Timeline for Converting a DST into a 721 UPREIT: What Investors Should Know

For many real estate investors—especially those approaching retirement—converting a Delaware Statutory Trust (DST) into an UPREIT can be an attractive way to simplify their portfolio, preserve tax deferral, and gain access to a more diversified pool of real estate. But even though the benefits can be meaningful, the conversion doesn’t happen overnight. There is a clear timeline, and understanding it can help you decide whether this strategy fits your long-term goals.

DST vs. 721 UPREIT: A Simple Explanation

A traditional DST allows you to own fractional interests in institutional-grade real estate. These investments are popular because they qualify for 1031 exchange treatment and remove the burden of hands-on property management.

However, a 721 UPREIT works slightly differently and takes it a step further. Instead of owning a slice of one property, you will ultimately contribute your DST interests to a REIT’s operating partnership in exchange for OP Units. These units give you exposure to a larger, diversified real estate portfolio and may offer clearer paths to liquidity over time. Importantly, when structured properly, the tax deferral from your original 1031 exchange can continue under Section 721.

Why Investors Consider the 721 UPREIT

Most investors start exploring a 721 UPREIT conversion because they want greater simplicity, broader diversification, and more flexibility as they near retirement. A DST typically locks you into one property for a long holding period, typically 5-10 years. IN contrast, a 721 UPREIT shifts you into a larger portfolio of real estate with professional management, broader exposure across markets, and periodic distribution income.

The potential for future liquidity—subject to the REIT’s specific rules—is another major motivator. Many investors prefer having a pathway, even if limited, to eventually convert or redeem their OP Units rather than remaining tied to a single DST until the sponsor decides to sell.

Understanding the Timeline

Converting a DST into a 721 UPREIT follows a predictable sequence. The timing depends on whether the DST is designed for a mandatory or optional 721 conversion, but the overall flow remains consistent. The timeline can be grouped into four key steps, beginning before you invest in the DST and ending once the conversion into the REIT is complete.

1. Planning and Determining Whether a 721 UPREIT Is Right for You

The process starts well before you enter the DST. Investors must weigh the pros and cons of a traditional DST versus a 721 UPREIT strategy and determine which path aligns with their goals, time horizon, income needs, and tax situation.

This is the stage where you work with your financial advisor, CPA, and legal counsel to evaluate:

• How important tax deferral is to your long-term plan
• Whether you prefer property-specific exposure or a diversified REIT model
• Your need for liquidity or predictable retirement income
• Estate planning considerations and how your heirs may benefit

Because 721-targeted DSTs are designed with a very specific future outcome (the eventual UPREIT), it’s important to understand this commitment upfront.

2. Reviewing 721 Options and Conducting Due Diligence

Once you determine that a 721 UPREIT strategy fits your goals, the next step is evaluating the available DST options. This due diligence process includes several critical considerations:

Mandatory vs. Optional 721 Structures

Some DST sponsors build a mandatory 721 UPREIT conversion into the investment, meaning the conversion will occur once the DST reaches its required holding period. Other offerings make the conversion optional, which may extend the timeline significantly since sponsors may wait for favorable market conditions or REIT capital needs.

Understanding How Your Interests Will Be Valued

Each REIT has a specific methodology for converting DST interests into OP Units. Understanding how valuation works—and how it affects the OP Units you receive—is essential.

Reviewing the REIT’s Track Record

Because you will ultimately end up in the REIT’s operating partnership, you must evaluate its:

• Performance history
• Distribution consistency
• Portfolio composition
• Leverage levels
• Redemption policies

In this stage, you're essentially selecting the long-term “home” for your investment even though you begin in the DST.

3. Time Spent in the DST: Typically 2–3 Years (Longer for Optional 721 Programs)

After you invest in the DST, the required holding period begins. Most 721-structured DSTs need to be held for 2–3 years before they can be contributed to the UPREIT. This period ensures compliance with IRS 1031 rules and prevents the DST from being viewed as a partnership.

During this time:

• Investors receive regular cash flow
• No active decisions are required
• The sponsor manages operations and timing

In mandatory 721 structures, conversion is typically pursued on schedule.

In optional 721 structures, conversion may take longer depending on market conditions, property performance, and the REIT’s acquisition strategy.

This is often the longest part of the timeline.

4. After the Conversion: Becoming an OP Unitholder in the REIT

Once the conversion occurs, your DST interests are contributed to the UPREIT’s operating partnership in exchange for OP Units. This changes your investment experience in several ways:

• You now participate in a larger, diversified real estate portfolio
• Your cash flow follows the REIT’s distribution schedule, not a single property
• You have no involvement in property-level decisions
• Your investment becomes more passive and predictable
• Liquidity options—while still limited—may be more flexible than DST liquidity

For many investors transitioning into retirement, this shift brings stability, diversification, and long-term tax deferral—without the stress or concentration risk of property-specific ownership.

Is a DST-to-UPREIT Conversion Right for You?

The full timeline—from DST selection to final 721 UPREIT conversion—often spans several years. Some investors value the diversification and passive income the UPREIT provides, while others prefer to remain in a traditional DST or complete another 1031 exchange. The right decision depends on your goals, tax picture, risk tolerance, and estate plan.

At Wealthstone Group, we help investors compare these strategies side-by-side so they can understand how each path affects income, taxes, and long-term planning. If you're considering a 721 UPREIT or want clarity on whether it fits your retirement goals, we're here to help you make an informed and confident decision.

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General Disclosure

Please note that this information is for informational purposes only and does not constitute individual investment advice. It should not be relied upon as tax or legal advice. Consult the appropriate professional regarding your individual circumstances.

Diversification does not guarantee profit or protect against loss in a declining market. It is a method used to help manage investment risk.

Investing in DST properties and real estate securities involves material risks such as liquidity, tenant vacancies, market conditions, competition, interest rate risks, and the risk of losing the entire investment principal. DST 1031 properties are available only to accredited investors and accredited entities. Verify your accredited investor status with your CPA and attorney.

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Wealthstone Group and Arkadios are not affiliated through any ownership.