721 UpREIT DSTs
Understanding the diverse strategies and structures available with real estate investments can significantly influence your decision-making process. Among these, the 721 UpREIT offerings are a flexible option for investors considering upgrading their investments through a Real Estate Investment Trust (REIT).
721 UpREIT Offerings
There are three main types of 721 UpREIT offerings, “light”, “medium”, and “heavy” which are based on three factors:
- The probability that the REIT will buy the DST property (UpREIT)
- The likely timing of the UpREIT
- Whether the DST investor has an option or is required to UpREIT
1. 721 Heavy
- Probability that the Sponsor will UpREIT: Very High
- Sponsor UpREIT likely timing: 2-3 years
- Investors’ options if UpREIT: 721 only (with some caveats)
2. 721 Medium
Many investors would prefer the option of doing a 721 UpREIT rather than committing to do so. These investors like to see how the DST performs, evaluate the REIT at the time of the UpREIT transaction, and then decide at that time. If the investor is unhappy with the DST or sponsor’s performance, they can choose a new investment.
Many 721 “Medium” offerings will have a slightly longer hold period than 721 Heavy offerings. Additionally, the sponsor is not guaranteed to do a 721 UpREIT with the DST property (although it is usually likely). The timing of the UpREIT will depend on if and how the property appreciates and what the market conditions are like at that time.
- Probability that the Sponsor will UpREIT: 50% to Very High
- Sponsor UpREIT likely timing: 3-10 years
- Investors’ options if UpREIT: 721, 1031 or cash out
3. 721 Light
- Probability that the Sponsor will UpREIT: Low – often only if 1031 goes away
- Sponsor UpREIT likely timing: Typically 5-10 years
- Investors’ options if UpREIT: 721, 1031 (if available) or cash out
