Compound’s 721 Exchange Program refers to a transaction structure that is widely used in the REIT industry and has been since 1992 (commonly called an "UPREIT.") The 721 Exchange allows property owners to convert their real estate holdings into an interest in publicly traded REIT. This structure offers an attractive tax-deferred exit to owners facing a significant taxable gain on sale due to a low tax basis. This offers similar tax-deferral benefits to a 1031 exchange, but with the added bonus of liquidity. Owners receive units convertible into shares and then can sell the shares individually over time.
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Provides a viable tax deferral/avoidance exit strategy to property owners facing significant capital gain tax liabilities on the sale of appreciated property.
Diversification of real estate holdings. Own a portfolio of assets instead of only one.
Potential to convert liquid‚ long-term assets into more saleable securities and provides a great option for estate planning.
Property Owner contributes property to the Operating Partnership (OP)Contribution of property is similar to a sale but is done in a way so that the seller may defer a taxable gain.
Property Owner receives OP UnitsIn enchange for the Property, the Property Owner receives operating partnership units (OP Units). The Property Owner may receive a combination of cash and OP Units. Only the portion of taxable gain received in OP Units can be deferred.
The Operating Partnership owns PropertiesThe Operating Partnership is a subsidiary of the Cityfund that holds the portfolio of properties.
OP Units convert to Cityfund sharesThe OP Units that the Property Owner received from the contribution can be converted into Cityfund shares and sold, in whole, or in part.