— USE AN UPREIT TO GROW A REAL ESTATE COMPANY AND GO PUBLIC

An UPREIT (Umbrella Partnership Real Estate Investment Trust) is a vehicle which could be very interesting for Regulation A+. An UPREIT uses 1031 like kind exchanges to add to its portfolio.

Real estate investors are familiar with 1031 exchanges. 1031 exchanges allow a real estate investor to defer paying capital gains taxes on investments. For example, if an investor owns an apartment building which is worth $400,000 more than his tax basis, and sold that building, he would owe capital gains on the $400,000. If he exchanged it for another (possibly bigger) property under 1031, the capital gain would get deferred.

Imagine setting up a REIT with your commercial property that generates a 6% return. You file for an IPO and get listed for trading. Included in your IPO is the provision that you will acquire other commercial properties with similar risk and revenue parameters.

You find an investor who has a commercial property who does not wish to sell now, but plans to sell in the near to mid term. You trade partnership units for his commercial property. You can use Section 1031 so that this exchange is tax free. The investor continues to have a 6% return on his property, but, if he needs some liquidity, he can convert his partnership units to shares in your REIT (with registration rights), resell only a portion of his shares on the market. He can also spread out the recognition of capital gain over a long period of time.

In addition, the investor gains the benefit of diversification of his assets.