An Alternative to Selling Your REIT Securities
A. B. Nicholas is pleased to announce a new loan program called OpLine, which provides credit line financing against tax-deferred Operating Partnership Units, the non-public-market traded security for REIT owners who have not opted to convert them to free-market REIT shares (which does trigger a taxable event). These are special, custom constructions designed for safety, speed, and value for those interested in creating and leveraging these tax-deferred real estate securities.
Operating Partnership Units?
Like Stock… But Not Liquid Like a REIT
From an economic standpoint‚ Operating Partnership Unites (OPUs, or OP Unites) are indistinguishable from shares of a typical REIT. OPUs are equal in value to the underlying publicly traded REIT shares, and track their parent REIT’s value in the same way. OPU holders receive dividends paid on REIT shares as always. The main difference? OPUs and REIT shares are taxed differently. OPUs are tax deferred; publicly traded REITS are not. Should one sell an OPU, it is typically subject to capital gains taxes just like any other security.
Can OPUs be sold?
Privately, yes, but generally not on a standard public stock exchange in the same manner as a common stock or bond, and any activity that turns an OPU into cash is indeed fully taxable at point of sale. OPUs allow the REIT investor to remain invested in the REIT, but they do not not allow access to cash liquidity unless it is sold/converted, at which time it will be subject to capital gains. A long-term hold (say, 5+ years) of the OPU is the only way to ensure that you will make full use of the tax shelter you have earned, however, but the question of tax deferral value must, of course, be the
OPU Holders must be “accredited investors” in order for the OPUs to be valid. To be an accredited investor‚ a prospective OPU holder must meet at least one of the following criteria:
- Has an individual annual income in excess of $200‚000; OR
- Has a joint annual income (spouse included) in excess of $300‚000 for each of the last two years; OR
- Has a net worth in excess of $1 million (individually or jointly with spouse); OR
- Is a Trust or approved Trust-like entity having assets in excess of $5‚000‚000.
Who Can Benefit from OpLine?
The following are common scenarios for individuals choosing to hold on to their OPUs:
- Family-owned properties with unresolved succession issues
- Properties with third-party tenants
- Partnerships that need to be dissolved
- Long-term assets with very low basis looking at huge cap gains
- Surplus property generated by consolidations
- Property owners concerned they have too much of their net worth tied up in real estate
Please note that A. B. Nicholas refers you directly into this facility for initial consultation with our licensed lender advisor at our partner institution upon application. Drop us a line if you think this will be of interest to you. There’s never any obligation!