Private & Non-Traded REITs and the 721 Exchange

A REIT — real estate investment trust — owns a portfolio of income-producing property and is required to pay out almost all of its taxable income to shareholders. You get real-estate income and diversification without buying or managing buildings yourself. But not all REITs are alike: the choice between a publicly traded, non-traded, or truly private REIT changes everything about your liquidity, your pricing, your fees, and your taxes.

This guide focuses on the private and non-traded end of the spectrum — the institutional, advisor-sold vehicles like NAV REITs — and on how they connect to the rest of the deferral toolkit through the 721 exchange. If you've read our DST and 721 guides, this completes the picture of where a DST can ultimately land.

01 · What a REIT Is

A REIT is a company that owns (or finances) income-producing real estate and elects special tax treatment: as long as it meets the rules, it pays no corporate-level tax and instead passes income through to shareholders as distributions. Most REITs are equity REITs that own property (apartments, industrial, data centers, retail); mortgage REITs hold real-estate debt instead. The appeal is simple — professionally managed, diversified real-estate income in a single security, with no tenants or toilets.

02 · The Three Kinds: Public, Non-Traded, Private

This is the distinction that matters most. All three are REITs; how you buy, sell, and price them is completely different.

Private REITs are unregistered and limited to accredited investors; non-traded REITs are registered but don't trade on an exchange.

03 · How REITs Qualify

Every REIT — public, non-traded, or private — must clear the same federal tests. It must distribute at least 90% of its taxable income to shareholders each year (which is why REITs are income vehicles), hold most of its assets and earn most of its income from real estate, have at least 100 shareholders, and satisfy the "5/50" rule — no five individuals can own more than 50% of the shares in the second half of the year. Falling short of the distribution thresholds triggers a 4% excise tax. These rules are why even a private REIT must gather a real shareholder base rather than serving a single owner.

04 · Private & Non-Traded REITs Up Close

Since 2017, a particular kind of non-traded REIT — the NAV REIT, pioneered by Blackstone's BREIT and followed by Starwood, Nuveen, and others — has dominated the space. These are perpetual-life vehicles priced at a monthly or quarterly net asset value rather than a market price, sold through advisors, designed to deliver steady income with less day-to-day volatility than public REITs. A true private REIT goes further: unregistered, accredited-investors-only, higher minimums, longer lock-ups, and the least public transparency. The appeal of both is smoother, NAV-based pricing and institutional-quality portfolios; the cost, as the next section shows, is liquidity.

05 · Which REIT Fits You?

The right type depends mostly on how much liquidity you need, whether you're accredited, and how you feel about public-market volatility. Answer four questions:

06 · Liquidity & Redemptions: The Defining Risk

This is what defines a non-traded or private REIT. You can't sell on an exchange. You request a redemption from the REIT, and those requests are capped: commonly 2% of the fund's net asset value per month and 5% per quarter. In calm markets that's plenty. But when many investors head for the exit at once, the REIT "gates" — it fulfills only a fraction of requests to avoid dumping properties at fire-sale prices. In the 2022–23 stress, BREIT for months filled only a portion of redemption requests. Model what that means for getting your own money out:

07 · REIT Taxation & the 20% Deduction

REIT distributions are usually split into pieces, and they're not all taxed the same way. The bulk is typically ordinary dividends, taxed at your ordinary rate — but those qualify for the Section 199A 20% deduction, which the 2025 tax law made permanent, effectively cutting the top rate on them from 37% to about 29.6%. A portion of many distributions — especially from non-traded REITs — is return of capital, which isn't taxed now at all; it reduces your cost basis and defers the tax until you sell. See how it nets out:

08 · The 721 / UPREIT Connection

Here's where this guide meets the rest of the series. Non-traded NAV REITs are the most common destination for 721 UPREIT programs: the REIT's operating partnership acquires a Delaware Statutory Trust, and the DST investors receive operating-partnership (OP) units instead of cash — deferring their gain under Section 721. So the full arc many investors travel is 1031 → DST → 721 → non-traded REIT: sell a property tax-deferred, hold a passive trust, then graduate into a large, diversified REIT for income and eventual (limited) liquidity. The catch is the one our 721 guide stresses — once you hold OP units you can't 1031 again, and converting OP units to REIT shares is a taxable event. The REIT you land in is almost always a non-traded one, which is why its redemption and NAV mechanics (sections 06–07) are exactly what you should diligence before you start the journey.

09 · Fees & What to Watch

Non-traded and private REITs historically carry heavier costs than public REITs: upfront selling commissions and dealer-manager fees, ongoing management fees, and — in NAV REITs — a performance fee (often around 12.5% of total return above a hurdle). Watch three things in particular: how the NAV is calculated and how often (it's set by the manager, not a market), how much of your distribution is return of capital versus genuinely earned income (a distribution funded largely by ROC can mean you're being paid with your own money), and the full fee stack, which directly drags your net return.

10 · Due Diligence on a Private REIT

Before investing, confirm you understand what you're buying. Check each point:

11 · Risks

Beyond the liquidity and gating risk that defines the category, weigh the others: NAV risk (the price is the manager's estimate, and critics have argued some NAVs lag reality), fee drag on net returns, distribution sustainability (high return-of-capital payouts can flatter a yield), leverage and interest-rate risk in the portfolio, and concentration in the sponsor. As with every vehicle in this series, the tax advantages mean nothing if the underlying real estate underperforms — diligence the portfolio and manager first, the structure second.

12 · Frequently Asked Questions

13 · Glossary

REIT

A company owning or financing income real estate that distributes at least 90% of taxable income and avoids corporate tax.

Non-Traded REIT

An SEC-registered REIT that doesn't trade on an exchange; priced by periodic NAV with limited redemptions.

Private REIT

An unregistered REIT for accredited and institutional investors, with higher minimums and lock-ups.

NAV REIT

A perpetual-life non-traded REIT priced at net asset value, sold through advisors (e.g., BREIT-style).

Redemption Gating

Limiting or pro-rating redemptions when requests exceed the program's caps.

Return of Capital

A distribution that isn't current income; it reduces basis and defers tax until sale.

Section 199A Deduction

The 20% deduction on qualified REIT dividends, made permanent in 2025.

721 / UPREIT

Contributing property (often a DST) to a REIT's operating partnership for OP units, tax-deferred.

14 · Disclosures