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Brookfield REIT Launches 1031 Exchange Program for Accredited Investors

By Mari Nicholson

Brookfield REIT Launches 1031 Exchange Program for Accredited Investors

Brookfield Real Estate Income Trust Inc. – a publicly registered non-traded real estate investment trust formerly known as Oaktree Real Estate Income Trust – is initiating a 1031 exchange program designed to provide accredited investors with the opportunity to defer taxes on gains from the sale of appreciated real estate property.

Through its operating partnership, the Brookfield REIT DST program will issue and sell up to $1 billion of beneficial interests in specific Delaware statutory trusts holding at least one real property sourced from Brookfield REIT’s real properties or from a third party. Each property will be held in a DST and leased back by a wholly owned subsidiary of the operating partnership, in accordance with a master lease agreement.

Under each master lease agreement, the operating partnership will retain a fair market value purchase option giving it the right to acquire the DST interests from the investors any time after two years from the closing of the applicable DST offering in exchange for operating partnership units or cash.

After a one-year holding period, investors who acquire operating partnership units generally have the right to redeem all or a portion of their operating partnership units for – at the REIT’s sole discretion – shares of common stock, cash, or a combination of both.

All material management authority for each DST will be exercised by a subsidiary of Brookfield REIT – BREX Manager LLC – which will primarily manage the DSTs’ limited investment activities, handle administrative actions, and generally determine when it is appropriate for a DST to sell a property. As compensation for its management services, each DST will pay BREX an administration fee of up to 0.15% per annum of the total cash purchase price paid for the DST Interests sold in the applicable DST offering. The fee will be paid monthly in arrears as set forth in the applicable trust agreement.

Brookfield REIT is following in the footsteps of other REITs that have launched 1031 exchange programs, including Starwood Real Estate Income Trust and JLL Income Property Trust.

Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame. Securitized 1031 exchange programs are structured as securities and sold to retail investors.

As previously reported by The DI Wire, DST fundraising is on track to raise $5.2 billion in 2024.

Brookfield REIT recently declared a total monthly net asset value of approximately $896.7 million as of Aug. 31, a 1.83% decrease on the month prior (approximately $913.5 million). As of the end August 2024, Brookfield’s portfolio consisted of 88% real estate properties and 12% real estate-related loans and securities. The real estate properties consisted of rental housing (68%), net lease (24%), logistics (5%), and office (3%). Also, there were nearly 81.87 million outstanding shares as of Aug. 31, compared to nearly 82.28 million the previous month.

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