Investors familiar with the 1031 exchange's strict deadlines (45 days to identify, 180 to close) often wonder about the 721 exchange's timeline. The good news is that a 721 exchange has no fixed statutory deadlines — because it's a contribution of property to a partnership (under Section 721), not a like-kind exchange, it isn't bound by the 1031's 45/180-day rules. Instead, the 721 exchange's timeline is driven by the parties and the transaction: finding a willing REIT, conducting due diligence, valuing the property, negotiating and documenting the contribution, and closing. After closing, there's typically a holding period before you can convert OP units to shares. Understanding the timeline and closing process helps you plan a 721 exchange. This guide explains the phases — due diligence and valuation, documentation and negotiation, the closing, and the post-closing holding period.
No fixed statutory deadlines
A fundamental point about the 721 exchange timeline is that it has no fixed statutory deadlines, unlike the 1031 exchange. The 1031's 45-day identification and 180-day completion deadlines are specific to like-kind exchanges — they govern the deferred exchange of real property for real property. A 721 exchange is different: it's a contribution of property to a partnership in exchange for a partnership interest (under Section 721), not a like-kind exchange, so the 1031's deadlines don't apply.
This means the 721 exchange isn't bound by the time pressure that makes 1031 exchanges stressful. There's no clock requiring you to identify a target within 45 days or close within 180 days. Instead, the timeline is driven by the parties (you and the REIT) and the transaction's requirements (due diligence, valuation, negotiation, documentation). So the 721 exchange's timeline is more flexible, set by the deal rather than statutory deadlines.
This absence of deadlines is generally an advantage — it removes the deadline pressure, letting the transaction proceed at the pace the parties need. (However, if you reach the 721 via the 1031-then-721 path — a 1031 into a DST first — the 1031 portion has the deadlines, while the later 721 exit doesn't.) No fixed statutory deadlines — the 721 exchange not being bound by the 1031's 45/180-day rules (because it's a partnership contribution, not a like-kind exchange) — is a key feature of its timeline. The timeline is driven by the parties and the transaction, not a statutory clock. Understanding the absence of deadlines clarifies that the 721 exchange's timeline is more flexible than a 1031's. The lack of deadlines removes the time pressure, letting the 721 exchange proceed at the deal's pace.
The typical timeline phases
While there are no fixed deadlines, a 721 exchange typically proceeds through recognizable phases. The first is identifying a willing REIT and reaching preliminary agreement — finding a REIT that wants your property and agreeing in principle to a contribution. This phase establishes that the transaction is feasible (a willing REIT exists) and sets the framework. It can take time to find the right REIT (or to identify a DST structured for a 721 exit, in the two-step path).
The subsequent phases are due diligence and valuation (the REIT evaluates your property and you agree on its value), documentation and negotiation (drafting and negotiating the contribution agreement, tax protection, and other documents), and the closing (the actual contribution of the property for OP units). After closing comes the holding period (before you can convert units to shares). So the phases run from finding a REIT through closing and into the holding period.
The duration of each phase varies by transaction — there's no set schedule, so the timeline depends on the property, the REIT, the complexity, and the parties' pace. A straightforward transaction might move quickly; a complex one (with negotiation, due diligence, or structuring issues) takes longer. The typical timeline phases — identifying a willing REIT, due diligence and valuation, documentation and negotiation, the closing, and the post-closing holding period — structure the 721 exchange process even without fixed deadlines. The phases run from finding a REIT through closing and beyond. Understanding the phases gives a roadmap for the 721 exchange timeline, even though the durations are flexible. The phases provide structure to the parties-driven timeline, guiding the transaction from start to finish.
A 721 exchange moves through phases — finding a willing REIT, due diligence and valuation, documentation and negotiation, closing, then the holding period — but without the fixed statutory clock a 1031 imposes.
Due diligence and valuation phase
The due diligence and valuation phase is a substantial part of the timeline, where the property is evaluated and its value agreed. The REIT conducts due diligence on your property — examining its physical condition, title, financials (income and expenses), leases, environmental status, and other factors — to confirm it wants the property and on what terms. This due diligence is thorough (as the REIT is acquiring the property into its portfolio), so it takes time.
Concurrently, you and the REIT determine the property's value, which sets the number of OP units you'll receive. The valuation is typically negotiated, informed by appraisals and the property's financials. Reaching agreement on value is a key milestone, as it determines the economic terms of your contribution (your units' value for your property). The valuation phase can involve back-and-forth negotiation.
This phase is important because it confirms the transaction (the REIT's due diligence) and sets the economics (the valuation). Both must be completed before proceeding to documentation and closing. The due diligence and valuation phase — the REIT examining your property and the parties agreeing on its value (setting your units) — is a substantial timeline phase that confirms the transaction and establishes its economics. The thorough due diligence and the value negotiation take time. Understanding this phase shows where much of the timeline is spent — evaluating the property and agreeing on value. The due diligence and valuation are foundational to the contribution, determining whether and on what terms it proceeds, which is why this phase is significant in the timeline.
Documentation and negotiation
After due diligence and valuation, the documentation and negotiation phase prepares the legal agreements for the contribution. The key documents include the contribution agreement (effecting the property's contribution to the operating partnership for OP units), the tax protection agreement (if negotiated, protecting your deferred gain from being triggered by a partnership sale for a period), and the partnership agreement terms (governing your rights as a limited partner).
This phase involves negotiating the terms of these documents — the contribution's specifics, the tax protection's scope and duration, and your rights as a unit holder. The negotiation can be significant, especially for the tax protection (an important term for you) and any property-specific or deal-specific provisions. Your attorney and the REIT's counsel draft and negotiate these documents, with your advisors' input.
Getting the documentation right is important, as it establishes your units, rights, and protections for the long term. So this phase, while it takes time, is essential to a sound contribution. The documentation and negotiation phase — drafting and negotiating the contribution agreement, tax protection agreement, and partnership terms, establishing your units, rights, and protections — is where the legal terms of the contribution are finalized. The negotiation (especially of tax protection) takes time and care. Understanding this phase shows the legal work involved before closing. The documentation and negotiation are critical to protecting your interests in the contribution, which is why this phase warrants careful attention (and the involvement of your attorney). The documents finalized here govern your post-721 ownership, making this phase important.
The closing (contribution)
The closing is the culmination of the timeline — the actual contribution of your property to the operating partnership in exchange for OP units. At the closing, you transfer ownership of your property to the operating partnership, and the partnership issues you the agreed number of OP units. This is the Section 721 transaction — tax-deferred, with the documents (contribution agreement, etc.) executed and the transfer completed.
The closing effects your transition from property owner to OP unit holder. After it, your property is part of the REIT's portfolio (held by the operating partnership), and you hold OP units representing your stake. The deferral is in place (no gain recognized), and you begin earning distributions on your units. So the closing is the moment the 721 exchange is consummated.
The closing itself is typically a defined event (the execution of documents and transfer), the endpoint of the preceding phases (due diligence, valuation, documentation). Once the parties have completed those phases and agreed on terms, the closing finalizes the contribution. The closing (contribution) — the execution of the documents and transfer of your property to the operating partnership for OP units, completing the Section 721 transaction — is the culmination of the 721 exchange timeline. It effects your transition into OP unit ownership, tax-deferred. Understanding the closing shows the endpoint of the active transaction, after which you hold your units. The closing consummates the 721 exchange, transitioning you into REIT ownership, and is the goal toward which the timeline's phases lead. After the closing, you're an OP unit holder.
- A 721 exchange has no fixed statutory deadlines (unlike the 1031's 45/180-day rules) — its timeline is driven by the parties.
- Typical phases: finding a willing REIT, due diligence and valuation, documentation and negotiation, closing, then the holding period.
- Due diligence and valuation (the REIT evaluating the property, the parties agreeing on value) and documentation (especially tax protection) take significant time.
- The closing (the contribution of property for OP units) consummates the exchange; a holding period (often ~1 year) follows before conversion.
After closing: the holding period
After the closing, the timeline continues with the holding period before you can convert OP units to REIT shares. As discussed in our liquidity guide, OP units typically have a holding period (often around one year, varying by REIT) before conversion to shares is allowed. So immediately after closing, you hold your units (earning distributions, deferring the gain) but can't yet convert them to shares for liquidity.
This post-closing holding period is part of the overall timeline to consider, especially if you anticipate needing liquidity. During the holding period, you're a passive unit holder enjoying the distributions and deferral, but the conversion-to-shares liquidity isn't yet available. After the holding period, the conversion option opens, and you can convert (triggering tax) as you wish.
Beyond the holding period, your timeline is open-ended — you can hold the units indefinitely (for income and deferral, toward the step-up) or convert (gradually or fully) as your needs dictate. So after closing, the timeline transitions from the active transaction to your ongoing holding (and eventual conversion) decisions. After closing: the holding period — the post-closing period (often ~1 year) before you can convert OP units to shares, during which you hold the units (earning distributions, deferring) — is the part of the timeline following the contribution. The holding period delays conversion-to-shares liquidity, and beyond it your timeline is open-ended (hold or convert as you choose). Understanding the post-closing holding period completes the timeline picture, from the contribution through your ongoing ownership. The holding period and your subsequent open-ended ownership are the post-closing portion of the 721 exchange timeline.
How Baker 1031 helps through the timeline
Baker 1031 Investments helps property owners navigate the 721 exchange timeline and closing process — from identifying a willing REIT (or a DST structured for a 721 exit), through due diligence and valuation, documentation and negotiation (including tax protection), to the closing and the post-closing holding period. We help you understand and manage each phase, coordinating with the REIT, your CPA, and your attorney throughout.
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 721 exchange involves securities (OP units), available to suitable investors after a review. We help you set realistic timeline expectations (recognizing the absence of fixed deadlines and the parties-driven pace) and manage the closing process smoothly. Our role is to guide you through the 721 exchange's phases — due diligence, valuation, documentation, closing, and the holding period — so the transaction proceeds soundly and you understand what to expect at each stage. The 721 exchange's timeline is flexible but involves real phases, and we help you navigate them to a successful closing and beyond.
Frequently Asked Questions
Does a 721 exchange have deadlines like a 1031?
No — a 721 exchange has no fixed statutory deadlines. The 1031's 45-day identification and 180-day completion deadlines are specific to like-kind exchanges; a 721 exchange is a contribution of property to a partnership (under Section 721), not a like-kind exchange, so those deadlines don't apply. Instead, the 721 exchange's timeline is driven by the parties and the transaction (finding a REIT, due diligence, valuation, documentation, closing). This removes the deadline pressure that makes 1031 exchanges stressful. (If you reach the 721 via a 1031 into a DST first, that 1031 portion has the deadlines.)
How long does a 721 exchange take?
It varies, since there are no fixed deadlines — the timeline is driven by the parties and the transaction. It can take weeks to months for the contribution, depending on finding a willing REIT, the due diligence, the valuation negotiation, and the documentation. A straightforward transaction might move quickly; a complex one (with negotiation or structuring issues) takes longer. After closing, there's a holding period (often ~1 year) before you can convert units to shares. So the active transaction varies in length, and the post-closing holding period adds time before conversion liquidity.
What are the phases of a 721 exchange?
Identifying a willing REIT (and reaching preliminary agreement), due diligence and valuation (the REIT evaluates your property and you agree on its value), documentation and negotiation (the contribution agreement, tax protection, partnership terms), the closing (the contribution of property for OP units), and the post-closing holding period (before conversion to shares). These phases run from finding a REIT through closing and into the holding period. The durations are flexible (no fixed deadlines), depending on the property, REIT, complexity, and parties' pace.
What happens during due diligence?
The REIT examines your property — its physical condition, title, financials (income and expenses), leases, environmental status, and other factors — to confirm it wants the property and on what terms. This is thorough (the REIT is acquiring the property into its portfolio), so it takes time. Concurrently, you and the REIT determine the property's value (informed by appraisals and financials), setting the OP units you'll receive. So due diligence confirms the transaction and, with the valuation, establishes its economics. It's a substantial phase where much of the timeline is spent.
How is the closing of a 721 exchange handled?
At the closing, you transfer ownership of your property to the operating partnership, and the partnership issues you the agreed OP units — the Section 721 transaction, tax-deferred, with the documents (contribution agreement, etc.) executed and the transfer completed. The closing effects your transition from property owner to OP unit holder: afterward, your property is in the REIT's portfolio, and you hold OP units (with the deferral in place, earning distributions). The closing is the culmination of the preceding phases (due diligence, valuation, documentation), finalizing the contribution.
Is there a holding period after closing?
Yes — OP units typically have a holding period (often around one year, varying by REIT) before you can convert them to REIT shares. So immediately after closing, you hold your units (earning distributions, deferring the gain) but can't yet convert them to shares for liquidity. After the holding period, the conversion option opens. This is important to plan for if you anticipate needing liquidity — the conversion-to-shares liquidity isn't available right after closing. Beyond the holding period, your timeline is open-ended (hold or convert as you choose).
Why is the documentation phase important?
Because the documents — the contribution agreement (effecting the contribution), the tax protection agreement (protecting your deferred gain), and the partnership terms (your rights as a unit holder) — establish your units, rights, and protections for the long term. Negotiating them carefully (especially the tax protection, an important term for you) protects your interests. Your attorney and the REIT's counsel draft and negotiate these. Getting the documentation right is essential, since it governs your post-721 ownership. So the documentation phase, while it takes time, is critical to a sound contribution.
Can the timeline be faster than a 1031?
It can be, since there's no deadline pressure — but it can also be slower, depending on the transaction. The 1031's deadlines (45/180 days) impose urgency but also a defined timeline. A 721 exchange has no such clock, so it proceeds at the parties' pace — which could be faster (no deadline-driven scramble) or slower (extended due diligence, negotiation). The key difference is the absence of statutory pressure, making the timeline flexible. So the 721 exchange isn't inherently faster or slower; its timeline depends on the parties and transaction, without the 1031's fixed deadlines.
What if I'm doing the 1031-then-721 path?
Then the 1031 portion (into the DST) has the standard 45/180-day deadlines (since it's a like-kind exchange), while the later 721 exit (the DST being acquired by the REIT) doesn't have those deadlines. So in the two-step path, you must meet the 1031 deadlines for the DST step (45 days to identify the DST, 180 to close), but the 721 exit's timing is open-ended (governed by the DST/REIT structure, not statutory deadlines). So the deadlines apply to the first step (the 1031 into the DST), not the second (the 721 into the REIT). Plan the 1031 step's deadlines carefully.
Does the absence of deadlines make a 721 easier?
In one sense yes — the absence of the 1031's deadline pressure removes a major source of stress (no scramble to identify and close within 45/180 days). So the 721 exchange's timeline is less pressured. However, the 721 exchange is more complex in other ways (finding a willing REIT, the securities nature, the negotiation and documentation), so it's not necessarily 'easier' overall — it trades the deadline pressure for other complexities. The absence of deadlines is an advantage on timeline flexibility, but the 721 has its own demands. It's less deadline-pressured but not simpler overall.
How do I plan for the 721 exchange timeline?
Recognize the absence of fixed deadlines (the timeline is parties-driven), allow time for each phase (finding a REIT, due diligence, valuation, documentation, closing), plan for the post-closing holding period before conversion liquidity, and work with professionals (advisor, CPA, attorney) to manage the process. Set realistic expectations (the timeline varies by transaction), and if liquidity timing matters, account for the holding period. We help you navigate the phases and set realistic timeline expectations, so the 721 exchange proceeds smoothly from finding a REIT through closing and beyond.
Can a 721 exchange fall through during the process?
Yes — like any negotiated transaction, a 721 exchange can fall through if the parties don't reach agreement (on value, tax protection, or other terms), if the REIT's due diligence reveals problems with the property, or if circumstances change. Unlike a 1031 (where a failed exchange triggers the tax because you've already sold), a standalone 721 contribution that doesn't close generally leaves you still owning your property (you haven't sold). So a 721 exchange that falls through during negotiation typically means you keep your property and pursue other options, without the tax consequences of a failed 1031. Your advisors help navigate any issues.
Should I sell my property first or wait for the 721?
In a direct 721 exchange, you contribute the property to the REIT (you don't sell it separately first) — the contribution is the transaction. So you don't sell and then do a 721; the 721 contribution replaces a sale. In the 1031-then-721 path, you sell your property and 1031 into a DST (the sale and 1031 are the first step), then later the 721 exit occurs. So whether you 'sell first' depends on the path: a direct 721 contributes the property (no separate sale), while the 1031-then-721 involves selling into the DST first. Your advisors structure the appropriate path.
Does the timeline differ for traded vs. non-traded REITs?
The transaction timeline (due diligence, valuation, documentation, closing) is broadly similar, but the post-closing liquidity timeline differs. For a publicly-traded REIT, after the holding period you can convert and sell shares relatively quickly (market liquidity). For a non-traded REIT, liquidity is more limited (program-based redemptions on the REIT's schedule), so accessing liquidity after conversion may take longer. So the contribution timeline is similar, but the time to access liquidity afterward depends on the REIT type. If liquidity timing matters, the traded-vs-non-traded distinction affects your post-conversion timeline, which you should factor into your planning.
Glossary
- 721 Exchange Timeline
- The parties-driven schedule of a 721 exchange, without fixed deadlines.
- No Statutory Deadlines
- The 721's lack of the 1031's 45/180-day rules.
- 45/180-Day Rules
- The 1031 deadlines that don't apply to a 721 exchange.
- Due Diligence
- The REIT's examination of your property before acquiring it.
- Valuation
- Agreeing on the property's value, setting the OP units.
- Contribution Agreement
- The document effecting the property's contribution for units.
- Tax Protection Agreement
- The negotiated agreement protecting your deferred gain.
- Partnership Terms
- The provisions governing your rights as a unit holder.
- Closing
- The execution of documents and transfer, completing the contribution.
- Holding Period
- The post-closing time before OP units can convert to shares.
- Phases
- The recognizable stages of the 721 exchange process.
- Parties-Driven
- The timeline being set by the parties, not deadlines.
- 1031-then-721 Path
- The two-step route where the 1031 step has deadlines.
- Conversion
- Exchanging units for shares, available after the holding period.
- Open-Ended Timeline
- The flexible, deadline-free 721 schedule.
- Preliminary Agreement
- The initial agreement with a willing REIT.
Sources & References
- Cornell Legal Information Institute. 26 U.S. Code § 721 — Nonrecognition of gain or loss on contribution
- Cornell Legal Information Institute. 26 CFR § 1.1031(k)-1 — (1031 deadlines, for contrast)
- U.S. Securities and Exchange Commission. Investor.gov — Real Estate Investment Trusts (REITs)
- IRS. Publication 541, Partnerships
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.
