721 UPREIT Transaction
A 721 UPREIT transaction is a tax-deferred contribution of real estate (often DST interests at exit) to a REIT's operating partnership under IRC § 721, in exchange for OP units that can later be converted to REIT shares.
What it means
Section 721 lets a property owner contribute real estate to a partnership in exchange for partnership units without recognizing gain. UPREITs use this at scale: private owners or DSTs contribute property and receive OP units. The OP units can be held for income, then converted to liquid REIT common shares (a taxable event) or held until death for step-up.
Common path: 1031 into a DST (defers gain), hold DST through sponsor exit, sponsor offers 721 rollover into their REIT. The DST investor converts to OP units without recognizing gain. Once in the REIT structure, 1031 eligibility is lost — OP units and REIT shares are securities, not like-kind to real property.
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