What is a DownREIT?
A DownREIT is a type of real estate investment trust (REIT) structure that is used to defer taxes when commercial real estate is sold. In a DownREIT structure, the owner of a commercial property contributes the property to a partnership, and the partnership issues operating partnership units (OP units) to the owner in exchange for the property.
The partnership then contributes the property to a newly formed subsidiary, which is typically a limited liability company (LLC) or a limited partnership (LP). The subsidiary then issues partnership units to the public in exchange for the property, and the subsidiary becomes a publicly traded entity.
The owner can then exchange the OP units for shares in the subsidiary without incurring immediate taxes on the transaction. By doing so, the owner can continue to receive a portion of the income generated by the property, while deferring the taxes on the sale of the property.
DownREITs are typically used in situations where the owner of a commercial property wants to sell the property but wants to defer the taxes associated with the sale. They are a complex legal and financial structure that requires careful planning and execution.
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