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Structuring a Private Equity Fund or Joint Venture to Invest in U.S. Real Estate Using Private REITs

Product Code - TMA22
Speaker(s): Scott L. Semer, Davies Ward Phillips & Vineberg, LLP and Michele Alexander, Wachtell, Lipton, Rosen & Katz
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 As U.S. real estate returns to being an attractive asset for international investors, advisors to investors, joint ventures, and funds targeting U.S. real estate need to know how to structure equity investments in U.S. real estate in a tax-efficient manner. Private REITs represent one of the key tools that allow non-U.S. investors to invest in U.S. real estate without becoming subject to filing a U.S. tax return while providing the ability to significantly lower the effective tax rate for the investment. Understanding how REITs are and can be used serve these functions is important for anyone advising either an international client looking to make an equity investment in U.S. real estate or a U.S. client looking to attract capital from international investors to fund real estate acquisitions or developments.

This live webinar focused on the use of private REITs as a tax-efficient vehicle for equity funds and joint ventures to accommodate the tax goals of a diverse range of international investors in U.S. real estate. It highlighted the key structural issues that arise and discussed some common techniques that are being used to address these issues and indicate some areas where consensus has not yet been reached. It also identified the issues that are unique to certain investors and indicate those issues that are fundamental to determining the structure for any particular fund or investment.

Presentation Objectives:

The objectives of this 60-90 minute audio discussion include providing participants with a conceptual understanding and practical application of the following:

1. Establishing a tax efficient fund or joint venture structure for non-U.S. investors to invest in U.S. real estate utilizing private REITs

2. Choosing the form of entity for the Fund/Joint Venture

a) Fund as REIT

b) Fund as Partnership

3. Parallel Structure for non-REIT investments

4. Determining whether to utilize one or multiple REITs

5. Treaty Issues

a) Anti-hybrid rules

b) Pension fund investors

6. Accommodating Sovereign Investors

a) Ensuring REIT is non-controlled

1. Defaulted capital contributions

2. Veto rights

3. Sale of partnership interests

7. Managing the Structural Requirements for REITs

a) Domestically controlled status of the REIT

b) Ensuring the REIT is not closely-held

c) Ensuring the REIT has 100 shareholders

8. Exiting Fund Investments

a) Sale of REIT shares

1. Potential indemnities applicable to sale of corporate entity

b) Sale of property

1. Prohibited transactions and the safe harbor

2. Withholding and Section 897(h)(1)

3. Can Gain be Specially Allocated?

9. Dispute Resolution

a) Buy/sell mechanisms

10. Selected REIT qualification Issues

a) Health care facilities

b) Shareholder as major tenant

c) Tracking shares

11. Public REIT as investor/joint venture participant

a) Tax Protection Agreement limitations

b) Public REIT as "domestic" investor

Upon completion of this program, participants were able to:

1. Determine which fund/joint venture structure is optimal depending on the identity of the investor and the desired exit strategy.

2. Identify the key structural and REIT related issues that will need to be resolved.

3. Understand the key issues that are relevant to different types of investors in acquisitions and dispositions of REITs and property owned by REITs.

4. Communicate the tax issues that rise to deal-level decisions to their clients.

Scott L. Semer, Davies Ward Phillips & Vineberg, LLP and Michele Alexander, Wachtell, Lipton, Rosen & Katz


Scott L. Semer is a partner inthe tax group in the New York office of Davies Ward Phillips & Vineberg.  He advises pension plans and Sovereign WealthFunds on investment in the United States and around the world.  Scott is a co-author of Structuring Real Estate Joint Ventures with Private REITs publishedby BNA Tax Management and his articles appear frequently in a variety of taxpublications.  He graduated from ColumbiaLaw School where he was Review and Essay Editor of the Columbia LawReview.  Scott is an adjunct professor atColumbia Law School, where he teaches the Deals Workshop, an upper classseminar that examines how complex business transactions are structured.

Michele Alexander is counsel atWachtell, Lipton, Rosen and Katz.  Sheadvises clients on a wide range of tax issues in connection with corporate,real estate, and private equity transactions. Michele is .a co-author of StructuringReal Estate Joint Ventures with Private REITs published by BNA TaxManagement .and the author of “Tax Issues in Business Separation Transactions,”appearing in Business Separation Transactions (Law Journal Press),   She also has written articles for various taxpublications.  Michele is a  graduate of Georgetown University Law Center.