UPREIT: Operating Partnership Unit Exchange

Operating Partnership "OP" Units

Benefits of the OP Units

  • OP units earn dividends.
  • Reduced risk: diversification of real estate holdings
    • Expanded portfolio
    • Geographically diverse: Arizona, Illinois, Texas
    • Variety of business community property types
  • Opportunity for estate planning: upon death, heirs avoid capital gains and are subjected to estate taxes only.
  • Defer capital gain tax on sale of commercial properties.
  • Potential to turn unrealized gains into earnings.
  • Experienced real estate portfolio management.
  • OP units can be used as collateral for future loans.
  • OP units can be converted to common shares.
 Potential Properties to Exchange for OP Units

  • Properties which, if sold, would generate income tax liabilities that exceed net proceeds from sale.
  • Properties that are fully or substantially depreciated.
  • Properties with maturing indebtedness.
  • Properties with high loan to value ratios.
  • Properties with debt that is personally guaranteed or recourse to general partners.
  • Any combination of the above.

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Working Example: OP Unit Exchange

For illustration purposes only
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What is a Section 721 Exchange?

An owner transfers a property into the Operating Partnership (“OP”) in exchange for OP units and a conversion option without tax consequences. The owner of the OP units can exercise the conversion option and convert the OP units into REIT shares. Each OP unit generally receives the same annual distribution of income as one share of common stock. The UPREIT, under IRC 721, provides tax deferral benefits to commercial property owners. The upside: once Whitestone REIT is publicly listed, shares will trade on open market.

Contact

Bradford Johnson
Director of Acquisitions and Dispositions
Phone: 713.435.2208
Email: bjohnson@whitestonereit.com