WHY A DOWN REIT PARTNERSHIP CAN BE A WONDERFUL SOLUTION TO CERTAIN OWNERS OF REAL ESTATE

Individuals or entities which are considering the disposition of income producing real estate should strongly consider a DownREIT transaction to accomplish a transfer of property on a tax deferred basis while establishing an exit strategy and structure which provides liquidity and flexibility. UBP, Inc., a NYSE publicly traded Real Estate Investment Trust is in a unique position to create such a transaction.

Candidates for this strategy include:

• Properties, which if sold, would generate income tax liabilities that exceed net proceeds from sale 
• Properties that are fully or substantially depreciated
• Properties with high loan to value ratios
• Properties with debt that is personally guaranteed or recourse to general partners
• Properties with maturing indebtedness
• Any combination of the above

Transaction Summary:

In a DownREIT, a property owner enters into a limited partnership with UBP which will be the general partner with responsibility for managing the property. The partnership is a single asset partnership. The property owner contributes the property to the partnership and the partnership issues operating partnership units (OP units) to the property owner. These OP units are convertible into UBP's publicly traded common stock after a "designated" period negotiated between the parties to accommodate their mutual needs, but typically for five years. The details of the conversion rights of the parties can also be customized to meet the needs of the parties.

The transfer of the property to the partnership can be structured as a tax deferred transaction with a cash element, if needed to address the specific needs of the property owners. After contribution of the property, the transferors will receive a negotiated amount of cash distributions.

The subsequent conversion of the OP units into UBP stock would be a taxable event. However, the owner now has the flexibility to choose the timing of and the quantity of OP units to be converted providing for maximum liquidity and flexibility. Thus, OP units can be used to accommodate multi-party ownership having differing tax objectives or can be distributed by an owner to multiple heirs having differing tax circumstances and cash needs. In the event of the owner's death, the OP units would receive a stepup in tax basis.

DownREIT partnerships can take title subject to existing debt, if permitted or arrange for refinancing of the property, if necessary, with appropriate consideration given to the owner's tax needs.