1031 ExchangeS & Alternative Investments:

dSTs & 721 UPREITs Explained

Contact an Expert

What is a DST?

A DST, or Delaware Statutory Trust, is a legal entity used to hold title to investment real estate. It allows multiple investors to own fractional, passive interests in large, professionally managed properties—such as apartment complexes, office buildings, industrial centers, or retail plazas.

Learn More

What is a 721 UPREIT?

A 721 UPREIT (also called a 721 Exchange) is a tax-deferral strategy that allows real estate owners to contribute property to a real estate investment trust (REIT) in exchange for operating partnership units (OP units), instead of selling the property for cash. It’s named after Section 721 of the Internal Revenue Code.

Learn More

Key Differences Between DSTs & 721 UPREITs in an Exchange

Investment Feature

DST

721 UPREIT

Qualifies for Like-Kind Treatment?

✅ Yes

✅ Yes – via initial DST structure

Will I continue owning real property?

✅ Yes – beneficial interest in real property

❌ No – after conversion, ownership becomes REIT shares (personal property)

Does it provide passive income?

✅ Yes – regular cash flow from underlying property

✅ Yes – REITs typically distribute dividends

Can it be exchanged again?

✅ Yes – DST interests are like-kind and can be exchanged

❌ No

Is it liquid?

❌ No – DSTs are illiquid and typically held until asset disposition

✅ Yes – REIT shares may offer liquidity, but sale may trigger taxes

Can it cover my debt replacement?

✅ Yes – most DSTs are structured to allocate a portion of the pre-existing debt to the investor

✅ Yes – if the 721 starts with a DST structured with pre-existing debt

Benefits of Passive Real Estate Ownership

  • Steady Income – Earn regular monthly or quarterly cash flow.
  • Hands-Off Investing – No tenant or property management duties.
  • Property Appreciation – Value of property may grow over time.
  • Diversification – Spread investments across property types and locations.
  • Tax Advantages:
    • Depreciation reduces taxable income.
    • 1031 exchanges defer capital gains taxes.
    • Step-up in basis benefits heirs.
  • Estate Planning Friendly – Easier to pass to heirs than actively managed property.
  • Professional Management – Experts handle operations and decisions.
  • Peace of Mind – No stress of being a landlord.

Frequently Asked Questions

Yes. As with any IRC Section 1031 exchange, a Qualified Intermediary is required to facilitate the transaction and ensure compliance with IRS guidelines for tax deferral. This applies whether you’re exchanging into a Delaware Statutory Trust (DST) or a structure that may eventually convert into a 721 UPREIT.

Yes. For 1031 purposes, beneficial interests in a DST are treated as direct ownership of real property. As such, they are considered “like-kind” and eligible for a subsequent 1031 exchange.

No. Once the DST is merged into a REIT structure and your interest is converted into REIT shares (which are considered personal property), those shares are no longer eligible for 1031 treatment.

No. Both DSTs and UPREIT structures are passive real estate investments. Investors do not have decision-making authority over property management, leasing, or disposition.

DSTs typically have a defined holding period, often ranging from 5 to 10 years, though this varies by sponsor and offering. In a 721 UPREIT structure, investors typically hold DST interests for 2-3 years before their DST interest is converted into OP units in a REIT via a 721 exchange. 

Yes. DSTs generally offer income distributions in the range of 4%–9% annually, typically paid monthly. However, yields can vary by sponsor, asset class, and market conditions. Consult with your financial advisor for details on specific offerings.

Early exits are not common.  There is no secondary market for these.  Although a sponsor can offer your position to other investors within the same investment, the early sale will likely involve discounts on fair market value.  Investors should plan to hold through the entire hold period.

A DST and/or 721 UPREIT can satisfy the debt replacement requirement if the investor selects an investment levered with pre-existing non-recourse debt.  Each DST is different, so it’s important to consult with a trusted Financial Advisor to identify properties that will align with the debt component of your exchange.

These investments are only available to accredited investors. This is because DSTs and 721 UPREIT investments are considered private securities offerings and are regulated by the U.S. Securities and Exchange Commission (SEC). The SEC’s Regulation D outlines the requirements for who can invest in these types of offerings.

To qualify as an accredited investor, an individual must meet one of the following criteria:

  • A net worth of over $1 million, either alone or with a spouse, excluding the value of their primary residence.
  • An annual income of over $200,000 for the last two years, or a combined income with a spouse of over $300,000, with the expectation of earning the same in the current year.

These are illiquid, long-term investments that require careful due diligence. Always consult with your financial, tax, and legal advisors before proceeding. Consider the potential risks, including lack of control, limited liquidity, market conditions, and sponsor performance.

Contact Us to Learn More about DSTs

Fill out the form below and we’ll be in contact.

Name