Capital Square Completes $57.5M UPREIT Transaction
Capital Square announced the contribution of Marina Pointe, a 308-unit multifamily community in Chattanooga, Tenn., to Capital Square Housing Trust, a REIT sponsored by Capital Square. The transaction was completed through an umbrella partnership real estate investment trust, or UPREIT structure on behalf of investors in CS1031 Marina Pointe Apartments, DST, who contributed their DST interests to Capital Square Housing Trust’s operating partnership.
Over 62% of beneficial ownership, i.e., 59 investors, opted to continue their investment with Capital Square – a sponsor of tax-advantaged real estate investments and an active developer and manager of housing communities across the nation – by contributing their DST interests to Capital Square Apartment Operating Partnership, L.P. in a tax-advantaged transaction under Section 721 of the Internal Revenue Code.
“The successful UPREIT transaction for Marina Pointe demonstrates the strength of Capital Square’s investment platform and our commitment to delivering exceptional outcomes for investors,” said Whitson Huffman, co-chief executive officer and chief investment officer. “By providing investors with multiple options – including the ability to exchange into REIT units on a tax-deferred basis – we are helping them preserve wealth, diversify holdings and participate in the long-term growth of a tax-advantaged multifamily portfolio in the nation’s fast-growing Sunbelt.”
Capital Square used a portion of the proceeds of its Series 1 preferred stock offering to fund investors who opted to structure another Section 1031 exchange or cash out.
Capital Square originally acquired the property on behalf of the DST investors in October 2020 for $44.5 million as sponsor of the DST/1031 exchange program. Following the $57.5 million UPREIT transaction, distributions to investors are projected to increase more than 22% based on the appreciation in value.
“When the time comes to sell appreciated real estate, many owners structure Section 1031 exchanges to defer the taxes,” said Louis Rogers, founder and co-CEO of Capital Square. “Over time, an increasing number of exchangers acquire a DST, such as Marina Pointe, as their Section 1031 replacement property. Because of tax rules, DSTs have a limited holding period, which means that DST properties must be sold, and another exchange must be structured, to continue the tax deferral. Many exchangers have told us they would prefer a permanent solution, permanent tax deferral, which is not possible with a DST.”
“Capital Square has responded to the request for permanent tax deferral with Housing Trust’s UPREIT program – where exchangers contribute their DST interests to the REIT and have the ability to hold REIT interests for life, providing permanent tax deferral along with many REIT benefits, including property diversification and retention of tax benefits,” added Rogers.
Capital Square affords its investors complete optionality within UPREIT transactions. Each investor chooses whether to: exchange their DST interests for operating partnership units in the REIT without taxation under Section 721; structure another exchange to extend their tax deferral under Section 1031 of the Internal Revenue Code; or cash out all or a portion of their investment on a taxable basis.
Regardless of the option selected, the company said all investors are treated equally, with the same fair market value purchase price based on appraised value.
Located at 5750 Lake Resort Drive, the 308-unit multifamily community is situated on 20.578 acres of land. It features one- and two-bedroom units, ranging in size from 760 square feet to 1,414 square feet, and community amenities such as a resort-style swimming pool, spa, outdoor lounge area, a 24-hour fitness center with free weights and cardio equipment, resident pet stations and covered mail centers.
Marina Pointe is situated within an affluent submarket of Chattanooga and adjacent to Lake Chickamauga and the Tennessee Valley Authority (TVA) Big Ridge Small Wild Area. Additionally, the property is approximately 15 minutes away from Chattanooga’s two main employment centers, Enterprise South Industrial Park, home to Amazon and Volkswagen plants, and Downtown Chattanooga, home to BlueCross BlueShield of Tennessee and over 60,000 employees.
Capital Square noted that the $57.5 million fair market value of Marina Pointe was established based on an independent MAI appraisal. Additionally, the nominating and corporate governance committee of the board of directors of Capital Square Housing Trust obtained a fairness opinion from Robert A. Stanger & Company, a third-party investment banking firm.
Capital Square Housing Trust now owns six multifamily communities with a gross asset value in excess of $270 million, based on purchase price.
Since its founding in 2012, Capital Square has acquired more than 170 real estate assets for over 6,500 investors seeking quality replacement properties that qualify for tax deferral under Section 1031 of the Internal Revenue Code, along with opportunity zone funds and a real estate investment trust that acquires rental housing in the Southeast and Texas. In total, Capital Square has completed more than $7.9 billion in transaction volume and its mixed-used development projects total over 2,000 apartment units with a total development value in excess of $800 million. Capital Square Living, the firm’s property management division, now manages over 13,000 apartments across multiple states.
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