• "Workouts Involving UPREIT and DownREIT Properties: A Guide for REIT Executives"
  • April 21, 2011 | Authors: Meryl K. Chae; George C. Fatheree; David F. Levy
  • Law Firms: Skadden, Arps, Slate, Meagher & Flom LLP - Los Angeles Office ; Skadden, Arps, Slate, Meagher & Flom LLP - Chicago Office
  • The remarkable growth of U.S. public REITs, which saw their equity market capitalization grow from $134 billion at the end of 2000 to over $400 billion at the end of 2006, has been attributed to a number of factors, chief among them rising property values and an unprecedented availability of debt financing. In order to increase the amount of capital available to borrowers, this financing was often provided through complex, multi-lender debt structures such as loan securitizations, loan participations and mezzanine loans. In the equity REIT space, balance sheet growth also was fueled by certain popular property acquisition structures — namely UPREITs and DownREITs — which allowed REITs to acquire leveraged properties in transactions that, in addition to being tax efficient for the sellers, involved tax protection provisions that shifted from the sellers to the REIT several critical elements of income tax exposure associated with the properties.