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UPREIT stands for “umbrella partnership real estate investment trust”. It is an advanced form of REIT that lets a party defer payment of capital gains tax on sale of real estate assets.
A REIT is like a mutual fund whose assets are made up of real estate holdings. Investors can invest in REITs and the gains they make on the portfolio are taxable. REIT interests are publicly traded.
A UPREIT is a special form of REIT operating in the form of a partnership. When investors want to sell their real estate assets, they can exchange it to UPREITs for an interest in the partnership. The investors in turn receive “operating units” of the partnership along with a put option. Later, the put option can be exercised by the investors for converting the “operating units” into REIT stock. Thus the real estate owner is able to sell off the asset as well as delay the payment of capital gains taxes on its appreciated value.
• Investment in a REIT diversifies an investor’s risk as his/her exposure is spread across a portfolio of assets, rather than a single asset
• Not everyone can invest in a REIT as REITs only take those assets which they think would add value to their existing portfolio – usually only large commercial properties are accepted