Leveraging UPREIT Benefits: The 721 Exchange Explained
For many long-time real estate owners, selling an appreciated property can feel like running into a brick wall of taxes. Capital gains, depreciation recapture, and state taxes can eat a painful chunk of your wealth. That’s why so many investors look for a smarter transition, one that lets them step away from active management without sacrificing what they’ve built.
One of the most flexible ways to make that shift is through a 721 Exchange, also known as an UPREIT contribution. And today, more investors are taking this path after first moving into a DST, because it creates a clean, predictable, and tax-efficient on-ramp into a REIT.
This article explains how a 721 Exchange works, why Medalist uses the DST-first model, and how this structure helps owners unlock income, simplicity, and long-term flexibility.
What Exactly Is a 721 Exchange?
A 721 Exchange allows a property owner to contribute real estate to an UPREIT and receive Operating Partnership Units (OP Units) instead of cash. Because you’re not “selling” in the traditional sense, your capital gains taxes are deferred.
Most investors think of it like this:
You exchange bricks and mortar
For a slice of a professionally managed real estate portfolio
Without triggering immediate taxes
Those OP Units can later be converted, if you choose, to REIT shares, giving you optional liquidity down the road.
This structure has been used quietly for decades by wealthy families and institutional real estate owners who want predictable income and long-term estate planning advantages.
Why Medalist Uses a DST First (Not a Direct UPREIT Contribution)
Medalist’s updated model takes a simpler, more investor-friendly route:
owners first move into a DST, then may elect a 721 Exchange later.
Why take this two-step approach?
1. Cleaner, faster, tax-deferred entry
Bringing a single property directly into a REIT requires heavy negotiation, legal work, due diligence, and timing coordination. The DST structure avoids all of that because the DST interest is already standardized and ready for contribution.
2. Predictable income from the start
Medalist DSTs are built on large, creditworthy, single-tenant net-lease properties, Tesla, 7-Eleven, and other institutional-grade tenants.
You step into tax-deferred income immediately, typically around 5%.
3. Total optionality
After the hold period, you choose one of three paths:
Stay in the DST
Exchange DST interest for OP Units in the UPREIT
Eventually convert OP Units to MDRR shares for optional liquidity
No forced moves. No pressure. Total flexibility.
4. Estate simplicity
Many owners in their 50s, 60s, and 70s prefer the DST → UPREIT route because:
It eliminates management headaches
OP Units are easily inherited
Heirs typically receive a step-up in basis
Family transitions become dramatically simpler
This is why the DST-first path is quickly becoming the preferred structure in legacy planning.
How an UPREIT Works Once You Contribute
When an investor elects to complete a 721 Exchange, their DST interests move into the REIT’s operating partnership. In return, they receive OP Units, essentially the REIT’s version of equity.
From there, you benefit from:
A diversified portfolio instead of a single property
Professional management
Regular income distributions
Long-term appreciation potential
And when you want liquidity, OP Units can generally be exchanged for common shares of the REIT, which can then be sold at your discretion.
You remain in control of the timing.
Key Advantages of the 721 Exchange Path
1. No Immediate Taxes
Your capital gains and depreciation recapture stay deferred. That alone can save investors hundreds of thousands of dollars on appreciated assets.
2. Freedom From Day-to-Day Management
No more repairs, tenant issues, refinancing stress, or market volatility tied to a single property.
The REIT does the work for you.
3. Optional Liquidity
Through OP Unit conversion, you maintain the ability to:
Unlock liquidity gradually
Diversify your wealth
Avoid a single taxable event
This flexibility is a major reason many owners choose the 721 path later in life.
4. Estate and Legacy Planning
For many families, this is one of the biggest motivators. OP Units:
Transfer easily to heirs
May receive a step-up in basis upon inheritance
Are simple to track and divide
What once took pages of legal descriptions and complex valuations becomes streamlined.
5. Portfolio Diversification
Instead of relying on one building, you participate in the performance of a professionally managed STNL portfolio across multiple tenants and markets.
How the DST → UPREIT Process Works Step by Step
Here’s the real-world journey most Medalist investors take:
Step 1 — Move into a DST (tax-deferred via 1031 if needed)
This provides income, removes management, and buys you time to evaluate whether an UPREIT is right for you.
Step 2 — Complete the Required Hold Period
This ensures IRS compliance and investor protection.
Step 3 — Elect the 721 Exchange (Optional)
Your DST interest is contributed to the operating partnership in exchange for OP Units.
Step 4 — Hold OP Units or Convert Later
You choose when and if to convert OP Units into common shares.
Step 5 — Enjoy Passive Income and Long-Term Flexibility
Your investment becomes as hands-off as it gets, while still tied to high-quality real estate.
Is the 721 Exchange a Good Fit for You?
You may find this strategy appealing if you:
Own appreciated real estate
Want income without management responsibility
Prefer to stay in real estate but diversify risk
Need flexibility in your exit timing
Are planning for heirs
Want the option of liquidity later in life
If those goals resonate, the DST → 721 UPREIT structure is one of the cleanest solutions available.
Closing Thoughts
Transitioning out of a property you’ve owned for decades is a big decision. At Medalist, our team guides investors through each step, starting with a DST for income and stability, then offering an optional move into our UPREIT for long-term planning and potential liquidity.
The goal isn’t just tax deferral.
It’s creating a simpler, more flexible, and more strategic financial future.
If you'd like to explore whether a DST or 721 Exchange makes sense for your situation, we’re here to walk you through what it could look like for you and your family.
