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What is an upreit?

The term UPREIT, is an abbreviation for ‘Umbrella Partnership Real Estate Investment Trust’ and refers to an entity structure that allows property owners to convert their ownership of one or more of their real estate assets into an interest which is, immediately, or can ultimately be converted into, a public security.

In the basic UPREIT structure the REIT properties are acquired and owned directly or indirectly by its umbrella partnership, often referred to as the “operating partner”. 

In an UPREIT transaction, property owners contribute their properties in exchange for ownership units in the operating partnership (“OP Units”).

Therefore, Generation Income Properties, LP, the main subsidiary of GIP, Inc., is the managing partner of the UPREIT property.

WHY UPREIT?

UPREIT Advantages:

  • Provides a viable tax deferral 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 (OP Unit Holders have an interest in the REITs portfolio rather than just one property)

  • Potential to convert non-liquid, long-term assets into more salable securities after a 2-year holding period

(OP Units → REIT Shares → Cash)

  • No property management responsibilities or concerns

  • Regular income distributions

  • Improved cash position through potential leveraging of OP Units

How to UPREIT?

The phases of an UPREIT are as follows:

  1. Contributor and GIPR enter into a contribution agreement to contribute the property to the REITs portfolio
  2. GIPR exchanges OP units equal to the net fair market value of the contributor’s equity in the real estate investment
  3. Contributor receives quarterly income distributions
  4. After a 2-year holding period contributor has the ability to convert OP Units into common shares in the publicly traded REIT
  5. Contributor has the ability to sell common shares any time after 2 years
 
 
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Robert Rohrlack III
Robert Rohrlack III
Acquisitions Manager