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Frequently Asked Questions
Your Questions, Answered: Everything You Need to Know About Investing with Medalist Diversified REIT
Overview
Founded in 2015, Medalist is a real estate investment trust (REIT) that enables investors to convert their direct real estate investments to tax-advantaged real estate stores of wealth that are optimized for income, liquidity, and wealth preservation using DST, 1031 and 721 exchange solutions.
Through Medalist, real estate investors can exchange their direct real estate investments for ownership in Medalist REIT without incurring capital gains taxes. While invested in Medalist REIT, investors continue to enjoy steady cash flow and real estate appreciation without the hassles of managing investment properties.
The Delaware Statutory Trust (DST) structure originated from Delaware’s statutory trust laws, which date back to the 1980s. This legal framework allows for the creation of a trust that can hold, manage, and invest in real estate. DSTs became especially popular after the IRS issued Revenue Ruling 2004-86, which recognized DSTs as eligible for 1031 exchanges. This ruling opened the door for real estate investors to defer capital gains taxes while enjoying the benefits of passive ownership in large, professionally managed properties. Medalist’s platform simplifies the process of investing in DSTs, offering individual investors access to high-quality real estate opportunities.
The 1031 exchange refers to Section 1031 of the U.S. Internal Revenue Code. Established in 1921, this provision allows investors to defer capital gains taxes when they exchange like-kind properties. The 1031 exchange has been a cornerstone for real estate investors looking to optimize their portfolios without incurring immediate tax liabilities. Medalist provides a platform that simplifies the 1031 exchange process, enabling individual investors to leverage these tax benefits effectively.
The 721 exchange refers to Section 721 of the U.S. Internal Revenue Code, the same tax code that includes the well-known Section 1031 exchange. Established in 1954, Section 721 has been utilized by institutional investors for decades to minimize taxes on real estate transactions. Medalist has developed a platform that allows individual property investors to access the same tax benefits offered by the 721 exchange.
At Medalist, we’ve meticulously selected properties that fit our core portfolio and stringent financial return criteria, packaging these assets into 1031 compatible, low-cost Delaware Statutory Trusts (DSTs). This allows investors to acquire the precise dollar amount of replacement property needed for their 1031 exchange by purchasing a percentage interest in a DST.
After holding your investment in the DST for the required period to comply with 1031 regulations, your DST beneficial interest will be converted into Medalist REIT equity through a tax-deferred 721 exchange. This provides you with an allocable, hassle-free, and diversified store of real estate wealth in the form of Medalist REIT OP Units.
As an OP Unitholder, you can manage your tax liability and liquidity needs more effectively by gradually liquidating your Medalist equity by converting your OP Units into liquid, publicly traded Medalist REIT shares (Nasdaq: MDRR).
As an investor in Medalist, you gain access to cash flow generated from the rental income of the REIT’s portfolio of high quality commercial real estate assets, and you continue to benefit from potential real estate appreciation based on the portfolio’s performance. This transition allows you to adopt a fully passive approach to real estate investing, giving you back countless hours of time and providing invaluable peace of mind. All operations related to the properties in Medalist REIT, including leasing and repairs are fully managed by our team of professionals.
The 721 and 1031 exchange allows you to defer significant capital gains and depreciation recapture taxes that could be as high as 42.1% with a traditional property sale. After the minimum holding period, you can manage your tax liability more effectively by gradually liquidating your Medalist equity. Additionally, Medalist equity benefits from a step-up in tax basis upon inheritance, providing significant tax savings for your heirs when they decide to liquidate their equity. We recommend consulting with your tax advisor, attorney, and/or the IRS website to understand how Medalist can complement your personalized tax planning.
Income received from a corporate bond, in the form of interest payments, is typically taxed as ordinary income, potentially subjecting it to a maximum federal tax rate of 40.8% (37% top federal income tax bracket plus a 3.8% Medicare surcharge which went into effect in December 2015). In contrast, income from REIT dividends is taxed more favorably. According to NAREIT data, since 1995, an average of 15% of REIT distributions have been treated as long-term capital gains, taxed at a maximum rate of 20%. About 16% of these distributions are classified as Return of Capital, which is not taxed at the time of receipt. The remaining portion is taxed as ordinary income, resulting in a weighted average tax rate of 31.2% for investors in the highest tax bracket.
This tax rate difference means that a REIT OP unit with a 5.0% dividend yield would have a tax-equivalent yield of 5.8% when compared to a corporate bond. In other words, a 5.0% REIT dividend yield provides the same after-tax economic benefit as a corporate bond yielding 5.8%.
Defer taxes – can sell appreciated real estate and acquire an interest in a DST on a tax deferred basis
Replacement property sizing – investors can purchase a fractional interest in the DST to perfectly match the amount needed to complete their 1031 Exchange
Passive investment – the DST and related properties are professionally managed by a high-quality, reputable institutional manager
Income – investors receive their pro rata share of quarterly distributions
Estate planning benefits – opportunity to efficiently transfer wealth to heirs on a “stepped-up” basis
Defer taxes – can contribute appreciated real estate to a REIT in exchange for OP units on a tax deferred basis
Diversification – access to institutional-quality portfolio, diversified across property types and geographies
Passive investment – the Operating Partnership and related properties are professionally managed by a high-quality, reputable institutional manager
Future liquidity – opportunity to convert OP units to public traded shares (Nasdaq: MDRR)
Estate planning – potential to reduce or eliminate taxes altogether through the transfer of OP units to heirs on a “stepped up” basis. OP units also allow for simplification of the investor’s estate, as they can easily be divided amongst heirs in a way that a single property cannot and can provide heirs access to liquidity
Medalist can structure an UPREIT transaction that fits the financial/tax needs of most clients. However, to the extent that a seller receives cash as a portion of the consideration, certain federal and state tax liabilities may be triggered.
Absolutely! Every individual’s legal, financial and tax situation is unique, and the tax issues related to UPREIT transactions can be complex. Asset owners are encouraged to obtain expert tax and legal advice before finalizing the sale of property to an UPREIT.
As a partner in the Operating Partnership, an OP Unitholder will receive an allocation, for income tax purposes, of the liabilities of the Operating Partnership. An OP Unitholder’s adjusted tax basis in his or her OP Units will be increased by the amount of such allocation. Among other things, an increased tax basis from an allocation of liabilities may enhance an OP Unitholder’s ability to (i) receive cash distributions in excess of earnings on a tax-deferred basis and (ii) absorb and use net losses, if any, generated by the Operating Partnership.
Depending on how the note is written, in many cases the mortgage on a property that an owner wishes to sell to the operating partnership is assumable. If the mortgage debt has been outstanding for at least two years at the time of the transaction, then the mortgage debt generally will constitute a qualified liability and not be regarded as a “disguised sale”. On the other hand, if the mortgage debt was incurred in the prior two years, then its characterization for disguised sale purposes may depend on how the borrowed funds were used. If the proceeds were used to invest in the property or to refinance debt on the property, then the mortgage debt generally will be a qualified liability and not considered a disguised sale.
About Medalist REIT
Medalist’s internal management team serves in the capacity of a fully-integrated fiduciary to the REIT, avoiding many of the conflicts of interest often associated with externally managed REITs. In this role, Medalist’s team acts as the manager of the trust’s assets, which are collectively owned by all the investors who have contributed properties or invested in the REIT.
The Medalist team brings decades of expertise in investment and management, encompassing over a billion dollars in real estate transactions, real estate law, general contracting, and public company operations. Our team members have gained valuable experience at top-tier real estate and financial institutions like CSX Realty, Goldman Sachs and Morgan Stanley. They also hold prestigious professional designations, including Chartered Financial Analyst (CFA), Chartered Alternative Investment Analyst (CAIA), and Certified Public Accountant (CPA), bringing a wealth of diverse operational leadership to the table, ensuring that we have the knowledge and skills to manage and grow our portfolio effectively.
Yes, Medalist is regulated by the SEC. Medalist conforms to the SEC’s rigorous disclosure requirements, including filing Form 8-Ks to disclose significant events, a Form 10-K annually and a Form 10-Q quarterly.
Compare & Contrast
Many real estate investors are familiar with the 1031 exchange, which allows them to sell an investment property and reinvest the proceeds into another property, deferring capital gains taxes. At Medalist, we offer another powerful option: the 721 exchange.
With the 1031 exchange, investors typically remain actively involved in managing their new properties. However, the 721 exchange allows investors to trade their investment properties for equity in Medalist, deferring capital gains taxes while gaining the benefits of professional management and diversification. This approach lets investors transition to a more passive role, enjoying steady income and long-term growth without the hands-on responsibilities of property management.
Direct real estate investments involve purchasing and managing properties yourself, giving you full control but also all the responsibilities of property management. This can include dealing with tenants, maintenance, and the financial intricacies of running a property.
Investing in a Delaware Statutory Trust (DST) offers a more passive approach. With a DST, you purchase a percentage interest in a trust that owns and manages the property, allowing you to defer capital gains taxes through a 1031 exchange. This investment structure provides the benefits of professional management and diversification without the day-to-day hassles of direct property ownership. Medalist’s DST offerings are designed to align with our core portfolio, ensuring high-quality, low-cost opportunities for our investors.
Hiring a property manager can certainly alleviate some of the day-to-day burdens of managing investment properties. However, as long as you retain ownership, you still bear significant financial and legal risks, including vacancies, repairs, and even unexpected disasters.
By investing with Medalist, you can significantly diversify these risks. Your investment is spread across a diverse portfolio of professionally managed investment properties, meaning you are not dependent on the performance of a single asset. Our expert team handles all aspects of asset and property management, from leasing to maintenance.
Additionally, our success is directly tied to the long-term performance of our properties, ensuring that our interests are closely aligned with yours. This allows you to enjoy the benefits of real estate investment without the headaches and risks of direct property ownership.
Selling your investment property outright can result in significant capital gains and depreciation recapture taxes, potentially as high as 42.1%, which can greatly reduce your after-tax proceeds. Instead of selling and then buying shares of a REIT, which could limit your investment potential, Medalist offers a tax-advantaged alternative.
Through our platform, you can utilize DST, 1031, and 721 exchange solutions to roll over your investment properties into OP Units of Medalist. This defers the taxes and maximizes the value of your investment. By deferring these taxes, you can potentially achieve significantly higher returns compared to investing with reduced after-tax proceeds.
Medalist is designed for long-term investors seeking steady income and growth. We also offer unparalleled reporting transparency, ensuring you have clear insights into your investments. If you’d like a personalized assessment of your potential returns with Medalist, please contact us to discuss your options.
OP Units have similar economic characteristics as REIT shares. In addition, an OP unitholder may receive distributions that are similar or equal to the dividends paid on REIT shares.
The distribution that the OP Unit holder receives is viewed as a percentage of the income generated by the operating partnership. Given that the UPREIT owns and manages properties in multiple states, a Unit Holder may have income tax filing requirements in each state.
Also, OP unitholders have more limited voting rights that REIT shareholders since unitholders own an interest in the partnership and not in the REIT.
Unlike a 1031 exchange, once a property owner takes OP Units in return for selling an asset, they can not exchange that Unit back into an equity interest in an individual property. UPREIT units can only be converted into shares of the REIT, which creates a taxable event. However, unit conversion is at the owner’s discretion; giving the holder control over the timing the conversions and tax payments.
Also, OP unitholders have more limited voting rights than REIT shareholders since unitholders own an interest in the partnership and not in the REIT.
Medalist’s Portfolio
Medalist’s portfolio includes a diverse range of investment properties that meet our stringent financial return criteria. Our holdings encompass retail, flex industrial, and single tenant net lease (STNL), all selected for their strong income potential and long-term value.
To view the properties currently in Medalist portfolio, please visit our Portfolio page. You’ll get a comprehensive overview of the types of investments we own and the strategic locations we focus on to ensure robust returns for our investors.
Our investment strategy focuses on acquiring high-quality real estate assets in high-growth, non-coastal markets, aiming to provide higher levels of current income without sacrificing long-term value appreciation potential.
Central to our strategy is a focus on fundamental performance metrics like Internal Rates of Return (IRR), which consider both income and asset value appreciation on a time-valued basis. This comprehensive approach avoids the pitfalls of more common metrics in the real estate industry, such as investment multiples and cash-on-cash returns. By doing so, we ensure that your real estate wealth is not only optimized for current income but also preserved and enhanced for future generations.
Medalist REIT operates all properties in our portfolio as long-term investments. We have dedicated local teams in each market where we own properties, supported by carefully selected third-party property managers.
Our approach ensures that property management is local, responsive, and knowledgeable, providing the best experience for tenants and contributing positively to the community. This high level of management not only enhances tenant satisfaction but also maximizes the value and performance of our properties for our investors.
Medalist aims to own and operate properties on a long-term basis to provide stable, ongoing returns. However, our primary responsibility is to generate the best possible returns for our investors. Therefore, we may strategically reposition individual assets to optimize portfolio performance.
When we do decide to sell properties, we strive to preserve tax efficiency for our investors by utilizing 1031 exchanges whenever possible. This approach ensures that we maximize returns while maintaining the tax-advantaged benefits of your investment.
Transaction Process
While Medalist REIT is not primarily a cash buyer, we do offer limited cash at closing on a case-by-case basis.
Client Experience
Medalist aims for a 7-10% target net annual return for its investors, based on the performance of our diverse portfolio of investment properties. This return is derived from two key sources: 1) rental income generated by the properties in the portfolio and 2) equity appreciation from the value growth of the real estate assets. Many of our clients find that the peace of mind and time saved from not managing individual properties are invaluable benefits.
Cash flow from your investment is distributed quarterly and can be received either as cash or as additional equity in Medalist REIT if you choose to enroll in our Dividend Reinvestment Plan (DRIP). Historically, cash distributions to our investors have enjoyed favorable tax advantages, maximizing the benefits of your investment. Choose the option that best aligns with your financial goals and enjoy the flexibility and benefits of investing with Medalist REIT.
As a Medalist REIT OP unitholder, you can access comprehensive and detailed SEC filings through the investor relations section of Medalist REIT’s website or directly on SEC.gov. These filings provide full visibility into the portfolio’s financials and asset-level activities, ensuring you stay informed about the performance and management of your investments.
When you complete a 1031 exchange into a Medalist REIT DST, you’ll gain access to a personalized online Client Portal. This portal provides comprehensive and detailed reporting on your financial performance, including full visibility into the trust’s financials and real-time asset-level activities, such as individual leasing and more. This ensures you have up-to-date information and transparency regarding your investment.
We strive to provide a transparent and collaborative ownership experience. As a Medalist REIT investor, you will receive regular updates through the investor section of our website and our social media channels, where we share informative and easy-to-understand educational resources. Additionally, we hold an annual investor meeting to report on strategy and performance. Our goal is to keep you informed and engaged every step of the way.
After a minimum hold period, you can liquidate your equity by converting your OP units into Medalist REIT’s publicly traded shares (Nasdaq: MDRR). You can then sell these shares on one of the largest and most liquid markets in the world.
You have the flexibility to redeem your equity all at once or spread it out over a number of years to manage potential tax liabilities. Keep in mind that redeeming your equity for cash can be a taxable event, similar to selling investment properties.
Yes, with significant tax advantages. Similar to traditional investment properties, ownership in Medalist REIT benefits from a step-up in tax basis upon inheritance. This can provide your heirs with substantial tax savings when they eventually liquidate the equity. Additionally, the flexibility of owning shares in a diversified portfolio, rather than a single illiquid property, makes Medalist REIT an attractive estate planning instrument.
However, we recommend consulting with your tax advisor, attorney, and/or the IRS website for personalized advice tailored to your specific situation.
