Real estate developers want growth without losing control. They want liquidity without a tax hit. And they want to stay in the game without giving up everything they built. The 721 UPREIT exchange has become one of the most popular ways to do that. It gives property owners a path to turn buildings into long-term wealth without walking away from real estate entirely.
This strategy is something Ben Roper knows well. He works with developers who want to move into REIT partnerships through 721 exchanges. He has seen owners worry, hesitate, and hold back. He has also watched them succeed. “The first time I walked a developer through a 721, he thought it was too good to be true,” he says. “Two years later, he told me he wished he had done it sooner.” That mix of knowledge and real experience makes him a strong guide on what this structure can do.
What a 721 UPREIT Exchange Actually Is
A 721 exchange is a tax-deferred swap. Instead of selling your property, you contribute it to a REIT’s operating partnership. In return, you get OP units. These units act like shares. They give you ownership in the larger REIT portfolio.
The biggest advantage is clear: no capital gains tax at the time of the exchange. That’s a major deal for developers who have held assets for years.
The IRS treats the contribution as a property-for-property exchange. You’re trading one real estate interest for another. And because it’s not a sale, you skip the immediate tax bill.
It’s like upgrading from one building to a basket of buildings without giving up your equity.
Why Developers Are Turning to This Strategy
The real estate market is tight. Interest rates climbed hard. Construction costs went up more than 35% since 2020, according to the Bureau of Labor Statistics. Traditional exits have become harder to pull off.
More developers want options that don’t involve selling under pressure. That’s where the UPREIT stands out.
Ben Roper explains the appeal with a simple story: “A developer in Virginia came to me because he didn’t want to sell his property but needed liquidity. The UPREIT let him keep ownership and still unlock value. He used the proceeds to start two new projects. He said it felt like cloning his equity.”
That’s the power of the structure. It lets you grow without giving up your seat at the table.
The Benefits That Matter Most
Developers care about results. Here are the advantages that have made UPREITs so popular:
1. Tax Deferral
You don’t pay capital gains tax when you contribute the property. That means more equity stays in your pocket.
2. Liquidity Options
Over time, OP units can convert into REIT shares. Shares can be sold for cash. This gives you flexibility on your timeline, not the market’s.
3. Diversification
Instead of betting everything on one building, you now own a stake in a large, professionally managed portfolio.
4. Passive Income
REITs pay distributions. So you continue earning income without handling tenant calls, repairs, or late-night emergencies.
5. Estate Planning Advantages
OP units can transfer smoothly to heirs, often with favorable tax treatment.
These benefits are not abstract. They solve real problems developers face as they scale.
Why Some Owners Hesitate
UPREITs sound complex. At first glance, they are. They involve lawyers, accountants, REIT executives, appraisers, and a lot of documents. But complexity doesn’t mean risk — it just means structure.
Many developers hesitate because they think they’re giving up control. A REIT won’t let you run the building after you contribute it. But you trade active control for professional management and a diversified portfolio.
Roper says many concerns fade once owners see the full picture. “I had a developer tell me he wasn’t ready to ‘give up his baby,’” he recalls. “A year later, after watching the REIT outperform his single asset, he told me it felt more like upgrading to a better school for his kid.”
Sometimes the fear is emotional, not logical. The best developers learn to separate the two.
When a 721 Exchange Makes Sense
A UPREIT isn’t the right fit for everyone. But it’s a strong option when:
- You’ve owned the property for a long time.
- Your asset has appreciated and the tax bill scares you.
- You want liquidity without selling.
- You want to retire from management but not from income.
- You want to diversify into a larger portfolio.
- You want a clean succession plan for your family.
It works especially well for multifamily developers, family offices, and long-term holders.
How to Prepare for a REIT Partnership
If you’re thinking about a 721 exchange, preparation is key. Here’s what developers should do now:
1. Get Your Financials Tight
REITs rely on clean numbers. Make sure your rent rolls, trailing 12, expenses, and debt details are accurate.
2. Understand Your Basis
Know your depreciation, your original cost, and your current tax position. It affects your long-term return.
3. Talk to Advisors Early
You’ll need tax, legal, and financial experts. They help you avoid surprises.
4. Know Why You’re Doing It
Is it liquidity? Diversification? Growth? Retirement? Your goals shape the structure.
5. Choose the Right REIT
Different REITs have different strategies. Don’t chase the first offer. Look for alignment.
Practical Tips for Developers
If you want the best outcome, follow these actionable steps:
Build Relationships Before You Need Them
REIT partnerships thrive on trust. Start conversations early. Attend industry events. Return calls. Be consistent.
Ask for Case Studies
Good REITs will show examples of past 721 contributions. Compare outcomes.
Negotiate for What Matters
Focus on valuation, timing, liquidity windows, and tax considerations. Those shape long-term results.
Plan for the Long Game
UPREITs shine over time. Think five years ahead, not five months.
Review the Operating Agreement Carefully
Your rights as a unit holder matter. Understand distributions, conversion rules, and voting rights.
The Future of UPREITs
The demand for multifamily housing remains strong. The U.S. needs over 4 million more apartments by 2035, according to NMHC. REITs want in on that growth. Developers want stability. UPREITs connect those interests.
They are becoming a key part of long-term real estate strategy, not just a niche tax tool.
And as more developers seek liquidity without giving up control, this structure will only grow.
Final Takeaway
You don’t have to sell your building to move forward. The 721 UPREIT exchange gives developers a path to convert equity into growth, income, and flexibility. It keeps you in the game while freeing you from the stress of managing every detail.
As Ben Roper puts it, “The smartest developers I work with aren’t letting go. They’re leveling up.”
If you want to build wealth without selling out, this structure is worth exploring — with the right partner, the right plan, and the right mindset.
Himani Verma is a seasoned content writer and SEO expert, with experience in digital media. She has held various senior writing positions at enterprises like CloudTDMS (Synthetic Data Factory), Barrownz Group, and ATZA. Himani has also been Editorial Writer at Hindustan Time, a leading Indian English language news platform. She excels in content creation, proofreading, and editing, ensuring that every piece is polished and impactful. Her expertise in crafting SEO-friendly content for multiple verticals of businesses, including technology, healthcare, finance, sports, innovation, and more.
