UPREIT Specialist Targets Unanchored Retail Aggregation, Pitching Tax Benefits
KM Realty REIT is using 721 exchanges, or UPREIT, to aggregate retail strip centers, saying the atypical structure lends itself to long-held assets, such as its recent acquisition of a three-building portfolio in Houston.
Houston-based KM Realty has acquired dozens of unanchored retail properties through UPREIT exchanges and stated it is the only REIT consistently using this acquisition structure in the sector, where aggregation is still in its infancy.
“We are doing more of these at scale than anyone else in the country within this asset class,” acquisition analyst Edward Rice told Bisnow.
This month, KM Realty acquired a three-property retail portfolio totaling 26K SF in infill Houston submarkets. The properties were family-owned for decades, and the owners wanted to exit the investment but had a potential tax problem, KM Realty Managing Principal Randy Keith said.
The family learned about the UPREIT structure from a prior Bisnow article, and the parties spent about 18 months working out the transaction, he said.
“They had a corporation, and they had a double taxation issue going on with no basis, basically,” Keith said. “They just could not sell for cash. There'd be very little left.”
The UPREIT exchange lets property owners roll their property into a REIT in exchange for operating partnership units, similar to REIT shares. This allows them to rid themselves of the day-to-day operations of their properties while avoiding transfer taxes from a traditional sale.
The UPREIT structure can seem cumbersome and difficult to understand, which is why KM fully commits to it, Keith said.
“You can’t just halfway do it,” he said. “You have to really put the effort in.”
The Houston portfolio is worth $17M with no debt involved, meaning the REIT will add $17M of equity to its balance sheet and lower its leverage, Keith said. KM Realty is less than 40% levered and wants to maintain that.
KM Realty is a pure-play unanchored retail REIT, so these assets fit that standard. They are also well-located — at 6027 Kirby Drive and 2071 Westheimer Road in Houston and 940 Clear Lake City Blvd. in Webster — with high potential for rent growth, Keith said.
The REIT was formed in 2018 through an UPREIT exchange of 19 shopping centers that it had mostly developed. It has grown about 20% annually, acquiring about $84M of assets in 2024.
It acquired $110M worth of assets in 2025, including a seven-property portfolio totaling 85K SF in Virginia.
More brokers are learning about the UPREIT structure and how it can make sense for their clients, supporting KM Realty’s plan to continue its acquisition spree, Keith said.
“There's a huge amount of runway to grow in the unanchored retail world,” he said.
