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Operating Partnership Unit (Op Unit)

In the Real Estate Investment Trusts (REITs) industry, an Operating Partnership Unit (Op Unit) is a type of ownership interest. Here’s a detailed explanation:

  1. Real Estate Investment Trusts (REITs): REITs are entities that own, operate, or finance income-producing real estate across a range of property sectors. Publicly traded REITs are listed on national stock exchanges, and individual investors can buy shares just like stocks. By investing in REITs, individual investors can indirectly own properties or mortgages without directly owning real estate.
  2. Umbrella Partnership Real Estate Investment Trust (UPREIT): Some REITs structure themselves as UPREITs. In this structure, the REIT typically partners with a pre-existing operating partnership that holds the actual real estate assets. This partnership structure provides tax and flexibility advantages, especially when the REIT wants to acquire properties from private owners.
  3. Operating Partnership Units (Op Units): When a private real estate owner wants to exchange their property for an interest in a UPREIT, they might not directly receive REIT shares. Instead, they’ll often receive Op Units in the UPREIT’s operating partnership. These Op Units can often be exchanged for REIT shares on a one-to-one basis, but the private owner might hold onto the Op Units to defer capital gains taxes.

In essence, Op Units represent a form of ownership in the operating partnership of a UPREIT. They can be advantageous for property sellers looking to transition out of direct property ownership while maintaining a stake in the property’s future performance and gaining potential liquidity and diversification benefits offered by the REIT.