Private REIT acquisitions are rising in popularity; however, they come with unique risks compared to a typical real estate transactions. Buyers of a private REIT have a more prudent vetting process than in a typical real estate transaction. In a private REIT deal, buyers need to go through extra steps to ensure that the seller has made followed the correct procedure.

"The buyer of a private REIT specifically needs to make sure that the seller has not made any mistakes in following the detailed technical elements to start and keep its REIT status with the IRS, such as maintaining at least 100 shareholders and satisfying assets, income, and distribution requirements," Max Brunner, senior counsel at Allen Matkins, tells GlobeSt.com. "Any mistakes before the sale could result in liability to the buyer after closing, so it is very important to make sure that everything was done correctly. Tax due diligence is critical, and we typically see one of the Big Four accounting firms assist in this regard. For additional assurance, it is recommended that the seller's law firm provides a legal opinion that the REIT complied with all required formalities to be classified as a REIT."

The buyer of a private REIT will also need to maintain the tax status of the entity following the acquisition. "In a private REIT acquisition it is important to know that in order to preserve the tax status of REIT, the buyer will often need to maintain the REIT for a period post-closing," Ben Fackler, a partner at Allen Matkins, tells GlobeSt.com. "That means leaving the entire structure in place and maintaining it in accordance with applicable tax requirements, potentially for many months. The parties will need to agree on how long to keep the REIT entity in place after closing and who pays the costs of maintaining the entity, complying with REIT rules and dissolving it."