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What Is an UPREIT?

By A. Leverkuhn
Updated May 16, 2024
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An Umbrella Partnership Real Estate Investment Trust, or UPREIT, is an advanced financial instrument that allows real estate investors to avoid some kinds of capital gains taxes and take advantage of sophisticated forms of investment. These new products date back to the 1990s, and are a specialized form of Real Estate Investment Trusts (REITs). By offering a specific format for real estate investment, these products simplify the process of putting desired capital behind a range of real estate values.

In general, an UPREIT splits the various kinds of real estate revenue into measurable units, which allows investors to buy in or buy out of their investments easily. Like other kinds of REITs, these products can be alternatives for those who do not want to manage investment real estate properties on their own, or even sub out the management to an outside management company. With UPREITs, investors simply perform transactions and measure outcomes to get capital gains from real estate.

UPREITs set up an operating partnership to manage the ownership of real estate property, and all that that entails. This offers those with actual real estate holdings the ability to convert those into units of ownership in the UPREIT. This kind of strategy of “common holdings” can alleviate some of the problems that an existing real estate property owner may have with owning or managing certain properties.

Experts point out that because UPREIT transactions have a tax-deferred status, these can be more desirable than other kinds of REIT holdings. There’s also the general principle of liquidity, where an UPREIT can provide a property owner with much more versatility in selling real estate holdings or realizing capital gains from money invested in real estate. The details of UPREIT transactions help property owners to get around certain kinds of tax liabilities or other practical liabilities in real estate transactions.

As these kinds of financial instruments gain popularity, they have also become much more diverse and customized to particular real estate investment arrangements. Some experts recommend that investors pursue specific kinds of due diligence in analyzing these UPREIT investments prior to signing an agreement, or even bring these sorts of deals to qualified counsel for review. It’s also necessary to inspect the actual real estate holdings upon which an UPREIT is based to make a more informed decision about participation.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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