Delaware Statutory Trusts (DSTs) and Real Estate Investment Trusts (REITs) have grown in popularity since the 2007-2009 economic crisis. But the issue has been what is the exit strategy for investors.
Enter UPREITs. UPREITs are umbrella partnership real estate investment trust transactions. According to data from Mountain, UPREITs are emerging as the latest evolution in DSTs, raising $9 billion in 2022.
UPREIT transactions are popular because the transactions offer a more stable investment than the DST structure. DST investments consist of restrictions that limit the ability to hold investments long-term, add capital and maximize property value.
Carl Sera, president of Sera Capital Management, told WealthMangement.com that UPREITs are often popular among older first-time DST investors that have moved from active to passive ownership.
Additionally, UPREITs have gained increased interest due to rising interest rates and recession concerns putting downward pressure on real estate and reducing the demand for DSTs.
Asset managers and advisors should be aware of the risk factors with real estate investments and instruct their clients accordingly. Current economic conditions around real estate underscore the importance of educating investors on the long-term nature of alternative investments.
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