This is a presentation that circulated soon after the crash in 2007 when people were curious about how we got to where we were. The slideshow comically addresses the way in which the housing bubble rose to such proportions and affected a variety of "institutional" investors.
Tuesday, September 28, 2010
Umbrella Partnership REIT Structure
URREITs offer significant tax advantages for property owners. The structure is used as a means to avoid unwanted capital gains, and subsequent taxation. Essentially these structures allow property owners to adjust their cost basis upwards by transferring their property to the REIT in exchange for operating partnership units. The value of units exchanged will equal the value of the property. By undergoing this transaction the original property owner receives units, which can be sold without incurring a capital gains.
For example: one owns a property at a cost basis of $10 million, which has appreciated to $20 million. In order to avoid the capital gains on $10 million ($20mln - $10mln), the owner can exchange their property for units in a UPREIT. The UPREIT would supply say 20,000 partnership units to the owner worth $1,000 each. The original property owner could then exchange their partnership units for shares in the REIT. These shares could then be sold for their $20 million value, and as the cost basis is $20 million there would be no capital gains tax and the investor gained.
The link below is to an article that outlines some of the challenges and advantages of engaging in a transaction with a UPREIT.
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