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What Is an UPREIT (and DownREIT)?

An UPREIT holds property through an operating partnership, letting owners contribute real estate for units instead of cash

The problem UPREITs solve

Imagine someone has owned an apartment building for decades. It has appreciated enormously in value, and selling it outright for cash would trigger a large capital gains tax bill. But they would also like the diversification, liquidity, and professional management that comes with holding shares in a large, diversified REIT instead of one building. The UPREIT structure, short for "umbrella partnership REIT," was developed in the early 1990s largely to solve exactly this problem.

This kind of situation was common among long-time owners of apartment buildings, shopping centers, and other commercial property well before REITs became widely traded, and it remains a relevant consideration for real estate owners today.

How an UPREIT is structured

In an UPREIT, the publicly traded REIT does not own its properties directly. Instead, it owns a controlling interest, usually as the general partner, in an operating partnership that holds the actual real estate. When the REIT raises capital or acquires new property with cash, the money typically flows down into the operating partnership. This structure sits underneath many of the REITs described in REIT Structure, even though it is invisible in the REIT's day-to-day stock price or dividend. Many large, well-known REITs, including mall owner Simon Property Group, are structured as UPREITs.

From the outside, an UPREIT and a REIT that owns property directly look almost identical: both trade under a single ticker, both report consolidated financial results, and both pay a single dividend. The umbrella partnership is essentially a structural layer that sits beneath the public company.

Why a property owner would use one

The umbrella partnership creates a second way to bring property into the REIT: instead of selling a building for cash, an owner can contribute it to the operating partnership in exchange for operating partnership units. Under the tax code, contributing property for partnership units, rather than selling it outright, can defer the capital gains tax that would otherwise be due immediately, a mechanism conceptually similar to a like-kind exchange. The tax is generally deferred until the units are later converted into REIT shares or the underlying property is sold, at which point it typically becomes due. This is a major reason UPREITs became a popular way for private real estate owners and family-held portfolios to transition into the public REIT market starting in the 1990s — see The History of REITs for that broader story.

Because the exchange is for partnership units rather than REIT shares directly, an UPREIT transaction is sometimes structured with additional rights for the contributing owner, such as the ability to convert units into shares over time or under specific conditions, set out in the partnership agreement. The mechanics can get technical, but the underlying trade is simple: give up direct ownership of one property in exchange for a diversified, professionally managed portfolio, while deferring a tax bill that an outright sale would trigger immediately.

DownREITs: a variation on the same idea

A DownREIT works on a similar principle but with a twist: rather than holding essentially all of its properties through one umbrella operating partnership, the REIT owns some properties directly and holds others through one or more separate partnerships, often set up for a specific property or a small group of properties. DownREITs are less common than UPREITs and tend to be used in more specific, limited situations, but they offer the same basic benefit, a way for a property owner to contribute real estate in exchange for partnership units rather than cash, deferring tax in the process.

A REIT might use a DownREIT structure when acquiring a single large property from an owner who wants the same tax-deferral benefit as an UPREIT contribution, without folding that property into the REIT's main operating partnership alongside everything else it owns.

What it means for shareholders

For an everyday shareholder buying REIT stock on an exchange, the UPREIT or DownREIT structure underneath is mostly invisible — you still own shares in the public REIT, and the operating partnership mechanics do not change how dividends or share price work day to day. Where it matters most is for property owners considering contributing real estate to a REIT, and for understanding why a REIT's ownership structure sometimes looks more layered than "REIT owns building" in its filings.

It is also a reminder that a REIT's legal and financial structure can be more layered than its stock ticker suggests, which is one reason serious research into a specific REIT often involves reading its actual SEC filings rather than relying on summaries alone. For related structural questions, see Internally vs. Externally Managed REITs, or check the glossary for terms like "operating partnership" and "partnership units."

See it in the data: Simon Property Group profile →

Research and education only — nothing here is investment advice. Figures such as the 90% distribution rule are general and can change; always confirm against a company's filings.