What is a REIT To Do?
De-REITing and Private REIT Combination Strategies
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octubre 03, 2025
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This is an extract from Real Estate Taxation Journal 2nd Quarter, first published in 2025. The entire publication can be read here: https://store.tax.thomsonreuters.com/accounting/c/Real-Estate-Taxation/p/100201248
Private REITs are a common structure for both U.S. and foreign investors seeking tax-efficient real estate exposure. They can reduce filing requirements, provide favorable treatment of dividends, and in some cases allow sales of REIT shares without U.S. tax. At the same time, REITs face strict asset and income tests, along with significant compliance and administrative costs.
When profitability is low or debt levels are high, continuing to operate as a REIT may not be practical. De-REITing allows a company to end REIT status and revert to C corporation treatment. This eliminates the requirement to distribute taxable income, helps conserve cash, enables the use of net operating losses, and avoids the 100 percent prohibited transactions tax. However, the change can significantly impact foreign investors, who may lose exemptions that previously shielded them from U.S. tax on share sales.
For investment platforms that hold multiple single-asset REITs, another approach is to merge them into a holding company REIT. The single-asset REITs become qualified REIT subsidiaries, simplifying compliance, consolidating results across assets, and preserving net operating losses. This strategy maintains the benefits of REIT status but requires careful attention to prohibited transaction rules and state-level tax implications.
Ultimately, investors and managers must weigh whether the advantages of maintaining REIT status outweigh the costs, or whether de-REITing or consolidation better aligns with financial performance and long-term objectives.
Reprinted with permission from Thomson Reuters.
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octubre 03, 2025
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