Capital Square Completes DST to UPREIT Transaction With 167% Total Return

Capital Square, a sponsor of tax-advantaged real estate investments and an active developer and manager of housing communities, announced the successful sale of CS1031 Bedford Parke Apartments, DST, a 232-unit multifamily community in Warner Robins, Ga., to Capital Square Housing Trust, a real estate investment trust sponsored by Capital Square. Through an umbrella partnership real estate investment trust, or UPREIT, transaction, more than 61% of the Delaware statutory trust owners (by investment value) exchanged their DST interests for limited partnership units within the REIT’s operating partnership in a tax-advantaged transaction under Section 721 of the Internal Revenue Code.

Capital Square originally acquired the property for $24.75 million in 2019 as sponsor of the DST/Section 1031 exchange program. As a result of the $38.3 million UPREIT transaction, the DST owners realized a 200% equity multiple and total return of 167%.

 In this case, “total return” represents the ratio of total sales proceeds and distributions through the life of the asset over the total initial equity invested.

“The DST-to-UPREIT transaction is the next phase in the institutionalization of real estate for smaller exchangers,” said Louis Rogers, founder and co-chief executive officer of Capital Square. “Instead of exchanging a rental house or duplex for another rental property, they exchange for an interest in a Delaware statutory trust that owns an investment grade property. Later, when the DST property has appreciated, they contribute their DST interests to the UPREIT for a number of benefits, including greater property diversification and increased cash flow, afforded to owners of the REIT’s operating partnership.”

Unlike many UPREIT transactions, according to Capital Square, it affords its investors multiple options to exchange their DST interests for operating partnership units in the REIT without taxation under Section 721; structure another exchange to continue their tax deferral under Section 1031; or cash out all or a portion of their investment on a taxable basis.

Regardless of the option selected, all investors are treated equally, with the same fair market value purchase price based on appraised value.

Located at 1485 Leverette Road in Warner Robins, Bedford Parke Apartments is comprised of 277,240 rentable square feet of space with one-, two-, and three-bedroom units ranging in size from 850 square feet to 1,438 square feet. The property also features 24 private garages available to rent. Community amenities include an executive business center, fitness center, resident lounge, grilling/picnic area, sauna, sand volleyball court, playground, pool with sundeck and picnic pavilion, laundry facility, covered car-care center, rentable storage units, fenced perimeter, and gated community access. Constructed in 2008, Bedford Parke Apartments was 94% occupied at the time of sale.

The $38.3 million fair market value of the apartments was established based on an independent Member Appraisal Institute appraisal. Additionally, the nominating and corporate governance committee of the board of directors of Capital Square Housing Trust obtained a fairness opinion from Robert A. Stanger & Company, a third-party investment banking firm.

“The sale of Bedford Parke Apartments is another example of Capital Square’s ability to provide attractive options to our investors through the capabilities of our vertically integrated firm,” said Whitson Huffman, co-chief executive officer. “Investors who participated in the UPREIT transaction received enhanced portfolio diversification and greater cash flow along with numerous other REIT benefits.”

Distributions were estimated based on historical operations of the DST and the REIT.

Capital Square Housing Trust now owns four multifamily communities with a gross asset value of over $185 million based on purchase price. In addition Bedford Parke Apartments, the other three are:

• Sapphire at Centerpointe Apartments, a 192-unit multifamily community in Midlothian, Va., acquired by Capital Square Housing Trust in 2021;
• Saltmeadow Bay Apartments, a 229-unit multifamily community in Virginia Beach, Va., acquired by Capital Square in 2019 and Capital Square Housing Trust in an UPREIT transaction in 2023; and
• High Ridge Apartments, a 160-unit multifamily community in Athens, Ga., acquired by Capital Square in 2017 and Capital Square Housing Trust in an UPREIT transaction in 2024.

Since its founding in 2012, Capital Square has acquired more than 170 real estate assets for over 6,500 investors seeking quality replacement properties that qualify for tax deferral under Section 1031 of the Internal Revenue Code and other investors seeking stable cash flow and capital appreciation. The firm has a portfolio of 55 multifamily apartment communities, 13 age-restricted manufactured housing communities in Florida and seven build-for-rent communities, with a total investment cost of nearly $5 billion.

Capital Square is a real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges and qualified opportunity zone funds for tax deferral and exclusion. In recent years the company has become an active developer of mixed-use, multifamily properties in the southeastern United States. Since 2012, Capital Square has completed more than $7.9 billion in transaction volume.

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