Asset Swaps Emerge as Creative Solution for Stressed Property Owners, Says Investment Leader

Written by:

Rudi Davis

Date:

18 Oct 2025

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Real estate investors facing debt pressure are increasingly accepting REIT units instead of cash, pointing to a potential shift in how commercial property deals are structured.

The Evolution of Deal Structure

“What’s really cool about some of the deals that we’re doing is we’re doing some asset swaps,” Josh Will, President of Virtus Diversified REIT, explains, describing recent transactions where property owners take back units in the REIT instead of full cash payment. In one recent deal, “the vendor took back a million and a half in units in our trust.”

This structure offers multiple benefits for sellers under pressure, Will argues. “They like the cash flow from it, so now they get cash flow from the asset, and it’s a lot more tax efficient for them as well, because the previous cash flow came in as income.”

The Tax Efficiency Angle

Will points to significant tax advantages in these arrangements. Under their REIT structure, distributions are typically treated as return of capital rather than income, with capital gains tax only due upon disposition or redemption of units.

This can provide immediate tax relief for owners facing cash flow pressure, while maintaining their exposure to real estate returns. “Now the way that we structured our REIT, it’s typically a tax efficient structure, where it’s return of capital, and then they pay their capital gains upon disposition or redemption of their units when they decide to create that liquidity event for themselves,” Will explains.

Risk Management Benefits

Beyond tax efficiency, these arrangements offer risk management benefits for property owners. “They kind of de-risk themselves,” Will notes. “They’re not managing that real estate property anymore. We’re now managing, we got managers all over Canada, United States.”

This professional management aspect can be particularly attractive for owners who want to maintain real estate exposure but reduce their direct operational involvement and concentration risk.

Market Conditions Driving Adoption

Will suggests current market conditions are making these arrangements increasingly attractive. With some owners facing pressure from higher interest rates across their portfolios, the ability to convert a single property into more diversified REIT exposure while maintaining cash flow can be appealing.

“The people are selling based on the fact that they might have issues on the other side of their portfolio,” Will explains, noting that some owners are using these transactions to “put the fire out on the other five or six properties on the other side of the portfolio.”

Looking Forward

While still an emerging trend, Will sees potential for these structures to become more common as market pressures continue. The combination of tax efficiency, professional management, and portfolio diversification benefits could make them increasingly attractive to property owners seeking creative solutions.

However, he emphasizes that success requires careful structuring and clear communication of benefits to all parties. “Our philosophy is, if we can buy it, kick out 7% distribution to our investors, and maybe have another three, 4% upside, great,” Will notes, suggesting that sustainable cash flow remains the foundation of successful deals regardless of structure.