The DST-to-721 Timeline: From Exchange to REIT Units

The DST-to-721 strategy — reaching REIT ownership on a tax-deferred basis from direct property via a DST — unfolds over time in distinct phases. Understanding the full timeline, from your initial property sale through eventually holding and potentially converting REIT OP units, helps you set realistic expectations and plan. The process includes the deadline-bound 1031 sale and DST exchange (45/180 days), a period of holding the DST, a 721 exit if and when the DST is acquired by a REIT, a lock-up period on the OP units, and eventually the conversion or continued holding of the units. Importantly, the 721 exit is at the REIT sponsor's option and is not guaranteed — if it never occurs, the DST simply proceeds to an ordinary full-cycle sale. This guide walks through the timeline chronologically, phase by phase, so you understand what happens when.

The full timeline overview

The DST-to-721 process spans several phases from your property sale to holding REIT OP units. In overview: you sell your property and do a 1031 exchange into a DST (Phase 1, deadline-bound), hold the DST (Phase 2), the DST may be acquired by a REIT in a 721 exit (Phase 3), you hold the OP units through a lock-up (Phase 4), and eventually you convert or continue holding the units (Phase 5). The path runs from the 1031 sale through a potential 721 exit into ongoing OP unit ownership.

The total timeline varies. The deadline-bound 1031 step is fast — within 180 days — but the DST holding period and the timing of any 721 exit are open-ended, occurring on the DST/REIT's schedule if the sponsor elects to proceed, potentially years later or not at all. The OP unit holding that follows is indefinite. In practice the process can span years, with only the 1031 step time-bound.

Because the 721 exit depends on the sponsor's decision, it may never happen. If it does not, the DST runs its normal course to a full-cycle sale rather than an UPREIT transition, which is generally a taxable event unless you complete another qualifying exchange. Knowing the phases and their timing up front helps you set realistic expectations for reaching — and holding — REIT units, and frames the phase-by-phase walkthrough that follows.

Phase 1: The 1031 sale and DST exchange

Phase 1 is the deadline-bound 1031 exchange into a DST — the starting point. You sell your relinquished property, and within the 1031 deadlines — 45 days to identify the DST and any backups, 180 days to close — you exchange into a DST structured for a possible 721 exit. The clock is tight, but a DST's relative speed and closing predictability make the deadlines manageable.

Phase 1 involves engaging a qualified intermediary before selling, selling the relinquished property, identifying the DST within 45 days, and closing within 180 days. The gain is deferred under Section 1031, and you transition from your property into a passive DST interest. The DST should be one structured for a 721/UPREIT exit so that a later transition is possible.

Phase 1 is the only deadline-bound step. Once you are in the DST, the phases that follow — holding and any 721 exit — are not deadline-pressured, so the time-critical work is front-loaded into these first 180 days.

Phase 2: Holding the DST

Phase 2 is holding the DST, the period between the 1031 exchange and any 721 exit. After closing in Phase 1, you hold your DST interest as a passive investor, and the gain remains deferred under Section 1031. DSTs are structured to pay distributions, but distributions are not guaranteed and may be reduced or suspended.

Phase 2 is open-ended. It lasts until a 721 exit occurs, which depends on the DST/REIT structure and the sponsor's plans — potentially a few years out, on a less defined timeline, or not at all. This real holding period also matters for the step-transaction analysis, since a genuine DST investment with real duration supports the structure.

In short, Phase 2 is the open-ended middle stretch: you hold a passive DST interest with the gain deferred while waiting to see whether and when a 721 exit materializes. Its length depends on the sponsor's timing, so set your expectations for reaching the REIT accordingly.

Phase 3: The 721 exit

Phase 3 is the 721 exit, if it happens — when a REIT acquires the DST and you transition into OP units. The exit is at the REIT sponsor's option and may never occur. If a REIT does acquire the DST's property, your DST interest is converted into OP units in the REIT's operating partnership under Section 721, deferring the gain again. If no REIT acquires the DST, there is no Phase 3: the DST instead proceeds to an ordinary full-cycle sale, which is a taxable event unless you complete another qualifying exchange.

After a 721 exit, you hold OP units in the REIT — a stake in its broader portfolio, with the associated diversification and a potential path to liquidity. You have moved from a single DST into the REIT. This transition is the pivotal step of the strategy.

The timing of a 721 exit is not fixed. It depends on the DST/REIT structure and the sponsor's decision to acquire the DST, so it runs on the structure's schedule rather than a statutory deadline — and, again, it is not guaranteed. Reviewing the expected exit terms in the DST's offering documents helps you anticipate when, or whether, you would reach the REIT.

Phase 4: Holding OP units (lock-up)

Phase 4 is holding the OP units, beginning with a lock-up period. After a 721 exit, you hold OP units in the REIT, and there is typically a lock-up — often around a year — before you can convert them to REIT shares. During the lock-up you hold the units and the gain stays deferred, but conversion is not yet available. Any distributions during this time are, again, not guaranteed.

After the lock-up, you can continue holding the OP units indefinitely if you choose not to convert, with the deferral continuing and potentially carrying toward a step-up in basis at death. Phase 4 is therefore the ongoing OP unit holding period, starting with the lock-up and lasting as long as you hold the units.

In short, Phase 4 is where you settle into REIT ownership as an OP unit holder: the lock-up delays conversion at first, after which you either keep holding or move to convert in Phase 5.

Phase 5: Conversion and liquidity

Phase 5 is conversion and liquidity, the final stage where you access value or keep holding. After the lock-up, you can convert your OP units to REIT shares, and converting triggers the deferred gain as a taxable event. Whether conversion actually produces liquidity depends on the REIT: shares of a publicly traded REIT can generally be sold, but shares of a non-traded REIT may themselves be illiquid and subject to repurchase-program limits.

You can convert gradually to manage taxes and spread liquidity over time, convert more as needed, or keep holding the units to continue the deferral and earn income — potentially toward a step-up in basis at death. Phase 5 is open-ended and flexible: convert for liquidity, which is taxable, or hold for continued deferral, as your needs dictate.

Phase 5 is really the ongoing management of your OP units — converting for liquidity or holding to preserve deferral. Rather than ending at a fixed point, the timeline settles into ongoing OP unit ownership with the conversion option available on your schedule.

How Baker 1031 helps through the timeline

Baker 1031 Investments helps investors navigate the full DST-to-721 timeline — the deadline-bound 1031 exchange into a DST (Phase 1), the DST holding (Phase 2), a potential 721 exit (Phase 3), the OP unit lock-up and holding (Phase 4), and conversion and liquidity (Phase 5). We help you understand and manage each phase with realistic expectations for the timing.

DST interests, 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 DST and 721 steps involve securities, available to suitable investors after a review. We coordinate with your qualified intermediary (Phase 1's deadlines), CPA (the tax across the timeline), and the REIT/DST sponsors. Our role is to help you navigate the DST-to-721 process from start to finish — the deadline-bound 1031, the DST holding, any 721 exit, the OP unit holding, and conversion — so you understand what happens when and manage each phase. The process can span years with distinct phases, and we help you through them so your transition from property to REIT units is well managed across the full timeline.

Frequently Asked Questions

Glossary

DST-to-721 Timeline

The full path from property sale to REIT OP units.

Phase 1

The 1031 sale and DST exchange (45/180-day deadlines).

Phase 2

Holding the DST until the 721 exit (open-ended).

Phase 3

The 721 exit into the REIT (OP units).

Phase 4

Holding OP units, starting with the lock-up.

Phase 5

Conversion and liquidity (or continued holding).

45/180-Day Deadlines

The 1031 deadlines in Phase 1.

Qualified Intermediary

The party handling Phase 1's 1031 mechanics.

DST Holding Period

Phase 2's open-ended wait for the 721 exit.

721 Exit

Phase 3's transition from the DST into the REIT.

Lock-Up Period

Phase 4's initial wait before converting units.

Conversion

Phase 5's exchange of units for shares (taxable).

Continuous Deferral

The gain deferred across the timeline's phases.

Open-Ended Timing

The non-deadline timing of Phases 2-5.

Distributions

The income earned during the hold, not guaranteed.

Structure-Driven

The 721 exit timing set by the DST/REIT structure.

Sources & References

Disclosures