Non-Traded REIT

A non-traded REIT is a public company without a public market for its shares.

The SEC's investor guide distinguishes publicly traded REITs from those registered with the SEC but not publicly traded, and lists the special risks of the latter: lack of liquidity, difficulty valuing shares, distributions that may be paid from offering proceeds and borrowings, and conflicts from external managers paid on acquisitions and assets under management. It adds that REIT dividends are generally taxed as ordinary income rather than at reduced dividend rates.

To keep REIT status, section 857 requires a REIT to distribute at least 90% of its REIT taxable income, figured without net capital gain. FINRA Rule 2310 bars members from a public REIT offering unless the issuer agrees to disclose a per share estimated value in its periodic reports.

The 1031 route into a non-traded REIT runs through a DST and a section 721 contribution.

Some non-traded REITs sponsor DST programs. One REIT's Form 10-K for 2025 says its operating partnership holds a fair market value purchase option to acquire the DST interests later for operating partnership units, cash or both, and investors who accept units become limited partners who 'generally remain subject to tax' on their built-in gain.

Hypothetical: you exchange $1,000,000 into such a DST. Years later the operating partnership exercises its option and you take units. Section 721 generally means no gain on contributing property for a partnership interest, but the units are a partnership interest, which Reg. section 1.1031(a)-3(a)(5)(i) excludes from real property, so your next sale cannot be a 1031 exchange. Run your own numbers with your CPA.

The mechanics and timing are covered at the 721 UPREIT from a DST and why an UPREIT ends the 1031 chain.

It bites on liquidity and on who is allowed to buy.

The same 10-K caps redemptions at 2% of aggregate NAV per month and 5% per quarter, and shares held less than one year are generally redeemed at 95% of the transaction price. A registration statement on Form S-11/A filed in May 2025 by another non-traded REIT says its share repurchase plan may be modified or suspended by the board.

That S-11/A also sets buyer standards: a net worth of at least $250,000, or gross annual income of at least $70,000 with net worth of at least $100,000, plus state-specific limits such as caps on the share of liquid net worth an investor may commit; see suitability. For a side-by-side with a DST, read DST vs REIT vs syndication.