UPREIT
An UPREIT, or umbrella partnership REIT, is a structure that lets property owners contribute real estate for OP units, deferring tax via a 721 exchange.
Definition
An UPREIT, umbrella partnership real estate investment trust, is a REIT structure in which the REIT does not own properties directly but instead holds them through an operating partnership. This design enables the 721 exchange: a property owner contributes real estate to the operating partnership in return for OP units, deferring capital gains tax that a cash sale would trigger.
For 1031 and DST investors, the UPREIT is often the final step in a sequence: exchange into a DST, then, when the sponsor's REIT acquires that DST, roll the interest into the operating partnership for OP units. The investor ends up with a diversified, professionally managed, passive interest in a large portfolio, still tax-deferred.
OP units generally pay REIT-equivalent distributions and can later convert to REIT shares (a taxable event). Held until death, they can receive a step-up in basis. The main trade-off is that the UPREIT path is typically a one-way door; you generally cannot 1031 exchange back out.
Key points
- REIT that holds property through an operating partnership
- Enables 721 exchanges of property for OP units
- Often the final step after a 1031 exchange into a DST
- Generally a one-way exit from 1031 eligibility
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.