Sarah Wellings, partner at Sullivan & Worcester LLP, sat down for a video interview at Nareit’s REITwise: 2026 Educational Conference in Hollywood, Florida, March 24-26.
Wellings reviewed common operational risks REITs face when managing taxable REIT subsidiaries (TRSs), particularly around service classification and asset transfers. She explained that relying on independent contractors for non-customary services can be risky due to complex compliance requirements—often difficult to meet in practice. Misclassification and logistical challenges can expose REITs to violations, making TRSs a simpler and more flexible alternative, she said.
On asset transfers, Wellings noted that fears of triggering the 100% prohibited transaction tax can be mitigated by routing sales through a TRS, framing the decision as a tradeoff between a 21% corporate tax and potential higher exposure.
She also stressed the growing importance of transfer pricing documentation. While internal pricing may be accurate, external studies help withstand IRS scrutiny and investor due diligence. “A REIT that's saving money on the front end… ultimately spend[s] more money on the back end defending what they did,” she said.
Wellings also observed that while technology adoption is improving compliance—through data aggregation, automation, and alerts—implementation challenges and user adoption remain key gaps.