The UPREIT Structure Has Been Spawning REITs Since the 1990s

Almost middle-aged, and it’s still on the upswing. 

A tax-deferred strategy credited with igniting a wave of initial public offerings creating real estate investment trusts in the 1990s remains relevant three decades later for property owners seeking liquidity options.

The strategy, known as an umbrella partnership real estate investment trust (UPREIT), was first used by the Taubman Centers in December 1992 during that retail-focused REIT’s IPO that raised nearly $300 million by contributing appreciated real estate to an operating partnership (OP) in exchange for ownership units. The UPREIT, also known as a 721 exchange after its place in the federal tax code, armed Taubman’s founders with the ability to transition into a public REIT without triggering immediate capital gains taxes

The successful UPREIT pioneered by Taubman jump-started a sharp rise in REIT IPOs in the 1990s with more than 150 real estate companies going public over the next six years. This included a more than $900 million equity raise by office giant Boston Properties (now known as BXP) in 1997 that set a public REIT record at the time.

“The UPREIT was the key that opened the door to the modern REIT era,” said Jonathan Morris, a longtime adjunct professor at Georgetown University and founder of the REIT Academy platform who was director of acquisitions at BXP during its late 1990s IPO. “Without it, the REIT industry would remain the cottage industry it was.”

In the lead-up to Taubman’s inaugural UPREIT, large developers struggled to execute REIT IPOs due to a lack of liquidity from traditional debt and equity sources following the savings & loan (S&L) financial crisis in the late 1980s. A number of lenders from S&L institutions foreclosed on construction loans for spec office space that couldn’t net leasing activity, resulting in many shutting down. That caused a large-scale devaluation of the CRE industry. 

The S&L crisis only compounded the sluggish growth of REITs up to that point since Congress passed legislation in the 1960s paving the way for REIT formations in the first place. Morris noted that prior to the UPREIT, all public REIT candidates used depreciation with regular deductions that reduced their taxable income of their properties.

The UPREIT has been used in the vast majority of new REITs since Taubman’s successful IPO, according to Morris, who credited the firm’s special tax counsel at the Goodwin Procter law firm in Boston with crafting it to meet regulatory requirements.  

“Institutional investors, including most domestic pension plans, studied the new REITs carefully and liked what they saw,” said Morris, who prior to working with BXP was director of acquisitions at Charles E. Smith Residential Realty before the REIT merged with Archstone Communities. “Lenders returned to the industry as a result of the new public REITs entrants as low-leverage buyers.”

Morris said the UPREIT enabled BXP in the 1990s to acquire notable buildings at a low tax basis, including the Prudential Center in Boston and the Embarcadero Center in San Francisco. He worked closely with Goodwin Procter soon after the Tubaman REIT formation to devise a similar strategy at BXP. 

Ettore A. Santucci, partner, co-chair of debt capital markets and co-chair of REITs at Goodwin Procter, helped create the UPREIT structure in response to property owners facing major tax liabilities on assets and looking for avenues to recapitalize. He credited his partner Edward Glazer at Goodwin Procter, an expert on tax law, with giving an early sign-off that the UPREIT structure met regulatory requirements.

“Many, many owners of real estate needed to recapitalize their portfolios very badly as many of those portfolios were essentially insolvent and were upside down in terms of debt,” Santucci said. “The UPREIT IPO managed to take the assets out of these locked-up, syndicated partnerships, unlock those assets, put them into a diversified, publicly traded real estate company, raise equity to pay down debt so the upside-down leverage was resolved.”

Santucci noted that the floodgate of UPREIT IPOs helped de-risk a number of commercial real estate properties given that the average REIT has a 35 to 40 percent leverage ratio compared to old syndicated partnerships of the 1980s that in some cases had 90 percent leverage. 

The surge of UPREITs following the Taubman IPO increased the total market capitalization of publicly traded REITs to $134 billion by 2000 compared to under $6 billion in 1990, according to the National Association of Real Estate Investment Trusts (Nareit). Equity REITs numbered 155 in 2025 and were valued at $1.4 trillion, Nareit data shows. 

The number of publicly traded REITs numbered just 56 in 1989, and rose to as high as 183 in April 1998 and 167 at the end of the decade, according to Nareit. At the end of 2025, there were 155 total traded REITs.

Other REITs that went public shortly before Taubman’s 1992 IPO have converted in recent years to an UPREIT. These include Kimco Realty, which completed its reorganization effective Jan. 1, 2023. Kimco completed its IPO a year before Taubman in November 1991 in a $120 million equity raise that at the time was the first new public REIT since 1988.

Goodwin Procter’s Glazer said the creation of the UPREIT structure in 1992 stemmed largely from the Tax Reform Act of 1986 passed by Congress, since provisions under the federal changes negatively impacted many property owners with a low tax basis and mounting debt. He saw advantages back then for Taubman’s UPREIT since it enabled it to acquire properties that otherwise would have been out of reach. He never envisioned the growth that would follow.

“It didn’t just enable formation transactions to occur. It enabled REITs with the UPREIT structure to basically expand by acquiring additional properties with the UPREIT structure that they otherwise wouldn’t have been able to acquire,” Glazer said. “Most newly formed REITs created an UPREIT structure because they want to be able to use it to acquire properties in the future, and those REITs that chose not to, I think, are generally sorry that they didn’t use it. Some of them have created the UPREIT structure since to be more competitive in acquiring properties.”

The rising popularity of the UPREIT eventually made way for the development of another related alternative tax-deferred strategy called the DownREIT structure in the mid-1990s. In contrast to UPREITs, DownREITs enable property owners to partner on specific assets while often gaining control. They also defer capital gains taxes while avoiding the more complex umbrella partnerships.

“DownREITs were essentially a variation designed for more flexibility in structuring deals, especially when REITs wanted to isolate specific assets or partnerships,” said Brad Thomas, CEO at Wide Moat Research, which tracks REIT investment opportunities. “For newly formed REITs, UPREIT is still the standard because it’s simpler, more transparent and easier for investors to understand. DownREITs tend to be used more selectively — often when there’s a need for tax structuring, joint ventures or asset-level flexibility.”

While the DownREIT has gotten some use over the last three decades, the UPREIT has shown far more staying power since the early `90s.

Morris, who was on the front lines of BXP’s UPREIT process 30 years ago, utilized the structure once again with the early 2026 launch of Renaissance Realty Trust, a private REIT that will target existing apartment buildings and office-to-residential conversions initially in the Washington, D.C., region with the goal of eventually turning public. Renaissance is seeking vintage apartment assets where the owners depreciated their tax basis to near zero, and for whom selling for cash is not a suitable option.

Once the UPREIT playbook was established by Taubman, Morris said BXP and many others got documents ready to execute a similar template. Morris, who launched the REIT Academy in 2021, called the invention of the UPREIT a crucial turning point for the CRE industry.

“With the entry of 150-plus new public equity REIT formations in five to six basic REIT sectors, each one focused not on development but acquisitions, properties started trading again at strong pricing — which escalated quickly during the 1990s,” said Morris, who was also chief investment officer at REIT Armada Hoffler from 2019 to 2020. “Lenders returned to the industry as a result of the new public REITs entrants as low-leverage buyers.”

Andrew Coen can be reached acoen@commercialobserver.com.