You Can Stand Under My Umbrella
Aside from the two broad categories of traded and non-traded, real estate investment trusts (REITs) come in multiple shapes and sizes. One unique REIT is called an Umbrella Partnership REIT (UPREIT).
UPREITs are often used to defer or avoid capital gains tax liability and are an alternative to a 1031 like-kind exchange. Instead of selling property which has appreciated in value, an individual or company will contribute it to an UPREIT in exchange for Operating Partnership Units, thus avoiding a taxable event.
Typically the REIT is the general partner and majority owner of the Operating Partnership Units. After a period of time the partners can receive the same liquidity as shareholders by getting cash or REIT shares for their units. This would be a taxable event and Unitholders may tender their units over a period of time to spread out the taxation.
UPREITs are often used in estate planning because once the owner of the Units dies, his heirs may convert the Units to REIT shares or cash without incurring capital gains tax. If the UPREIT liquidates during the lifetime of the contributor, this event would be taxable.
The DI Wire has put together a glossary that covers a variety of different REIT types and encompasses a multitude of other terms used in the Direct Investment Industry. The glossary makes a great reference for those already familiar with the terms and serves as a guide for anyone seeking to get a better grasp on the jargon used in this sphere.
Learn more about other terms in The DI Wire’s Glossary.