Background

In addition to traditional asset classes, REITs hold a number of asset types including
stand alone golf courses, microwave and cell towers and self-storage facilities.

A5 REIT Services LLC
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
212.765.0043

Background

Your tax advisers may recommend a private REIT -- or your investors may insist upon one. An investor in a REIT generally receives dividend income from the REIT rather than a flow-though of the underlying rental income, for example. In addition, a sale of the REIT shares is treated as a sale of stock in a corporation, but the REIT avoids federal tax on the income it distributes to its shareholders. As a result, a REIT provides tax advantages to many investors over a partnership.

Common reasons for using a private REIT include, --

tax planning for international investors,
minimizing state and local taxes,
obtaining the 20% deduction for "qualified business income" under the 2017 tax legislation -- especially attractive for mortgage-related income.
avoiding expense of filing state tax returns in each state where the assets are located,
minimizing the unrelated business income tax (UBIT) imposed on pension funds, foundations or other tax-exempts,
avoiding taxable mortgage pool (TMP) status when leveraging investments in mortgages.

Whatever the reason, once a sponsor decides to use a private REIT, the first question will likely be, “How do I satisfy the 100-shareholder requirement to qualify as a REIT?” Typically, a private REIT will sell one preferred share at $1,000 to each of 110-125 investors. The offering is made as a private placement to accredited investors under Regulation D of the Securities and Exchange Commission in order to avoid the expensive and time-consuming process of registering securities for pubilc sale. In some cases, the sponsor’s counsel will advise the REIT to sell shares only to “qualified purchasers” in order to avoid being classified as an “investment company.”

For the sponsor, the preferred dividend, placement fee and servicing expense are a minor cost for outsourcing the process to achieve an attractive tax structure.

Whatever the reason, once a sponsor decides to use a private REIT, the first question will likely be, “How do I satisfy the 100-shareholder requirement to qualify as a REIT?”

Securities offered through A5 Securities LLC - Member FINRA/SIPC.
A5 REIT Services LLC and A5 Securities LLC are separate entities affiliated by common ownership.