What are single-step and two-step 721 exchanges?

A 721 exchange allows investors to contribute property to a partnership in exchange for operating partnership (OP) units, providing ownership interest and access to distributions and appreciation.

Single-step exchange:

Used by institutional investors (e.g., REITs, large real estate firms)
The partnership directly acquires the investor’s property in exchange for OP units

Two-step 721 exchange

Common for individual investors who don’t own institutional-grade assets.
Step 1: The investor 1031 exchanges their property into a Delaware Statutory Trust (DST)
Step 2: A REIT’s operating partnership acquires the DST, converting DST interests into OP units

The two-step method allows individual investors to transition from a single asset into a diversified portfolio while fully deferring taxes.