If you have spent decades building a real estate portfolio, residential rentals, commercial properties, raw land, you already know the rewards. You also know the burdens: property management headaches, concentrated tax exposure, illiquidity, and the looming question of what happens to all of it when you are ready to step back.

Real Estate Investment Trusts (REITs) offer a sophisticated solution that many high net worth property owners overlook. Here is what you need to know.

What Is a REIT?

A REIT is a company that owns or finances income producing real estate and has elected to be treated as a “real estate investment trust” under Sections 856 through 860 of the Internal Revenue Code. The structure was created by Congress in 1960 specifically to allow investors to participate in large scale real estate on favorable tax terms. Maryland leads the country in REIT formation, over 70% of public REITs are formed under Maryland law, and remains the gold standard jurisdiction for REIT structuring.

The Core Tax Advantage

The most powerful feature of a REIT is pass-through taxation. A properly structured REIT distributes at least 90% of its taxable income to shareholders and receives a deduction for dividends paid, effectively eliminating the corporate level “double tax” that would otherwise erode returns. For a portfolio owner who has been paying both entity level and personal income tax on rental income, this restructuring alone can be transformative.

Solving the Liquidity Problem

One of the most persistent challenges for large real estate portfolios is illiquidity. Your wealth is locked in brick and mortar. A UPREIT structure, Umbrella Partnership REIT, allows you to contribute appreciated property to an Operating Partnership in exchange for OP units rather than cash. The key benefit: that contribution is generally not a taxable event. You defer the capital gain that would have been triggered by an outright sale, while gaining units that can eventually be converted to publicly traded REIT shares. You move from illiquid hard assets to a liquid, income producing position without writing a check to the IRS on the way out.

Access to Institutional Capital

If your goal is to grow rather than exit, the REIT structure opens doors that a traditional LLC or limited partnership cannot. REITs attract investor classes that would not otherwise participate: foreign investors seeking to manage their FIRPTA exposure, tax exempt institutions like pension funds and endowments that need to avoid Unrelated Business Income Tax, and family offices seeking diversified real estate exposure with simplified tax reporting. Structuring as a private REIT positions your portfolio to absorb institutional capital at scale.

Estate Planning Advantages

For owners thinking about multigenerational wealth transfer, REIT shares are far easier to gift, transfer, and divide than fractional interests in real property. Rather than deeding a 1/3 interest in a shopping center to three children, and creating all the conflict that goes with co-ownership of illiquid assets, you can distribute REIT shares that carry the same economic interest with far greater flexibility and marketability. Combined with proper trust planning, this creates a clean vehicle for generational wealth transfer.

Maryland Is the Right Jurisdiction

If you are a Maryland property owner or investor, you have a home field advantage. Maryland is the only state with a standalone REIT statute, enacted in 1963, and its courts have decades of experience adjudicating REIT issues. Maryland law provides specific statutory protections for REIT ownership limitations, broader takeover defenses than Delaware, and board level flexibility to access capital markets without shareholder votes, all features that protect the long term integrity of your investment structure.

Is a REIT Right for You?

A REIT structure is not appropriate for every portfolio. It carries compliance obligations, income and asset tests, and distribution requirements that demand ongoing attention. But for the property owner sitting on a portfolio generating consistent rental income, facing estate planning complexity, or seeking to bring in outside capital without a taxable sale, a private REIT, formed under Maryland law, deserves serious consideration.

---

Blackridge Advisors LLC represents real estate investors, developers, and operators across Maryland. Contact us to discuss whether a REIT structure fits your portfolio goals.

Blackridge Advisors LLC  |  7939 Honeygo Blvd, Ste 116, Nottingham, MD  |  443-295-3202  |  ddouglas@blackridgeadvisors.com

This article is provided for general informational purposes only and does not constitute legal advice. Reading it or contacting Blackridge Advisors LLC does not create an attorney client relationship.