Is a 721 Exchange Really Liquid If Everyone Runs for the Door?

Redemption is a request, not a right

Units in an operating partnership have no market. When you want cash, you ask the sponsor to redeem them, and the partnership agreement and the REIT's repurchase program decide how much it will buy and when.

BREIT's plan, as its 2023 Form 10-K states, limits repurchases to 2% of aggregate net asset value in a month and 5% in a quarter, and the board may make exceptions. Other sponsors set their own caps, so read the program terms for the units you would hold.

BREIT showed what that means. On December 1, 2022, Blackstone said repurchase requests had passed its limits of 2% of net asset value in a month and 5% in a quarter, and that it would fill requests only up to those caps (InvestmentNews, December 2, 2022).

Requests peaked at $5.3 billion in January 2023, and the fund did not fill 100% of requests again until February 2024 (Commercial Observer, March 1, 2024). Even in late 2023 the 10-K reports that requests still exceeded both limits and that BREIT filled 56% of October, 67% of November and 53% of December requests.

Borrowing against units is hard

A building can carry a mortgage. Whether a partnership unit can be pledged depends on the partnership agreement.

One large REIT's operating partnership agreement allows a limited partner to pledge units to secure a bona fide loan without the company's consent, but it also requires the company's written consent for most other transfers, and it is not clear whether that consent condition reaches a pledge (ERP Operating LP agreement, SEC filing, 2024).

Other agreements limit pledges. Units also have no market price, only the sponsor's net asset value. I found no survey of lenders on this, so ask the lender and read the agreement before you rely on it.

A 1031 owner has more doors

If you did a 1031 into property you own, you keep three options in a crunch: sell, hold, or borrow. Borrowed money is not income, because you have to pay it back (Commissioner v. Indianapolis Power & Light Co., 493 U.S. 203, 1990), so a cash-out refinance does not trigger the deferred gain.

Freddie Mac's survey put the 30-year fixed residential rate at 7.18% on November 5, 2026.

Commercial loans price differently: one lender-rate roundup of August 2026 rate sheets listed 5.70% for large agency multifamily, 6.63% for CMBS and 5.54% to 8.95% for conventional bank loans, depending on property and credit (CoreAdvisors, August 18, 2026; a secondary source). The rate is a cost, not a tax.

The fair caveat: in a real credit crunch a lender may not lend at all. In the Federal Reserve's October 2008 survey about 85 percent of domestic banks reported tightening commercial real estate lending standards over the prior three months, so the refinance can be unavailable, not only expensive.

Owning the property gives you the option to ask. It does not promise an answer. Interest on a loan used for personal spending is not deductible as investment interest (Treas. Reg. 1.163-8T).

Ongoing fees against one-time costs

A 721 holder pays the sponsor every year. BREIT's 2024 Form 10-K says its adviser receives an annual management fee of 1.25% of net asset value, payable monthly, and earlier filings describe a 12.5% performance participation interest held by its special limited partner (Form 10-K for 2021). These are paid inside the portfolio, so you never write a check, and you never stop paying while you hold.

A 1031 owner pays an exchange fee and closing costs, mostly once, and then the cost of running the property they chose. Both costs are real. The 721 fee buys management and diversification. The point is only that it recurs.

An installment sale pays on schedule

In an installment sale the buyer pays you over years under a note, and you report gain as principal arrives (IRC 453(a)). The schedule is a contract, so it does not depend on a fund's redemption queue.

The risk moves to the buyer: if the buyer or the property fails, you hold a claim, usually secured by the property, not cash. Underwrite the buyer's credit, ask for a mortgage or deed of trust and a personal guarantee when the facts support it.

The tax is spread by the payments. Ten equal years cost $444,200 in total here, an effective rate of 15.9%. Depreciation recapture taxed as ordinary income is due in the sale year (IRC 453(i)). Obligations over $5,000,000 outstanding at year end carry an interest charge on the deferred tax (IRC 453A(b)(2)), and the amount is not indexed.

What it costs to take cash in each path

Redeeming one-tenth of the units in a year costs $44,420 in this example, and the next tenth is a decision for the next year. Cashing out the whole position at once costs $720,753. An installment sale lands between them and is contractual. The 721 holder's tax is lower per slice, but the slice only arrives if the sponsor pays it.

Decision guide

If you may need a large amount of cash in a stressed market, own something you can borrow against or sell, or hold a contract that pays on a date. If you will not need the money for years and want the work gone, a 721 can fit, with a cash reserve outside it. The Big Sale Tax Analysis runs your case against a bad year.

Where to compare the two paths

Related comparisons: 1031 exchange vs 721 exchange and Delaware statutory trust vs 721 exchange.

How much tax would you owe? Run your own numbers

Frequently asked questions