to receive returns from the holdings of the UPREIT rather than just a single property. By being part-owner of an UPREIT, the owner is able to benefit from the entire portfolio of assets, rather than just the single property exchanged for OPCs or OU's.
In summary, UPREITs can be a valuable investment structure for property owners looking to reap long-term benefits from their real estate investments. While of course every UPREIT has its own unique structure, property owners who choose to use an UPREIT are typically able to avoid immediate taxation on the sale of property, benefit from the appreciation of the entire portfolio of assets, and minimize their risk with a diversified real estate portfolio.
In an UPREIT arrangement, the REIT can issue Ownership Certificates (OPC’s) or Operating Units (OU’s) to the property owners. In exchange for their property, the owners receive OPCs or OU's, which can be traded publicly on the stock market. With this transfer, the owners also become part-owners of the UPREIT and benefit from its growth. The cash proceeds from the sale of property may also be used by the REIT to buy other properties as needed.
The main benefit of an UPREIT is that it provides property owners with the chance to avoid hefty capital gains taxes associated with a sale of the property. Under Section 721, no immediate tax is due on the transfer of real estate to an UPREIT — instead, the tax is deferred until the UPREIT issues taxable distributions to the owners. However, any future distributions received by the owner from the UPREIT are subject to the standard taxation rules applicable to REITs.
In addition, one major advantage of an UPREIT is that it offers the property owner the potential to receive returns from the holdings of the UPREIT rather than just a single property. By being part-owner of an UPREIT, the owner is able to benefit from the entire portfolio of assets, rather than just the single property exchanged for OPCs or OU's.
In summary, UPREITs can be a valuable investment structure for property owners looking to reap long-term benefits from their real estate investments. While of course every UPREIT has its own unique structure, property owners who choose to use an UPREIT are typically able to avoid immediate taxation on the sale of property, benefit from the appreciation of the entire portfolio of assets, and minimize their risk with a diversified real estate portfolio.