For investors who reach a Delaware Statutory Trust through a 1031 exchange, there is often a less-discussed second chapter: the DST can eventually become part of a REIT. Many DSTs are deliberately structured so the sponsor's real estate investment trust can acquire the DST's property and, under a Section 721 (UPREIT) exchange, convert the DST investors' interests into operating-partnership (OP) units of the REIT — without triggering tax at that step. The result is a path from a specific replacement property, to a passive DST interest, to ownership of a diversified REIT, with tax deferral maintained throughout the property-to-OP-units journey. This 'DST-to-REIT' route appeals to 1031 investors who want diversification, true passivity, and an eventual route to liquidity, while keeping their deferral intact. This guide explains how DSTs roll up into REITs, the role of the 721 exchange, how deferral is maintained, the investor-consent and timing realities, and the pros and cons of the path. Note that this is a technical strategy and educational information, not tax or legal advice — verify the current rules with your own advisors.
How DSTs roll up into REITs
Many DSTs are structured from the outset with a roll-up into a REIT in mind. A DST (Delaware Statutory Trust) holds 1031-eligible real estate and offers fractional, passive interests, but a DST has a finite life and cannot raise new capital or actively manage its property under the IRS's 'seven deadly sins' constraints. So sponsors frequently design DSTs so that, at the right time, the sponsor's affiliated REIT can acquire the DST's property and bring the investors into the REIT structure.
The mechanism is the REIT's operating partnership acquiring the DST's real estate in exchange for OP units (rather than cash), so the DST investors convert their property interests into units of the REIT's operating partnership. This is the 'UPREIT' (umbrella partnership REIT) structure — the REIT owns its properties through an operating partnership, and contributing property to that partnership can be done tax-deferred under Section 721. So the DST's specific property is folded into the REIT's larger, diversified portfolio.
So a DST roll-up moves investors from owning a fractional interest in one DST property to owning OP units in a diversified REIT's operating partnership — a designed feature of many DST programs, not an accident. How DSTs roll up into REITs — sponsors structuring a DST so the affiliated REIT's operating partnership can acquire the DST property in exchange for OP units, converting investors from a single-property DST interest into units of a diversified REIT under the UPREIT structure — is the foundation of the DST-to-REIT path. The roll-up is often a planned exit. Understanding it frames the strategy. Many DSTs are built to roll up into a sponsor's REIT, with the REIT's operating partnership acquiring the DST property for OP units, moving investors from one property into a diversified REIT.
The role of the 721 exchange
The Section 721 exchange is the tax engine that makes the DST-to-REIT roll-up work without triggering gain. Section 721 of the tax code provides that no gain or loss is recognized when property is contributed to a partnership in exchange for an interest in that partnership. So when the DST's property is contributed to the REIT's operating partnership in exchange for OP units, that contribution is tax-deferred under Section 721 — the deferred gain rides along into the OP units rather than being recognized.
This is why the structure is called an 'UPREIT' or '721 exchange' — it relies on Section 721's nonrecognition rule, the same provision that lets property owners contribute real estate to an operating partnership for units. Unlike a 1031 exchange (which swaps real property for real property), the 721 exchange swaps real property for a partnership interest (OP units), so it is a different code section serving a different step in the journey. So the 721 exchange is the bridge from real estate (the DST property) to a securitized REIT interest (OP units), tax-deferred.
So the 721 exchange is the legal mechanism that converts the DST's property into REIT operating-partnership units without recognizing the built-in gain. The role of the 721 exchange — Section 721's nonrecognition rule allowing the DST property to be contributed to the REIT's operating partnership for OP units tax-deferred, bridging from real estate to a securitized REIT interest in the UPREIT structure — is the tax engine of the DST-to-REIT path. It defers gain at the roll-up step. Understanding it shows how the conversion stays tax-free. Section 721's nonrecognition rule lets the DST property be contributed to the REIT's operating partnership for OP units tax-deferred — the 721 exchange is the bridge from real estate to a REIT interest.
OP units typically carry economic rights (distributions) comparable to REIT shares and a contractual right to later convert into REIT shares after a lock-up period — so the 721 step sets up an eventual route to the publicly traded or NAV-priced shares, while preserving deferral for now.
The 721 exchange is the quiet bridge that turns a specific piece of real estate — the DST's property — into a diversified REIT interest, without recognizing the built-in gain at the moment of conversion.
Maintaining tax deferral
Maintaining tax deferral across the entire journey is the central appeal of the DST-to-REIT path. The journey has three legs: a 1031 exchange from the relinquished property into the DST (deferred under Section 1031), the DST holding period (deferral continues), and the 721 contribution of the DST property into the REIT's operating partnership for OP units (deferred under Section 721). So at no point in property → DST → OP units is the original gain recognized — the deferral is maintained throughout.
The critical point is what happens after the 721 step. Holding the OP units continues the deferral, but converting OP units into REIT shares is a taxable event — at that conversion, the deferred gain is generally recognized (you are disposing of the OP units, which are partnership interests, in exchange for stock). So deferral is maintained while you hold OP units, but ends when you convert to shares. This is why the OP-units stage matters: it is the deferral-preserving holding period before any taxable conversion.
So the DST-to-REIT path maintains deferral from the original property all the way into OP units, and continues it as long as you hold those units — only the eventual conversion to REIT shares triggers the deferred gain. Maintaining tax deferral — Section 1031 deferring the move into the DST, the DST holding period continuing it, and Section 721 deferring the contribution into the REIT operating partnership for OP units, with deferral preserved while you hold OP units and the deferred gain recognized only on conversion to REIT shares — is the core appeal of the strategy. Deferral rides from property to units. Understanding it shows where tax is and isn't triggered. Deferral is maintained from the original property through the DST and into OP units, continuing while you hold the units — conversion of OP units to REIT shares is the taxable event that triggers the deferred gain.
Investor consent & timing
Investor consent and timing are practical realities that shape whether and when the DST-to-REIT roll-up actually happens. The roll-up generally requires the structure to allow it and, in many cases, the investors' agreement to participate — the DST's governing documents and the offering's terms determine how the 721 acquisition is approved, and investors should understand at the outset whether a roll-up is contemplated and how it would proceed. So the DST-to-REIT path is not automatic; it depends on the program's structure and the consent or election the documents require.
Timing depends on the sponsor's roll-up plan, which is not fully within the investor's control. The sponsor decides when (and whether) the REIT will acquire the DST property, based on the property's performance, the REIT's strategy, and market conditions — so the conversion to OP units may occur on the sponsor's schedule, not the investor's. After the 721 step, OP units typically carry a lock-up period before they can be converted to REIT shares, adding further timing constraints. So both the roll-up itself and the eventual liquidity through shares are subject to timelines the sponsor largely sets.
So investors considering a DST-to-REIT program should understand the consent mechanics and the timing dependencies before investing — confirming the structure contemplates a roll-up and recognizing the sponsor controls the schedule. Investor consent and timing — the roll-up requiring the structure to permit it and often the investors' agreement, and the timing depending on the sponsor's roll-up plan (when the REIT acquires the property) and the OP-unit lock-up before share conversion — are the practical realities of the DST-to-REIT path. The investor does not fully control the timeline. Understanding them sets realistic expectations. The DST-to-REIT roll-up depends on the structure permitting it and often investor consent, with timing driven by the sponsor's roll-up plan and the OP-unit lock-up — so the investor does not fully control when conversion and liquidity occur.
Because the move into OP units is generally one-way, investors should treat the consent decision as significant: once you hold OP units, you have left the 1031-eligible DST world and entered the REIT structure.
- Many DSTs are structured so the sponsor's REIT can acquire the property and convert investors into OP units via a Section 721 (UPREIT) exchange — tax-deferred at that step.
- Deferral is maintained from property → DST → OP units; converting OP units into REIT shares (after a lock-up) is the taxable event that triggers the deferred gain.
- Pros: diversification, true passivity, an eventual route to liquidity through shares, and a potential estate step-up if held until death.
- Cons: the move is one-way (OP units are not 1031-eligible), conversion to shares is taxable, you lose control of a specific property, and you take on REIT and market risk.
Pros and cons of the path
The DST-to-REIT path offers meaningful advantages alongside real trade-offs. On the pro side: diversification — you move from a single DST property into a REIT owning many properties, spreading risk; true passivity — REIT ownership is fully passive, with professional management at scale; a route to liquidity — OP units can eventually convert to REIT shares (traded or NAV-priced), offering an exit a single DST does not; and a potential estate step-up — if you hold the OP units (or shares) until death, your heirs may receive a stepped-up basis, potentially erasing the deferred gain.
On the con side: the move is generally one-way — once you contribute to the operating partnership and hold OP units, those units are partnership interests, not real estate, so they are not 1031-eligible (you cannot 1031 out of OP units back into real estate); the conversion to shares is taxable — converting OP units to REIT shares triggers the deferred gain you had preserved; you lose specific-property control — your capital is now in a pooled REIT, not a property you can point to; and you take on REIT and market risk — share values fluctuate, distributions are not guaranteed, and past performance does not guarantee future results.
So the DST-to-REIT path trades the specificity and 1031-eligibility of a single property for the diversification, passivity, and potential liquidity of a REIT — a favorable trade for investors seeking those benefits, but a meaningful and largely irreversible change. Pros and cons of the path — the advantages of diversification, true passivity, a route to liquidity through shares, and a potential estate step-up, weighed against the drawbacks of a one-way move (OP units are not 1031-eligible), a taxable conversion to shares, loss of specific-property control, and REIT and market risk — define the DST-to-REIT decision. The trade is diversification for specificity. Understanding both sides supports an informed choice. The DST-to-REIT path offers diversification, passivity, liquidity, and a possible estate step-up, but the move is one-way, the share conversion is taxable, you lose property control, and you accept REIT and market risk.
Is the DST-to-REIT path right for you?
Deciding whether the DST-to-REIT path fits depends on your goals, your time horizon, and your tax situation. The path tends to suit investors who entered a DST through a 1031 exchange, value diversification and passivity over owning a specific property, want an eventual route to liquidity, and intend to hold for the long term (potentially until death for the step-up) rather than 1031-exchange again. So if your goal is to ultimately own a diversified, passive, potentially liquid real estate position with deferral maintained along the way, the path can be a strong fit.
The path is a poorer fit if you want to keep 1031-exchanging indefinitely (since OP units end your 1031 optionality), need to avoid any taxable event (since conversion to shares is taxable), or want to retain control of a specific property. So the strategy rewards a particular set of preferences — diversification, passivity, and an eventual REIT exit — and is less suitable for investors prioritizing continued 1031 flexibility or specific-property ownership. Your CPA and attorney should weigh in on the tax mechanics and your specific situation.
So whether the DST-to-REIT path is right for you turns on matching its features (diversification, passivity, eventual liquidity, deferral maintained to the OP-units stage, taxable share conversion) to your goals and tolerance for its one-way, eventually-taxable nature. Is the DST-to-REIT path right for you — a fit for investors valuing diversification, passivity, and an eventual liquidity route who will hold long-term, and a poorer fit for those wanting continued 1031 flexibility or specific-property control — depends on aligning the strategy's features with your goals. The path rewards specific preferences. Understanding the fit guides the decision. The DST-to-REIT path suits investors who want diversification, passivity, and eventual liquidity and will hold long-term, and is less suitable for those prioritizing continued 1031 flexibility or specific-property ownership — match the features to your goals with your advisors.
How Baker 1031 helps with the DST-to-REIT path
Baker 1031 Investments helps investors understand and navigate the DST-to-REIT path — how DSTs roll up into REITs, the role of the 721 exchange, how tax deferral is maintained from property through OP units, the investor-consent and timing realities, and the pros and cons — so you can decide whether the strategy fits your goals and access suitable, well-structured programs.
DST and REIT interests and related securities are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review — and because DST and non-traded REIT interests are typically offered to accredited or otherwise suitable investors, the suitability review considers whether a DST-to-REIT program fits your situation. We help you evaluate the DST, the sponsor, and the contemplated REIT roll-up (the structure, the consent mechanics, the timing, and the eventual share-conversion treatment), and, if suitable, access them. We do not provide tax or legal advice — your CPA and attorney handle the 1031, 721, and conversion tax mechanics, which are technical and time-sensitive, and you should verify the current rules. Distributions, yields, and any liquidity are not guaranteed, and past performance does not guarantee future results. Our role is to help you understand the DST-to-REIT journey clearly — the deferral maintained to the OP-units stage, the taxable conversion to shares, and the one-way nature of the move — so you make an informed decision, coordinating with your tax and legal professionals, and invest only when the strategy is suitable for your goals and risk tolerance.
Frequently Asked Questions
What is the DST-to-REIT path?
The DST-to-REIT path is a strategy where an investor who reaches a Delaware Statutory Trust (DST) through a 1031 exchange ultimately ends up owning a REIT, with tax deferral maintained along the way. Many DSTs are structured so the sponsor's affiliated REIT can acquire the DST's property and, under a Section 721 (UPREIT) exchange, convert the DST investors' interests into operating-partnership (OP) units of the REIT — tax-deferred at that step. The OP units can later convert into REIT shares after a lock-up period (which is a taxable event). So the journey runs property → DST (via 1031) → OP units (via 721) → eventually REIT shares, letting a 1031 investor reach a diversified, passive REIT while preserving deferral from the property through the OP-units stage. It is a technical strategy — verify the current rules and your specifics with your tax and legal advisors.
How does a DST roll up into a REIT?
Many DSTs are structured from the outset with a roll-up in mind. A DST holds 1031-eligible real estate but has a finite life and cannot raise new capital or actively manage its property under the IRS constraints, so sponsors design DSTs so that, at the right time, the sponsor's affiliated REIT can acquire the DST's property and bring investors into the REIT. The mechanism is the REIT's operating partnership acquiring the DST's real estate in exchange for OP units (rather than cash), so the DST investors convert their property interests into units of the REIT's operating partnership — the UPREIT (umbrella partnership REIT) structure. So a roll-up moves investors from owning a fractional interest in one DST property to owning OP units in a diversified REIT's operating partnership. The roll-up is often a planned feature of the DST program, not an accident — confirm whether it is contemplated before investing.
What is a Section 721 exchange?
A Section 721 exchange relies on Section 721 of the tax code, which provides that no gain or loss is recognized when property is contributed to a partnership in exchange for an interest in that partnership. In the DST-to-REIT context, the DST's property is contributed to the REIT's operating partnership in exchange for OP units, and that contribution is tax-deferred under Section 721 — the deferred gain rides into the OP units rather than being recognized. This is why the structure is called an UPREIT or 721 exchange. Unlike a 1031 exchange (which swaps real property for like-kind real property), a 721 exchange swaps real property for a partnership interest (OP units), so it is a different code section serving a different step. So the 721 exchange is the legal bridge from real estate (the DST property) to a securitized REIT interest (OP units), tax-deferred — the tax engine of the DST-to-REIT path.
Is the move from a DST into OP units taxable?
Generally no — the contribution of the DST's property to the REIT's operating partnership in exchange for OP units is tax-deferred under Section 721, which provides nonrecognition for contributing property to a partnership for a partnership interest. So at the 721 step, the original deferred gain is not recognized; it carries forward into the OP units, and your deferral is maintained. This is the central appeal of the structure — you move from a specific DST property into a diversified REIT's operating partnership without a taxable event at that moment. The taxable event comes later, if and when you convert OP units into REIT shares. So the property-to-OP-units conversion is generally tax-deferred, but the eventual OP-units-to-shares conversion is taxable. Confirm the specifics with your CPA, since the tax mechanics are technical and depend on the structure and your particular situation, but the 721 step itself is designed to be deferral-preserving.
When does the deferred gain finally get taxed?
The deferred gain is generally recognized when you convert your OP units into REIT shares — that conversion is a taxable event, because you are disposing of partnership interests (the OP units) in exchange for stock, which triggers the gain you had preserved through the 1031 and 721 steps. So deferral is maintained from the original property, through the DST, into the OP units, and continues as long as you hold the OP units — it ends at the share conversion. There is one important exception: if you hold the OP units (or shares) until death, your heirs may receive a stepped-up basis, which can erase the deferred gain entirely rather than triggering it. So the deferred gain is taxed at the OP-units-to-shares conversion (or on certain other disposition events), unless a step-up at death intervenes. Plan the timing of any conversion with your CPA, since it determines when you owe the deferred tax.
What are OP units?
OP units are operating-partnership units — ownership interests in the REIT's operating partnership, the entity through which an UPREIT-structured REIT owns its properties. When the DST's property is contributed to the operating partnership under Section 721, the DST investors receive OP units in exchange. OP units typically carry economic rights comparable to REIT shares (such as distributions) and usually include a contractual right to convert into REIT shares after a lock-up period. So OP units are a stepping-stone between owning real estate and owning REIT shares: they preserve the tax deferral (the contribution for units was tax-deferred), provide distribution income, and set up an eventual route to liquidity through share conversion. Importantly, OP units are partnership interests, not real estate, so they are not 1031-eligible — once you hold OP units, you cannot 1031-exchange back into property. Understanding OP units is key to understanding the DST-to-REIT path, since they are the form your investment takes after the 721 step.
Can I 1031 exchange out of OP units?
No — OP units are partnership interests, not real property, so they are not eligible for a 1031 exchange. A 1031 exchange requires you to exchange real property held for investment or business for like-kind real property, and OP units (an interest in the REIT's operating partnership) do not qualify. So once you complete the 721 exchange and hold OP units, you have left the 1031-eligible world — you cannot 1031 out of OP units back into a specific property. This is why the DST-to-REIT move is described as one-way: it converts your 1031-eligible real estate (the DST property) into a securitized REIT interest that no longer carries 1031 optionality. This is a key trade-off to understand before consenting to a roll-up: you gain diversification, passivity, and an eventual liquidity route, but you give up the ability to keep exchanging into new properties tax-deferred. If continued 1031 flexibility matters to you, the DST-to-REIT path may not be the right fit.
What are the pros of the DST-to-REIT path?
The main advantages are diversification, passivity, liquidity potential, and a possible estate step-up. Diversification — you move from a single DST property into a REIT owning many properties, spreading your risk across a larger portfolio. True passivity — REIT ownership is fully passive, with professional management operating at scale. A route to liquidity — OP units can eventually convert into REIT shares (traded or NAV-priced), offering an exit that a single, illiquid DST does not provide. And a potential estate step-up — if you hold the OP units (or shares) until death, your heirs may receive a stepped-up basis, potentially erasing the deferred gain. Layered onto these is the central benefit that deferral is maintained from the original property through the OP-units stage. So the path appeals to investors who want a diversified, passive, potentially liquid real estate position with deferral preserved along the way — a meaningful upgrade in some respects over a single-property DST interest, provided the trade-offs are acceptable.
What are the cons of the DST-to-REIT path?
The main drawbacks are that the move is one-way, the eventual share conversion is taxable, you lose specific-property control, and you take on REIT and market risk. One-way — once you hold OP units, those partnership interests are not 1031-eligible, so you cannot 1031 back into real estate. Taxable conversion — converting OP units into REIT shares triggers the deferred gain you had preserved, so the deferral ultimately ends in a tax bill (unless a step-up at death intervenes). Loss of control — your capital is now in a pooled REIT rather than a specific property you can point to or manage. REIT and market risk — share values fluctuate, distributions are not guaranteed, and past performance does not guarantee future results. So the path trades the specificity and 1031-eligibility of a single property for the diversification, passivity, and liquidity of a REIT — a largely irreversible change that should be weighed carefully against your goals and the alternatives with your advisors.
Do I have to consent to the roll-up?
Generally, the roll-up requires the structure to permit it and, in many cases, the investors' agreement or election to participate — the DST's governing documents and the offering's terms determine how the 721 acquisition is approved and what role investor consent plays. So the DST-to-REIT path is not automatic; whether and how you participate depends on the program's structure and the consent or election mechanics the documents establish. This is why it is important to understand, before investing, whether a roll-up is contemplated and how it would proceed — confirming the structure, the approval process, and your rights. Because the move into OP units is one-way (you leave the 1031-eligible DST world), the consent decision is significant and should be made with a clear understanding of the consequences. Review the offering documents and consult your advisors so you know what you are agreeing to, since the terms vary by program and the decision affects your tax position and future flexibility.
Who controls the timing of the conversion?
The sponsor largely controls the timing of the roll-up, not the investor. The sponsor decides when (and whether) the REIT will acquire the DST property, based on the property's performance, the REIT's strategy, and market conditions — so the conversion of your DST interest into OP units may occur on the sponsor's schedule, not yours. After the 721 step, the OP units typically carry a lock-up period before they can be converted into REIT shares, adding a further timing constraint that you do not control. So both the roll-up itself and your eventual liquidity through share conversion are subject to timelines the sponsor largely sets. This is an important expectation to set: the DST-to-REIT path is not a strategy you can time precisely on your own. If you need control over timing — for a planned tax event, a liquidity need, or another 1031 — the sponsor-driven schedule may not align with your needs, so factor this into your decision and discuss it with your advisors before investing.
Does the estate step-up apply to OP units?
Generally, if you hold OP units (or REIT shares) until death, your heirs may receive a stepped-up basis to fair market value, which can eliminate the deferred gain that had been preserved through the 1031 and 721 steps — so the deferred tax is potentially erased rather than triggered. This is one of the most powerful features of holding a deferred position until death: the basis step-up at death can wipe out the embedded gain. So an investor who completes the DST-to-REIT path and holds the OP units (or shares) for life may pass them to heirs without the deferred gain ever being taxed. However, the rules around basis step-up, the character of the asset, and estate planning are technical and can change, so this is precisely the kind of question to confirm with your CPA and estate attorney. The potential step-up is a key reason some investors pursue the DST-to-REIT path as a long-term, hold-until-death strategy rather than converting to shares (and triggering tax) during life.
Is the DST-to-REIT path right for everyone?
No — it suits a particular set of preferences. The path tends to fit investors who entered a DST through a 1031 exchange, value diversification and passivity over owning a specific property, want an eventual route to liquidity, and intend to hold for the long term (potentially until death for the step-up) rather than continuing to 1031-exchange. It is a poorer fit if you want to keep 1031-exchanging indefinitely (since OP units end your 1031 optionality), need to avoid any taxable event (since conversion to shares is taxable), or want to retain control of a specific property. So the strategy rewards investors seeking a diversified, passive, eventually-liquid REIT position with deferral maintained along the way, and is less suitable for those prioritizing continued 1031 flexibility or specific-property ownership. The decision turns on matching the path's features — diversification, passivity, eventual liquidity, deferral to the OP-units stage, and an eventually-taxable conversion — to your goals and tolerance for its one-way nature, with your CPA and attorney weighing in on your specifics.
How is the DST-to-REIT path different from a regular 1031 exchange?
A regular 1031 exchange swaps one investment property for another like-kind property, deferring gain under Section 1031, and you continue owning real estate you can later exchange again (or hold until death for a step-up). The DST-to-REIT path starts the same way — a 1031 into a DST — but then adds a second step: the DST's property is contributed to a REIT's operating partnership under Section 721 in exchange for OP units, converting your real estate into a securitized REIT interest. So the key differences are the second code section (721 versus 1031), the end result (OP units in a diversified REIT rather than a specific property), and the loss of 1031-eligibility (OP units cannot be 1031-exchanged). A regular 1031 keeps you in exchangeable real estate; the DST-to-REIT path moves you, one-way, into a diversified, passive REIT with an eventual route to liquidity. The DST-to-REIT path is best seen as a 1031 plus a 721 — a way to reach a REIT tax-deferred, with different trade-offs than continuing to 1031-exchange properties.
How does Baker 1031 help with the DST-to-REIT path?
We help you understand and navigate the DST-to-REIT path — how DSTs roll up into REITs, the role of the 721 exchange, how deferral is maintained from property through OP units, the investor-consent and timing realities, and the pros and cons — so you can decide whether the strategy fits your goals and access suitable, well-structured programs. DST and REIT interests are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), after a suitability review, and because these interests are typically offered to accredited or otherwise suitable investors, the review considers whether a DST-to-REIT program fits your situation. We help you evaluate the DST, the sponsor, and the contemplated REIT roll-up (structure, consent, timing, and eventual share-conversion treatment), and, if suitable, access them. We do not provide tax or legal advice — your CPA and attorney handle the 1031, 721, and conversion mechanics, which are technical, and you should verify the current rules. Distributions and any liquidity are not guaranteed, and past performance does not guarantee future results.
Glossary
- DST
- Delaware Statutory Trust — 1031-eligible passive real estate.
- REIT
- Real estate investment trust owning income-producing property.
- 721 Exchange
- Tax-deferred contribution of property to a partnership for units.
- UPREIT
- Umbrella partnership REIT owning property via an operating partnership.
- Operating Partnership
- The partnership through which an UPREIT holds its properties.
- OP Units
- Operating-partnership units received in a 721 exchange.
- Section 721
- Tax code section providing nonrecognition for property-for-units contributions.
- Roll-Up
- The REIT acquiring a DST's property and converting investors to OP units.
- Lock-Up Period
- The wait before OP units may convert to REIT shares.
- Share Conversion
- Converting OP units into REIT shares — a taxable event.
- Tax Deferral
- Postponing gain recognition across the 1031 and 721 steps.
- One-Way Move
- OP units are not 1031-eligible, so the conversion is irreversible.
- Estate Step-Up
- Basis reset at death that can erase the deferred gain.
- Investor Consent
- Agreement or election required for the roll-up to proceed.
- Diversification
- Spreading risk across the REIT's many properties.
- Suitability Review
- Assessing whether the program fits the investor.
Sources & References
- Cornell Legal Information Institute. 26 U.S. Code § 721 — Nonrecognition of gain or loss on contribution
- IRS. Revenue Ruling 2004-86 (Delaware Statutory Trusts)
- Nareit. What's a REIT?
- U.S. Securities and Exchange Commission. Investor Bulletin: Non-Traded REITs
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.
