The short answer: REITs can be a great tool for investment real estate owners when solving for maturing debt. The arrangement can provide:
Access to More Capital
Improved Debt Structures
Gap Financing
Liquidity Without Forcing a Sale
Partners Gain Individual Control Over Sale Timing
If you have maturing debt, partnering with a REIT to recapitalize might be your best option. Whether you need to refinance at more favorable terms, access additional capital for growth, or create liquidity while retaining ownership, a REIT partnership can offer strategic advantages beyond what traditional lenders provide.
One of the biggest benefits of working with a REIT is access to more capital. Institutional backing often allows for more favorable debt and equity solutions, providing property owners with higher loan-to-value (LTV) ratios or lower-cost financing. Additionally, REITs can often secure better debt structures than individual owners, often negotiating lower interest rates, longer terms, and more flexible repayment options that might not be available through conventional lenders.
For owners facing funding gaps or repositioning a property, REITs can also provide mezzanine capital or preferred equity to bridge financing needs. This is particularly useful when recapitalizing a property in transition, refinancing existing debt, or executing a growth strategy that requires additional investment. Instead of being forced to sell at an inopportune time, owners can monetize a portion of their equity while still maintaining an interest in the asset. This liquidity can be used for reinvestment, diversification, or estate planning purposes, all without losing control over the timing of a sale. Unlike traditional sales where the owner’s exit is dictated by market conditions, a REIT partnership allows property owners to liquidate shares on their own schedule, providing flexibility and financial stability.
Structuring a REIT partnership typically involves contributing a property to an UPREIT in exchange for operating partnership (OP) units or preferred equity. The REIT then brings in new debt at institutional rates, reducing overall capital costs. Owners have the option to cash out a portion of their equity or convert OP units into REIT shares over time, creating a phased liquidity strategy. Additionally, continued ownership in the REIT allows for ongoing dividend income and potential appreciation, ensuring that owners benefit from long-term value creation.
This strategy is particularly well-suited for developers or investors facing a debt maturity or funding shortfall, owners of highly appreciated assets looking to defer taxes while maintaining upside potential, and family offices or partnerships that need liquidity but want to preserve ownership. Instead of relying solely on traditional refinancing or asset sales, partnering with a REIT provides a more flexible solution that aligns with long-term financial and investment goals.
If you’re navigating a maturing loan or need a strategic capital partner, a REIT recapitalization could provide the liquidity and stability you need—without forcing an immediate sale. By leveraging institutional resources and structuring a customized financing approach, REITs can help property owners unlock capital, optimize debt, and maintain control over their investments.
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