Operating Partnership (OP)
An operating partnership is a limited partnership that sits under an UPREIT's corporate structure, holding the REIT's real estate portfolio and issuing partnership units ('OP units') that are convertible to REIT common shares.
What it means
UPREIT (Umbrella Partnership REIT) structure: the REIT owns virtually all of the OP through its general partner role and preferred OP units. Contributors can contribute property to the OP in exchange for OP units on a tax-deferred basis under IRC § 721. OP units can later be exchanged 1-for-1 for REIT common shares, at which point gain is recognized (absent step-up at death).
This structure enables 721 UPREIT transactions where a private property owner or DST investor exits into REIT exposure without immediate tax. OP units pay distributions equivalent to REIT dividends and are typically listed for registered sale after a holding period.
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