Capital Square Completes UPREIT Transaction With Multifamily DST Investors
Capital Square, a sponsor of tax-advantaged real estate investments and a national developer and manager of housing communities, has announced the contribution of Promenade at Newnan Crossing Apartments to Capital Square Housing Trust, a non-traded real estate investment trust sponsored by Capital Square.
Through an umbrella partnership real estate investment trust, or UPREIT, transaction, more than 55% of the Delaware statutory trust owners in CS1031 Promenade at Newnan Crossing Apartments, DST, exchanged their DST interests for limited partnership units in the REIT’s operating partnership in a tax-advantaged transaction under Section 721 of the Internal Revenue Code.
Promenade at Newnan Crossing was originally acquired by Capital Square on behalf of the Delaware statutory trust for $65.8 million in October 2020. According to the firm, the property outperformed the private placement memorandum pro forma by more than 17% on income and nearly 30% on net operating income over a five-year holding period, supported by rent growth exceeding 25% and average occupancy above 95.5%.
“The DST is an exceptional structure for Section 1031 investors seeking cash flow and appreciation,” said Louis Rogers, founder and co-chief executive officer of Capital Square. “Over time, many DST investors have requested a tax-favored solution that provides permanent tax deferral and greater property diversification. The DST-to-modern UPREIT transaction is the ultimate answer for a growing number of DST investors.”
With Capital Square’s UPREIT transactions, investors can exchange their DST interests for operating partnership units in the REIT without taxation under Section 721; structure another exchange to continue their tax deferral under Section 1031; or cash out all or a portion of their investment on a taxable basis. Regardless of their choice, the company said investors are treated equally with the same fair market value purchase price based on appraised value.
Located at 1450 Newnan Crossing Boulevard in Newnan, Ga. – 40 miles from Atlanta – the multifamily community is composed of 298 units and situated on 24.21 acres of land. The community’s distinct unit types include townhomes, manor-style homes and garden-style apartment flats ranging in size from 577 square feet to 1,423 square feet. The community includes a resident clubhouse with multiple lounges and meeting areas, a resort-style pool, community garden, dog park, bike storage pavilion, indoor game room, bocce ball court and turf area used for outdoor movie screenings.
The fair market value of Promenade at Newnan Crossing Apartments was established through an independent MAI appraisal. Additionally, Capital Square Housing Trust obtained a fairness opinion from Robert A. Stanger & Company, a third-party investment banking firm. Results of the appraisal and fairness opinion were not available at time of publication.
“The sale of Promenade at Newnan Crossing underscores Capital Square’s strength as a vertically integrated firm and our commitment to creating attractive long-term outcomes for investors,” said Whitson Huffman, co-chief executive officer and chief investment officer of Capital Square. “Investors who participated in this DST offering realized a successful total return, while those who elected to UPREIT into Capital Square Housing Trust have the opportunity for enhanced portfolio diversification, increased cash flow and other possible long-term REIT benefits not available in the DST structure.”
Capital Square Housing Trust now owns 10 multifamily communities with a gross asset value of over $389 million based on purchase price.
Previously reported by AltsWire, Capital Square hired external wholesaler Mick McClendon as senior vice president, Southeast sales; and internal wholesaler Preston Nevins as vice president, Southeast and Blue Ridge sales. McClendon is providing sales and marketing support for broker-dealers, registered investment advisers and their affiliated advisers in the Southeast, serving Alabama, Arkansas, Florida, Georgia, Mississippi, and Puerto Rico. Nevins is serving and supporting both the Blue Ridge and Southeast territories as the internal wholesaler.
Since its founding in 2012, Capital Square has completed more than $7.9 billion in transaction volume and acquired over 175 real estate assets on behalf of more than 6,500 investors. The firm has a portfolio of 66 multifamily apartment communities, 13 age-restricted manufactured housing communities in Florida and seven build-for-rent communities, with a total investment cost of nearly $5 billion.
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