If you have avoided selling your medical real estate holdings because you fear capital gains tax or loss of investment income, fear no more. An UPREIT transaction may be right for you. An UPREIT allows you to sell your property to a Real Estate Investment Trust (“REIT”) for full market value, while receiving the benefits of a tax deference and future investment income in the form of quarterly cash distributions equal to dividends paid on the REIT shares.
One of the more notable benefits of an UPREIT transaction is that the property owner essentially converts an interest in one or more specific properties into an interest in a larger and more balanced portfolio of properties. The operating partnership’s portfolio is often diversified as to property type and geography‚ and usually benefits from the economies of scale and management that a larger entity can offer.
Also noted as one of the more important benefits of an UPREIT transaction‚ is that such a transaction allows an interest in liquid real estate properties to become more easily saleable. This is because OP Units may be converted‚ subject to minor restrictions‚ on a one-for-one basis for shares of common stock of the private or publicly-traded REIT. While such a conversion to stock may trigger recognition of taxable gain‚ the flexibility permits the owner to unlock value and access capital as needed.
Below are a few popular reasons why Sellers take advantage of UPREIT’s:
- Provides a viable tax deferral/avoidance exit strategy to property owners facing significant capital gain tax liabilities on the sale of appreciated property with a low tax basis
- Diversification of real estate holdings (i.e., OP Unit Holders have an interest in a portfolio of properties instead of just one)
- Potential to convert liquid‚ long-term assets (i.e.‚ real estate) into more saleable securities (i.e., OP Units → REIT Share → Cash)
- No property management responsibilities or concerns
- Quarterly income distributions
- Potential to recognize unrealized gains as earnings
- Estate simplification
- Allows the owner to sell its property in a way that maximizes its value
- Improved cash position through potential leveraging of OP Units
To learn more about how an UPREIT may benefit you schedule a 15-minute meeting with 1 of our agents!. You can also join us at our interactive website (www.zeustra.com).