Accessing liquidity after a 721 exchange isn't always as simple as selling a stock — it works through specific mechanisms with their own windows, limits, and conditions. After the initial lock-up period, you can convert OP units to REIT shares, and for a publicly-traded REIT, sell those shares on the market. But for a non-traded REIT, liquidity comes through redemption programs — periodic opportunities for the REIT to buy back shares, subject to limits and the REIT's discretion. Understanding these liquidity mechanisms — the conversion windows, the redemption programs, and their limits and conditions — is essential for planning your access to cash after a 721 exchange. This guide explains how liquidity works after the lock-up, conversion windows, redemption programs, their limits, and planning your liquidity.
How liquidity works after the lock-up
After the lock-up period ends, your liquidity options open up, but they work through specific mechanisms. The basic path is to convert your OP units to REIT shares (now permitted, after the lock-up), and then access cash from the shares — either by selling them on the market (for a publicly-traded REIT) or through a redemption program (for a non-traded REIT). So liquidity after the lock-up involves conversion plus the share-liquidity mechanism.
The conversion (units to shares) is the first step, available after the lock-up, and it triggers the deferred gain (taxable). Then the share liquidity (market sale or redemption) provides the cash. So your liquidity is a two-part process: convert (taxable), then access the share liquidity. The mechanisms for the share liquidity differ by REIT type (market for traded, redemption for non-traded).
So understanding how liquidity works after the lock-up means understanding the conversion step and the share-liquidity mechanism for your REIT type. How liquidity works after the lock-up — converting OP units to REIT shares (now permitted, triggering the gain), then accessing cash via market sale (traded REIT) or redemption program (non-traded REIT) — is the framework for post-lock-up liquidity. The mechanism depends on the REIT type. Understanding this framework sets up the specific mechanisms. After the lock-up, liquidity comes through conversion plus the share-liquidity mechanism, which differs by REIT type.
Conversion windows
Converting OP units to REIT shares may be subject to conversion windows or terms — specific times or conditions under which you can convert. After the lock-up, the partnership agreement governs how conversions work, which may include windows (specific periods when conversion requests are processed), notice requirements (giving notice before converting), or other terms. So conversion isn't always instantaneous; it may follow the partnership's conversion procedures.
These conversion terms vary by REIT — some may allow conversion fairly flexibly (on request), others may have defined windows or processes. So you should understand the specific conversion terms for your REIT (in the partnership agreement) to know when and how you can convert. The conversion windows/terms affect the timing of accessing the share liquidity.
Understanding the conversion windows helps you plan when you can convert (and thus access the subsequent share liquidity). So the conversion terms are part of the liquidity picture. Conversion windows — the specific times, notice requirements, or terms under which you can convert OP units to REIT shares after the lock-up, varying by REIT — affect the timing of accessing liquidity. The conversion follows the partnership's procedures. Understanding the conversion windows clarifies when you can convert. The conversion terms (windows, notice, procedures) govern when you can convert units to shares, part of planning your post-lock-up liquidity.
Conversion isn't always instantaneous — the partnership agreement may set windows, notice requirements, or procedures governing when and how you can convert your OP units to REIT shares.
Redemption programs (non-traded REITs)
For non-traded REITs, liquidity comes primarily through redemption programs, since the shares aren't market-traded. A redemption program is the non-traded REIT's mechanism for buying back shares from investors — periodically (e.g., quarterly), the REIT offers to redeem a limited amount of shares, and investors can request redemption. So for a non-traded REIT, you access cash by having the REIT redeem your shares (after converting your units to shares), rather than selling on a market.
Redemption programs have important characteristics: they're periodic (redemptions happen at set intervals, not continuously), limited (a cap on how much can be redeemed per period, often a percentage of the REIT's shares), conditional (subject to terms and the REIT's discretion), and sometimes priced at a discount or based on the NAV. So the redemption program provides liquidity, but in a limited, structured way.
The redemption program is the key liquidity mechanism for non-traded REIT investors, so understanding its terms (frequency, limits, pricing, conditions) is essential for planning your liquidity. So for non-traded REITs, the redemption program governs your access to cash. Redemption programs (non-traded REITs) — the periodic, limited, conditional mechanisms for the REIT to buy back shares, the primary liquidity for non-traded REIT investors — are the key liquidity mechanism for non-traded REITs. The program's terms govern your access to cash. Understanding the redemption program clarifies non-traded REIT liquidity. For non-traded REITs, the redemption program (periodic, limited, conditional) is the main liquidity mechanism, with terms important to understand for planning.
Limits and conditions
Both conversion and redemption mechanisms have limits and conditions that affect your liquidity. For redemption programs (non-traded REITs), the limits include the redemption cap (how much can be redeemed per period — if more investors seek redemption than the cap allows, redemptions may be prorated or queued), and the conditions include the REIT's discretion (the REIT can limit, suspend, or modify the program, especially in adverse conditions). So non-traded REIT liquidity is constrained by these limits and discretion.
These limits and conditions mean non-traded REIT liquidity isn't guaranteed — you can request redemption, but it's subject to the cap and the REIT's discretion, so you may not get the full or timely liquidity you want (especially if many investors seek redemption or conditions are adverse). So the limits and conditions are important to understand — the liquidity is real but constrained.
For traded REITs, the share market provides liquidity (after conversion) without these redemption limits, though the conversion itself may have terms. So traded REITs have fewer liquidity constraints than non-traded ones. Limits and conditions — the redemption caps, proration, and the REIT's discretion (for non-traded REITs) constraining the liquidity, versus the fewer constraints of traded REIT market liquidity — are important to understand, especially for non-traded REITs. The limits mean non-traded REIT liquidity isn't guaranteed. Understanding the limits and conditions clarifies the constraints on your liquidity. Non-traded REIT liquidity is constrained by redemption limits and discretion, an important consideration versus traded REIT market liquidity.
Planning your liquidity
Given these mechanisms and constraints, planning your liquidity is important after a 721 exchange. The key is to understand the specific liquidity mechanisms and constraints for your REIT (the lock-up, conversion terms, and — for non-traded REITs — the redemption program's frequency, limits, and conditions), and plan your cash access accordingly. Don't assume immediate, unlimited liquidity; understand what's actually available and when.
For non-traded REITs, planning involves recognizing the redemption program's limits — you may need to request redemption in advance, and might not get full liquidity quickly (especially if the program is constrained). So you should plan to not rely on rapid, large non-traded REIT liquidity, and maintain other liquidity sources for significant near-term needs. For traded REITs, the market provides more reliable liquidity (after conversion), but you still plan the conversion (and its tax).
Overall, planning your liquidity means understanding the mechanisms, the timing (lock-up, conversion windows, redemption frequency), the limits, and the tax (conversion triggers gain), and aligning your cash access with these realities. Planning your liquidity — understanding the specific mechanisms and constraints (lock-up, conversion terms, redemption limits, tax), and aligning your cash access with these realities (not assuming immediate, unlimited liquidity) — is essential after a 721 exchange. Realistic planning prevents liquidity surprises. Understanding how to plan your liquidity ensures you can access cash when needed. Planning your liquidity around the mechanisms, timing, limits, and tax ensures realistic expectations and reliable access to cash after a 721 exchange.
- After the lock-up, liquidity comes through converting OP units to REIT shares (triggering the gain), then accessing cash via market sale (traded) or redemption (non-traded).
- Conversion may follow windows, notice requirements, or procedures in the partnership agreement.
- Non-traded REIT liquidity is through periodic redemption programs — limited, conditional, and subject to the REIT's discretion.
- Plan your liquidity around the mechanisms, timing, limits, and tax — don't assume immediate, unlimited liquidity, especially for non-traded REITs.
Traded vs. non-traded liquidity
The traded-vs-non-traded distinction is central to your liquidity, so it bears emphasis. For a publicly-traded REIT, after converting your units to shares, the shares are liquid — tradable on the market, sellable quickly at market prices. So a traded REIT offers robust, reliable liquidity (after conversion), constrained mainly by the conversion terms and the tax.
For a non-traded REIT, liquidity is through the redemption program — limited, periodic, conditional, and subject to the REIT's discretion. So non-traded REIT liquidity is more constrained and less certain than a traded REIT's market liquidity. This is a major difference in your liquidity experience depending on the REIT type.
So if liquidity is a priority for you, the REIT type matters greatly — a traded REIT generally offers better liquidity than a non-traded one. Understanding this distinction is key to choosing (or understanding) the REIT and setting your liquidity expectations. Traded vs. non-traded liquidity — traded REITs offering robust market liquidity (after conversion) versus non-traded REITs offering limited, redemption-based liquidity — is the central distinction for your post-721 liquidity. The REIT type largely determines your liquidity. Understanding this distinction is key to your liquidity expectations and REIT choice. The traded-vs-non-traded distinction is the most important factor in your post-721 liquidity, with traded REITs generally offering better, more reliable liquidity.
How Baker 1031 helps with liquidity
Baker 1031 Investments helps 721 investors understand and plan their liquidity — explaining the liquidity mechanisms (conversion windows, redemption programs), their limits and conditions, the traded-vs-non-traded distinction, and how to plan your cash access realistically. We help you understand the specific liquidity terms for your REIT and set realistic liquidity expectations.
REIT units and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — the liquidity mechanisms and constraints (especially for non-traded REITs) are part of the offering's terms, considered in the suitability assessment (ensuring you don't need liquidity the investment can't provide). We help you understand the conversion and redemption terms and plan accordingly. Our role is to help you understand and plan your post-721 liquidity — the conversion windows, redemption programs, limits, and the traded-vs-non-traded distinction — so you have realistic expectations and can access cash when needed. Understanding the liquidity mechanisms is essential to using a 721 exchange wisely, and we help you navigate them, especially the constraints of non-traded REIT liquidity.
Frequently Asked Questions
How do I access liquidity after a 721 exchange?
After the lock-up period, you convert your OP units to REIT shares (now permitted, triggering the deferred gain), then access cash from the shares — by selling them on the market (for a publicly-traded REIT) or through a redemption program (for a non-traded REIT). So liquidity is a two-part process: convert (taxable), then access the share liquidity. The share-liquidity mechanism differs by REIT type — market sale (traded) or redemption program (non-traded). Understanding both the conversion and the share-liquidity mechanism for your REIT type is key to accessing cash.
What are conversion windows?
Specific times, notice requirements, or terms under which you can convert OP units to REIT shares after the lock-up, governed by the partnership agreement. Conversion isn't always instantaneous — the partnership's procedures may include windows (periods when conversion requests are processed), notice requirements, or other terms. These vary by REIT. So you should understand the specific conversion terms for your REIT to know when and how you can convert. The conversion windows affect the timing of accessing the subsequent share liquidity, so they're part of planning your liquidity.
What is a redemption program?
The mechanism a non-traded REIT uses to provide liquidity, since its shares aren't market-traded. Periodically (e.g., quarterly), the REIT offers to redeem (buy back) a limited amount of shares, and investors can request redemption. So for a non-traded REIT, you access cash by having the REIT redeem your shares (after converting your units to shares), rather than selling on a market. Redemption programs are periodic, limited (a cap per period), conditional, and subject to the REIT's discretion. The redemption program is the key liquidity mechanism for non-traded REIT investors.
Are there limits on redemptions?
Yes — redemption programs (non-traded REITs) typically have a cap on how much can be redeemed per period (often a percentage of the REIT's shares), so if more investors seek redemption than the cap allows, redemptions may be prorated or queued. And the REIT has discretion to limit, suspend, or modify the program (especially in adverse conditions). So non-traded REIT liquidity isn't guaranteed — it's subject to the cap and the REIT's discretion, so you may not get full or timely liquidity (especially if many investors seek redemption). These limits are important to understand for non-traded REIT liquidity planning.
Is non-traded REIT liquidity guaranteed?
No — the redemption program's liquidity is subject to limits (the cap), conditions, and the REIT's discretion, so it's not guaranteed. The REIT can limit, suspend, or modify the program, especially if many investors seek redemption or in adverse conditions. So you can request redemption, but might not get the full or timely liquidity you want. So you shouldn't count on rapid, large non-traded REIT liquidity — it's program-based and discretionary. This is a key consideration if liquidity matters to you, and a reason to understand the redemption program carefully and maintain other liquidity sources for significant near-term needs.
How is traded REIT liquidity different?
For a publicly-traded REIT, after converting your units to shares, the shares are liquid — tradable on the market, sellable quickly at market prices, without the redemption limits of non-traded REITs. So a traded REIT offers robust, reliable liquidity (after conversion), constrained mainly by the conversion terms and the tax. This is more reliable than non-traded REIT liquidity (limited, redemption-based, discretionary). So the traded-vs-non-traded distinction greatly affects your liquidity — a traded REIT generally offers better, more reliable liquidity. If liquidity is a priority, a traded REIT is generally preferable.
How do I plan my liquidity after a 721 exchange?
Understand the specific mechanisms and constraints for your REIT — the lock-up, conversion terms, and (for non-traded REITs) the redemption program's frequency, limits, and conditions — and plan your cash access accordingly. Don't assume immediate, unlimited liquidity. For non-traded REITs, recognize the redemption limits (request in advance, don't rely on rapid/large liquidity, maintain other sources for near-term needs). For traded REITs, the market is more reliable (after conversion). Align your cash access with the mechanisms, timing, limits, and tax. Realistic planning prevents liquidity surprises and ensures you can access cash when needed.
Can the REIT suspend redemptions?
Yes, for non-traded REITs — the REIT typically has discretion to limit, suspend, or modify the redemption program, especially in adverse market conditions or if redemption requests exceed the capacity. So redemptions can be paused or restricted, meaning your liquidity could be temporarily unavailable. This has happened with some non-traded REITs in stressed conditions. So you should understand that non-traded REIT redemption liquidity can be suspended, not relying on it for critical near-term needs. This discretion is a key limitation of non-traded REIT liquidity, reinforcing the importance of understanding the program's terms and maintaining other liquidity.
Does converting to shares give me immediate liquidity?
For a traded REIT, largely yes — after converting to shares, you can sell them on the market relatively quickly (though the conversion itself may have terms/windows, and it triggers the tax). For a non-traded REIT, no — after converting to shares, you still access liquidity through the redemption program (limited, periodic), so it's not immediate. So whether converting gives immediate liquidity depends on the REIT type: traded (yes, via market sale after conversion) or non-traded (no, via redemption program). Understanding this difference is key to your liquidity expectations after converting.
How does Baker 1031 help with liquidity planning?
We help you understand and plan your liquidity — explaining the mechanisms (conversion windows, redemption programs), their limits and conditions, the traded-vs-non-traded distinction, and how to plan your cash access realistically. We help you understand the specific liquidity terms for your REIT and set realistic expectations. REIT units are offered through the broker-dealer (Aurora Securities, member FINRA/SIPC) after a suitability review, with the liquidity terms part of the offering (considered in the suitability assessment). We help you understand the conversion and redemption terms and plan accordingly, so you have realistic expectations and can access cash when needed, especially navigating non-traded REIT constraints.
What if I need liquidity but the redemption program is full?
If the redemption program (non-traded REIT) is at its cap or suspended, you may not be able to redeem when you want — your request might be prorated, queued for a future period, or unavailable until the program reopens. So you might face a delay or partial liquidity. This is why you shouldn't rely on non-traded REIT redemption for critical, time-sensitive needs, and should maintain other liquidity sources. If you anticipate needing liquidity, request redemption early and understand the program's capacity. So a full or suspended redemption program can leave you waiting, reinforcing the importance of not depending on non-traded REIT liquidity for urgent needs and keeping other sources available.
Are there fees to redeem or convert?
Possibly — some redemption programs (non-traded REITs) redeem at a price below the current NAV (a discount, especially for early redemptions), effectively a cost to access liquidity, and there may be other terms. Converting OP units to shares generally doesn't have a direct fee but triggers the tax (the main cost). And selling traded-REIT shares incurs normal brokerage costs. So accessing liquidity can involve costs — redemption discounts (non-traded), the conversion tax, and selling costs. Understanding any redemption discount or terms is part of evaluating the non-traded REIT's liquidity. So check the specific redemption and conversion terms for any costs, which affect your net liquidity.
Does the lock-up period affect these liquidity mechanisms?
Yes — the lock-up period must pass before you can convert OP units to shares (and thus access either market liquidity for traded REITs or the redemption program for non-traded REITs). So the liquidity mechanisms (conversion, then market sale or redemption) only become available after the lock-up. During the lock-up, you can't access this liquidity (only the distributions). So the lock-up is the initial gate, after which the conversion and share-liquidity mechanisms apply. Understanding both the lock-up (the initial wait) and the subsequent mechanisms (conversion, redemption/market) gives the complete liquidity timeline after a 721 exchange. The lock-up precedes the liquidity mechanisms.
How does the step-up interact with these liquidity mechanisms?
The step-up provides an alternative to using the liquidity mechanisms — if you hold the units until death (rather than converting and accessing liquidity), the step-up erases the deferred gain for your heirs, who then inherit the units and can use the liquidity mechanisms (convert, redeem, or sell) with little tax. So the liquidity mechanisms (conversion, redemption) and the step-up are complementary: use the mechanisms to access cash during life (taxable), or hold toward the step-up (tax-free for heirs). Many investors use the mechanisms for needed liquidity and hold the rest toward the step-up. So the step-up offers a tax-free alternative to the (taxable) liquidity mechanisms for units you don't need to access.
Should liquidity expectations affect my choice of REIT?
Yes — if liquidity is a priority, the REIT type (traded vs. non-traded) should heavily influence your choice, since it largely determines your liquidity. A publicly-traded REIT offers robust market liquidity (after conversion); a non-traded REIT offers limited, redemption-based liquidity. So for investors valuing liquidity, a traded REIT is generally preferable. The liquidity mechanisms and their reliability are a key factor in evaluating the destination REIT. So your liquidity needs should be a significant consideration in choosing the REIT — if you anticipate needing liquidity, weigh the traded REIT's better liquidity heavily. We help you align your REIT choice with your liquidity expectations and other goals.
Can I plan conversions and redemptions around tax years?
Yes — because converting OP units to shares triggers the deferred gain, you can plan your conversions (and subsequent redemptions or sales) across tax years to manage the tax, as covered in tax-smart conversion timing. Spreading conversions over years, timing them in low-income years, and coordinating with losses all apply. So the liquidity mechanisms can be used in a tax-smart way, planning the timing of conversions (and the resulting liquidity) to optimize the tax. Your CPA helps coordinate the conversion/liquidity timing with your tax situation. So you can plan your liquidity access (via conversion) around tax years to minimize the tax, combining the liquidity mechanisms with tax-smart timing.
Glossary
- Liquidity Window
- A period or mechanism for accessing cash after the lock-up.
- Conversion
- Exchanging OP units for REIT shares, the first liquidity step.
- Conversion Window
- The times/terms for converting units to shares.
- Redemption Program
- A non-traded REIT's periodic share buyback mechanism.
- Redemption Cap
- The limit on how much can be redeemed per period.
- Proration
- Reducing redemptions when requests exceed the cap.
- REIT Discretion
- The REIT's ability to limit or suspend redemptions.
- Market Liquidity
- Selling traded-REIT shares on the market after conversion.
- Periodic Redemption
- Redemptions at set intervals, not continuous.
- Lock-Up Period
- The initial holding period before conversion is allowed.
- Notice Requirement
- Advance notice needed for conversion or redemption.
- Suspension
- The REIT pausing redemptions, a non-traded liquidity risk.
- Traded REIT
- A REIT with market liquidity, more reliable.
- Non-Traded REIT
- A REIT with limited, redemption-based liquidity.
- Conversion Tax
- The gain triggered by converting, part of the liquidity cost.
- Liquidity Planning
- Aligning cash access with the mechanisms and constraints.
Sources & References
- FINRA. Public Non-Traded REITs—Perform a Careful Review Before Investing
- U.S. Securities and Exchange Commission. Investor.gov — Non-Traded REITs
- Cornell Legal Information Institute. 26 U.S. Code § 721 — Nonrecognition of gain or loss on contribution
- Nareit. What's a REIT (Real Estate Investment Trust)?
Disclosures
This article is published by Baker 1031 Investments, LLC for general educational purposes for accredited investors and is not an offer to sell or a solicitation of an offer to buy any security, nor is it tax, legal, accounting, or investment advice or a recommendation. Any securities offering is made solely through a sponsor’s private placement memorandum (PPM) following a suitability determination. Securities offered through Aurora Securities, Inc. (ASI), member FINRA / SIPC; Baker 1031 Investments is independent of ASI.
Oil & gas mineral and royalty interests and DST programs are speculative, illiquid securities sold only to verified accredited investors and involve substantial risk, including possible loss of principal, commodity-price and production-decline risk, lack of control, and the risk that an intended 1031 exchange fails to qualify for tax deferral. Whether a particular interest qualifies as like-kind real property is a fact-specific legal determination that varies by state and by the terms of the instrument. Tax results depend on your individual circumstances. Consult your own CPA and attorney before acting. Past performance does not guarantee future results.
