UPREIT

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UPREIT
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UPREIT - is an acronym for Umbrella Partnership Real Estate Investment Trust. Otherwise called Umbrella Partnership or Umbrella Partnership REIT. A term concerning investing in the real estate market, first used in 1992 by investment bankers [1].

It is one of the alternative structures of REIT's - type of the investment funds, so that proprietors can get shared ownership (units) in the UPREIT in exchange for their property [2]. This is the REIT that owns a controlling interest in a limited partnership that owns the REITs real estate [3]. Therefore, this operation gives a possibility for sellers to defer capital gains taxes [4].

Amongst REITs, we can distinguish also DOWNREIT, which is considered to be a variation on the UPREIT [5].

UPREIT structure

The UPREIT consists of the following components [6]:

  • the REIT
  • an operating partnership (also known as OP)

In order to clarify this issue once and for all, in particular, through operating partnerships, the REIT is the owner of its properties [7]. UPREIT is the REIT that owns the majority of operating partnership units at the same time serving as the general partner of an operating partnership [8].

Advantages of UPREIT

The main advantages of UPREIT are [9] [10] [11]:

  • special tax advantages (e.g. deferment)
  • reduction of taxes
  • possibility to acquire the property partially by using partnership units
  • direct investment opportunity
  • operating partnership units can constitute a currency for new acquisitions
  • an opportunity to acquire additional assets without the need to obtain loans or publicly issue shares
  • simplification of real estate
  • diversification of investment forms

Disadvantages of UPREIT

For the most fundamental weakness of UPREIT we can consider[12]:

  • the conflict of interest between original owners and REIT shareholders

Footnotes

  1. Block R.L. 2012, p. 35-37
  2. Arffa R.C. 2001, p. 308-309
  3. Block R.L. 2012, p. 420
  4. Block R.L. 2012, p. 35-37
  5. Chan S.H., Erickson J., Wang K. 2003, p. 48-51
  6. Chan S.H., Erickson J., Wang K. 2003, p. 30, 48-51
  7. Kelley W.A. 1998, p. 154
  8. Chan S.H., Erickson J., Wang K. 2003, p. 30, 48-51
  9. Chan S.H., Erickson J., Wang K. 2003, p. 48-51
  10. Arffa R.C. 2001, p. 308-309
  11. Block R.L. 2012, p. 35-37
  12. Arffa R.C. 2001, p. 308-309

References

Author: Oksana Szłapowska