Investment Specialist in Real Estate: 721 UPREIT DSTs Offer a Combination of Benefits for Optimal Results
In the realm of real estate investment, the optional UPREIT DST structure has emerged as a popular choice for many investors. This innovative structure, based on the 721 exchange, offers a unique blend of control and flexibility that sets it apart from traditional investment options.
The 721 exchange structure grants investors the prerogative to convert their Delaware Statutory Trust (DST) interest into REIT units. This option, often present in the structure, incentivizes sponsors to ensure the REIT option is attractive, as it aligns their interests with those of the investors.
An optional UPREIT (Umbrella Partnership Real Estate Trust) further enhances this flexibility, allowing investors to time their entry into the REIT structure wisely or avoid it entirely. This feature provides a form of downside protection for individual investors, especially in unfavourable market conditions, where they might prefer to take sale proceeds and reinvest elsewhere rather than accept illiquid REIT units.
However, it's essential to note that specific information on which companies have offered traditional DSTs with a voluntary or optional 721 UPREIT feature in the past two decades may not be readily available in search results.
When considering an optional UPREIT DST, thorough due diligence is paramount. Investors should review the final destination REIT's public SEC filings to assess key factors such as dividend coverage, leverage ratios, debt maturities, exposure to floating rate debt, and whether a tax protection agreement (TPA) is offered, and for how long.
Moreover, assessing the REIT's performance, portfolio quality, debt exposure, and terms, along with current market conditions, is crucial before deciding to invest. Conducting due diligence on any DST's exit strategy is also highly recommended, with a lean towards deal structures that prioritize investor optionality and transparency.
At Kay Properties, their dedicated due diligence team continuously monitors these metrics to ensure a well-informed investment decision.
Lastly, it's worth mentioning that the optional 721 structure provides flexibility to align the exchange with market conditions and financial goals. Furthermore, preserving tax planning alternatives is a significant advantage. If an investor chooses not to contribute to the REIT, they can still do a 1031 exchange into another property of their choice.
In conclusion, the optional UPREIT DST structure offers a unique blend of control and flexibility, making it an attractive choice for many investors. However, as with any investment, thorough research and due diligence are necessary to make an informed decision.
