--- title: 721 UPREIT Options in DST Programs (Part 3) description: Learn more about the 721 Exchange from Paul Getty at FGG1031. image: https://blog.fgg1031.com/hubfs/1031%20REIT.png --- [info@firstguardiangroup.com](mailto:) [(866)398-1031](tel:(866)398-1031) [![fgg](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/fgg.png)](https://brokercheck.finra.org/individual/summary/6470002) [![fgg-871923](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2023/fgg-871923.png)](https://www.bbb.org/us/ca/san-jose/profile/commercial-real-estate/first-guardian-group-1216-887513) [![logo](https://blog.fgg1031.com/hs-fs/hubfs/FirstGuardianGroup_2022/logo.png?width=175&height=56&name=logo.png "logo")](http://fgg1031.com) - [Home](https://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) - [Resource Center](https://fgg1031.com/resource-center/) - [Glossary](https://fgg1031.com/glossary/) - [Accommodators](https://fgg1031.com/accommodators/) - [FAQ](https://fgg1031.com/faqs/) - [Tax eBook](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies-ebook) - [Real Estate eBook](https://pages.fgg1031.com/real-estate-investing-in-the-new-era2) - [QI eBook](https://pages.fgg1031.com/resources/qualifiedintermediary/ebook) - [Tax Calculator](https://fgg1031.com/tax-calculator/) - [Newsroom](https://fgg1031.com/newsroom/) - [Blog](https://blog.fgg1031.com/blog) - [Events](https://fgg1031.com/events/) - [Contact Us](https://fgg1031.com/contact/) ![search-interface-symbol](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/search-interface-symbol.png) ![loader](https://f.hubspotusercontent-eu1.net/hubfs/24949188/Business%20and%20Finance/global/22.gif) ![close](https://blog.fgg1031.com/hubfs/FirstGuardianGroup_2022/close.png) From Pages From Blog Pages Load More Load More **Sorry, we couldn't find a match for  "".** Check your spelling or try a related search term. 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This is often called an UPREIT transaction because the investor moves from owning an interest in a specific DST property or portfolio into an interest in the operating partnership of a broader REIT platform. For the right investor, this can be attractive. It may allow continued tax deferral, more diversification, centralized management, and a potential path to future liquidity. But it is not the same as simply selling a DST and completing another 1031 exchange. Once an investor moves into OP units, future liquidity, tax treatment, and control are governed by the partnership and REIT documents, not by the investor’s ability to pick a new replacement property. #### **Why investors should look beyond the marketing headline** A growing number of DST offering materials now describe a possible 721 or UPREIT exit. The key word is possible. A 721 option in a DST PPM offering materials does not necessarily mean the option will be offered, that it will be offered on favorable terms, or that investors will have a meaningful choice between either accepting OP units or receiving cash proceeds that may be available for subsequent 1031 exchange. This is why the first due-diligence question should be: Has the sponsor actually completed prior DST-to-UPREIT transactions? Prior history matters. A sponsor with a demonstrated record of completing 721 exits on transparent, investor-friendly terms deserves more credit than a sponsor that merely reserves the right to pursue a 721 exit someday. Investors should ask how many prior 721 exits were completed, how values were determined, whether cash out elections were honored, whether investors received timely notice, and whether the exchange vehicle was clearly identified in advance. #### **The central conflict: who controls the exit?** A DST investor may assume that the property will eventually be sold to the highest third-party buyer. That is not always the only path. Depending on the DST trust agreement, the DST manager or signatory trustee may have discretion to sell the property to a third party, sell to an affiliate, or allow a partnership entity to acquire investors’ DST interests in exchange for OP units. Each path can create different economics for investors. The conflict arises because the REIT or operating partnership may be affiliated with the DST sponsor. In that case, the platform may be both the party influencing the exit and the party acquiring the asset or investor interests. That does not make the structure improper, but it does mean the fairness of the valuation process becomes critical. #### **Fairness of conversion price: the most important question** The best investor-friendly 721 structures use a transparent and current valuation process on both sides of the exchange. The DST interests should be valued using a recent independent appraisal or other clearly defined fair-market-value methodology. The OP units should be valued using an objective process and not a made-up figure to suit the sponsor’s objectives. The timing of those valuations should be reasonably aligned so that investors are not exchanging a recently valued OP unit for a stale valuation of the DST property. This timing issue can be material. If real estate values rise after a property appraisal but before the 721 option is exercised, a stale appraisal could cause investors to exchange at a value below current market value. The reverse could also happen, but the concern is that an affiliated OP may have an economic incentive to exercise the option only when the terms are favorable to the acquiring platform. Investors should ask whether the appraisal must be obtained within 30, 60, or 90 days of the exercise date, whether multiple appraisals are required, and whether an independent fairness review is used. A second fairness issue is whether the valuation includes all trust assets. If the formula values only the real estate, what happens to cash, reserves, prepaid expenses, or other trust assets? Are they distributed to investors before the exchange, or are they effectively transferred to the OP? This detail may sound technical, but it can affect real dollars. #### **Forced 721 versus investor choice** Not all 721 options give investors the same level of control. Some programs allow investors to elect cash instead of OP units. Others may require investors to accept OP units if the option is exercised. The industry sometimes refers to the latter as a forced 721 structure. The phrase does not mean the OP is forced to exercise the option. It means the investor may be forced into the 721 exchange if the DST sponsor elects to proceed. Cash-out rights can also vary. A strong structure gives investors a clear, enforceable right to receive cash of equal value, subject to reasonable procedures. A weaker structure may merely state that the sponsor will endeavor to accommodate cash elections, may impose aggregate cash-out limits, may charge fees, or may require investors to act within a short election window. For investors who want to preserve the ability to do another 1031 exchange, cash-out rights may be critical. #### **Liquidity after the exchange: read the fine print** One common selling point of 721 programs is potential liquidity. That can be helpful, especially for estate planning or investors who no longer want to manage repeated 1031 exchanges. But liquidity should not be assumed. OP units may be subject to many potential limitations including lockups, redemption caps, board discretion, or other conversion restrictions before they can become cash or REIT shares. Investors should ask practical questions: When can OP units first be redeemed? Are redemptions monthly, quarterly, annually, or at the discretion of the REIT? Are there limits on the total amount the REIT will redeem? Can redemptions be suspended during market stress? Are redemptions subject to a discount to stated share value, or subject to fees? The phrase potential liquidity is not the same as actual liquidity. #### **Evaluate the REIT, not just the DST** A 721 exit changes the investment. The investor is no longer evaluating only the original DST property; the investor may become an owner of OP units tied to a broader REIT. That means the REIT’s maturity, diversification, leverage, distribution coverage, NAV process, and redemption history are critical. A REIT with only a few properties may not provide the diversification or liquidity investors assume they are receiving. Investors should ask how many properties the REIT owns, how long it has operated, how diversified it is by tenant, geography, industry, lease maturity, and lender, and whether it has been tested through market stress. A larger, longer-tenured REIT with many properties, stable covered distributions, audited reporting, and a documented history of fulfilling redemption requests deserves more credit than an immature REIT that has not yet proven its liquidity or distribution model. #### **Master-lease valuation: a subtle but important issue** Some DST 721 options value the property based on the in-place master lease rather than a traditional property-level valuation. This may reduce volatility because the valuation is tied to more stable master-lease cash flow rather than the underlying property’s variable performance. That can sound investor-friendly. However, it may also create directional risk. If the property is performing better than the master lease implies, a master-lease valuation could be lower than the value a third-party buyer might pay for the real estate. In that case, the DST sponsor may be incentivized to exercise the option when the exchange price is favorable to them. If the underlying property underperforms, the UPREIT option may be less likely to exercise. This is why investors should ask whether the 721 valuation is based on the real estate’s actual market value, a master-lease valuation, or another methodology. #### **Investor due-diligence checklist** Before giving meaningful credit to a DST’s 721 option, investors and advisors should consider the following questions: ![Screenshot 2026-05-14 at 11.49.05 AM](https://blog.fgg1031.com/hs-fs/hubfs/Screenshot%202026-05-14%20at%2011.49.05%20AM.png?width=670&height=503&name=Screenshot%202026-05-14%20at%2011.49.05%20AM.png) #### **Bottom line for DST investors** A 721 option should not automatically be viewed as a benefit or a drawback. It is best understood as a potential exit path whose value depends on the sponsor’s prior history, the fairness of the conversion price, the investor’s ability to choose cash, the quality of post-exchange liquidity, and the investor’s desire to preserve or give up future 1031 exchange flexibility. The right question is not simply, “Does this DST have a 721 option?” The better question is: “If the 721 option is exercised, will investors receive fair value, retain meaningful choice, and obtain practical liquidity, or are they granting an affiliated platform an option to acquire the property or investor interests on terms that may primarily benefit the sponsor?” For more information, be sure to download a copy of my popular book entitled [***Real Estate Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST)***](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies)***[– 2nd Edition](https://pages.fgg1031.com/resources/real-estate-tax-deferral-strategies).*** ### [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) Paul M. Getty is one of the most experienced 1031 exchange specialists in the United States, with a career in real estate that spans over 35 years and more than $5 billion in commercial transactions across every major asset class. His work covers single-family rentals, apartments, retail, office, multifamily, and student and senior housing, giving him a practical understanding of how different property types perform across market cycles and how investors can move between them using tax-deferred exchange strategies. As President and CEO of FGG1031 | First Guardian Group, Paul advises investors through the full 1031 exchange process, from identifying qualifying replacement properties to structuring acquisitions through Delaware Statutory Trusts (DSTs) and wholly owned real estate. His guidance covers both the compliance requirements of a valid exchange and the investment decisions that determine long-term portfolio outcomes – a combination that is difficult to find in a single advisor. Paul holds a California and Texas real estate broker license and carries Series 22, 62, 63, and 82 securities licenses as a registered representative with Emerson Equity LLC, member FINRA /SIPC. He has represented buyers and sellers across complex commercial transactions, sourced and structured debt and equity, and worked alongside nationally recognized firms including Marcus Millichap, CBRE, JP Morgan, and Morgan Stanley. Before founding FGG1031, he co-founded Venture Navigation, a boutique investment banking firm whose M&A and IPO activity generated over $700 million in investor returns. Paul holds an MBA in Finance from the University of Michigan and a bachelor’s degree in chemistry from Wayne State University. He has also completed coursework in artificial intelligence at Stanford University. He is the author of four books on real estate investing and tax deferral strategy, including Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST) and Real Estate Investing in the New Era, both available on Amazon. A frequent speaker on 1031 exchanges, DST investing, and real estate tax strategy, Paul Getty is a recognized voice for investors and advisors seeking guidance on capital preservation through tax-deferred real estate investment. ## Your Comments : This is a search field with an auto-suggest feature attached. - There are no suggestions because the search field is empty. - Latest Posts - Popular Posts [Senior Housing, Self-Storage, and Data Centers: Three Real Estate Asset Classes Many Investors Overlook](https://blog.fgg1031.com/blog/senior-housing-self-storage-and-data-centers) [ Real Estate Investors](https://blog.fgg1031.com/blog/topic/real-estate-investors) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [ DST](https://blog.fgg1031.com/blog/topic/dst) [ New featured](https://blog.fgg1031.com/blog/topic/new-featured) [Why Everything You Knew About Real Estate Investing Changed in 2008 - And Why Many Investors Still Haven't Caught Up](https://blog.fgg1031.com/blog/real-estate-investing-changed) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) [ DST](https://blog.fgg1031.com/blog/topic/dst) [Partial 1031 Exchange: How It Works, What Gets Taxed, and When It May Make Sense](https://blog.fgg1031.com/blog/partial-1031-exchange-how-it-works) [ 1031 Exchange](https://blog.fgg1031.com/blog/topic/1031-exchange) ### Categories - 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[Investing in Senior Housing October 20, 2022](https://blog.fgg1031.com/blog/investing-in-senior-housing) - [A Closer Look at the 7 Deadly Sins October 20, 2022](https://blog.fgg1031.com/blog/a-closer-look-at-the-seven-deadly-sins) - [What is a Springing LLC? 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However, FGG1031, First Guardian Group, LightPath Capital, Inc., and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies, declining market values, potential loss of entire investment principal. Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect.  The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. All financed real estate investments have a potential for foreclosure. Delaware Statutory Trust (DST) investments are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments. Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions. Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes; therefore, you should consult your tax and legal professional for details regarding your situation. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over one million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than five million dollars). If you are unsure if you are an accredited investor and/or an accredited entity, please verify with your CPA and Attorney prior to considering an investment. Securities offered through registered representatives of [LightPath Capital, Inc.](http://www.lightpathcapital.com/) Member [FINRA](http://www.finra.org/) / [SIPC](https://www.sipc.org/). FGG1031, First Guardian Group, and LightPath Capital, Inc. are separate entities. 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Your Investment Portfolio May Need Both July 27, 2023](https://blog.fgg1031.com/blog/public-or-private-real-estate-your-investment-portfolio-may-need-both) - [How to Use 1031 Exchange Funds to Improve Your Replacement Property July 20, 2023](https://blog.fgg1031.com/blog/how-to-use-1031-exchange-finds-to-improve-your-replacement-property) ## Useful Links - [Home](http://fgg1031.com/) - [About Us](https://fgg1031.com/about-us/) - [Blogs](https://blog.fgg1031.com/blog) - Testimonials from Past Customers - [Resource Center](https://fgg1031.com/resource-center/) - [Current Offerings](https://fgg1031.com/property-listings-directory/) FGG1031 | First Guardian Group and Emerson Equity LLC do not provide legal or tax advice. Securities offered through [Emerson Equity LLC](http://www.emersonequity.com/) Member [FINRA/SIPC](http://finra.org/) and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure: - There is no guarantee that any strategy will be successful or achieve investment objectives; - Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments; - Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities; - Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments; - Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions; - Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results. Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or [FDIC](http://fdic.org/) insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur. **Risk Disclosure:** Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by FGG1031 | First Guardian Group, Emerson Equity LLC, or any affiliate, or partner thereof. FGG1031 | First Guardian Group does not warrant the accuracy or completeness of the information contained herein. Copyright 2026, All Rights Reserved, FGG1031