October 2020- MONTHLY LANDSCAPE COMMENTARY:

Spon­sors add $250,000,000 in offer­ings in Octo­ber

By Al DiNi­co­la, DST Invest­ments, LLC

Octo­ber 21, 2020

Secu­ri­ties offered through MSC-BD, LLC

Dur­ing the sum­mer months, and after many of the restric­tions cause by COVID, spon­sors were very active in adding addi­tion­al projects/assets to the avail­able options for cash investors as well as 1031 Tax Deferred Exchang­ors.  Since the expi­ra­tion of the COVID July 15^th exten­sion for iden­ti­fi­ca­tion and clos­ing on replace­ment prop­er­ties there was a deple­tion on the avail­able prop­er­ties.  Once Spon­sors were cleared to com­plete their due dili­gence and site inspec­tions many prop­er­ties were set up for clos­ing for final acqui­si­tion by spon­sors.  In addi­tion to the abil­i­ty to inspect the prop­er­ties the mort­gage rates con­tin­ue to be low and added to the finan­cial struc­ture of the acqui­si­tion of the prop­er­ty by the spon­sors.  This pro­vid­ed addi­tion­al under­writ­ing ben­e­fits.

Typ­i­cal­ly, yearend real estate acqui­si­tion on the res­i­den­tial side as well as the com­mer­cial asset class tend to tick up.  DST acqui­si­tion are no dif­fer­ent.  Many tax­pay­ers seek to com­plete sales and acqui­si­tion with­in the same tax year. Some DST investors will also secure their replace­ment prop­er­ties as soon as pos­si­ble rather than wait the 180 days for clos­ing. In most sit­u­a­tions the investors will iden­ti­fy the replace­ment DST prop­er­ties and close as soon as pos­si­ble days or a week rather than extend­ing the time.  This is dri­ven more by the demand for cer­tain DST prop­er­ties or port­fo­lios rather than time.  Well posi­tion DST offer­ings are in demand.  The typ­i­cal 1031 real estate replace­ment process needs the full 45 days for iden­ti­fi­ca­tion, nego­ti­a­tions and selec­tion of the poten­tial prop­er­ties.  Then the addi­tion­al time, up to 180 days to close, to per­form due dili­gence, arrange financ­ing, title review as well as oth­er pre clos­ing task.  The DST offer­ings stream­line all those task as well as hav­ing prepack­aged non-recourse loans include in the offer­ings. Many reg­u­lar 1031 exchanges take weeks and months to nego­ti­ate and exe­cute how­ev­er, DST takes days.

Over the month of Octo­ber, the $250,000,000 added in DST offer­ing was spread among the typ­i­cal dis­tri­b­u­tion with Mul­ti­fam­i­ly lead­ing the way.  Dur­ing the COVID restric­tion con­struc­tion con­tin­ued in many of the mul­ti­fam­i­ly loca­tions.  Builders were able to com­plete con­struc­tion and deliv­er the prod­uct to the mar­ket. Spon­sors with exist­ing rela­tion­ships with builder/developer were wait­ing for lease up and sta­bi­liza­tion of the prop­er­ties. Once again, the right demo­graph­ics need to be present to cre­ate the demand for the lease up.  Employ­ment, trans­porta­tion, loca­tion as well as income lead the list of indi­ca­tors for the prop­er­ty acqui­si­tion. Geor­gia, South Car­oli­na, Vir­ginia and Flori­da lead the way in new offer­ings. There were addi­tion­al essen­tial retail, self-stor­age, and office added.  There were no new stu­dent hous­ing offer­ings nor hos­pi­tal­i­ty.  How­ev­er, there was a new asst class offer­ing that was intro­duced and we pre­dict to see more of this new asset class.  The Man­u­fac­tured Hous­ing (MFH) offer­ings have been intro­duced both as DST as well as LLC/REIT offer­ings.  On the DST side this oper­ates much like a triple net lease. Man­u­fac­tured hous­ing parks are basi­cal­ly set up as land leas­es to the own­er of the homes. This type of assets has the low­est default rate of many asset class­es as well as the high­est occu­pan­cies in most cas­es. Many of the MFH park have been owned and run as fam­i­ly busi­ness. The spon­sor looks to iden­ti­fy park loca­tions that are close to the inter­coastal or ocean.  The first offer­ings have been in Flori­da.  There is lim­it­ed sup­ply of 4- and 5‑star loca­tions for acqui­si­tion. Typ­i­cal­ly, there is a cap­i­tal improve­ment plan to improve the appear­ance of the parks, club­house or ameni­ties. In many cas­es the cur­rent rents are below mar­ket rents.  The MFH LLC offer­ings (not eli­gi­ble for 1031 exchanges) may include mul­ti­ple loca­tions pack­aged as port­fo­lio enabling geo­graph­ic diver­si­fi­ca­tion. In both cas­es (DST or LLC) the lia­bil­i­ty for the struc­tures are the respon­si­bil­i­ty of the indi­vid­ual own­ers of the homes who rent the under­ly­ing land and not the Spon­sor (or indi­vid­ual investors).  The club­hous­es, ameni­ties, roads and hor­i­zon­tal ele­ments are the respon­si­bil­i­ty of the sponsor/investors.  We will pro­vide more insight into this new asset class in the com­ing months.

There were no Octo­ber sur­pris­es from the spon­sors since we pre­dict­ed that there would be a large gain in avail­able prop­er­ties.  Cur­rent­ly we are track­ing 30 DSTs with $525,000,000 in equi­ty avail­able. There are only a few all cash DST (by design) since many investors require debt replace­ment.  The DST we track have an aver­age LTV of 52%.  When fac­tor­ing in the lever­age com­po­nent that rep­re­sents over $1 Bil­lion in DST prop­er­ties.  We pre­dict that 50% of will be acquired by indi­vid­ual cash investors or 1031 exchang­ors by the end of the year.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. For more infor­ma­tion on how to prop­er­ly set up an IRC 1031 Tax Deferred Exchange or if you are an accred­it­ed investor and would like addi­tion­al infor­ma­tion on a DST con­tact Al DiNi­co­la at 239–691-8098 or email adinicola@dst.investments.

This is not an offer to pur­chase or solic­i­ta­tion to pur­chase any secu­ri­ty, as such be made only through an offer­ing mem­o­ran­dum or prospec­tus.  Invest­ing in secu­ri­ties, real estate or any invest­ment, whether pub­lic or pri­vate, involves risk, includ­ing but not lim­it­ed to the poten­tial of los­ing some or all of your invest­ment dol­lars when you invest in secu­ri­ties. You should review any planned finan­cial trans­ac­tions that may have tax or legal impli­ca­tions with your per­son­al tax or legal advi­sor.   DST Invest­ments, LLC is a Reg­is­tered Invest­ment Advi­sor, reg­u­lat­ed by SEC (Secu­ri­ties and Exchange Com­mis­sion). Our cor­po­rate office is locat­ed at 999 Van­der­bilt Beach Road, Suite 200, Naples Flori­da 34108. Secu­ri­ties Offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC. 410 Peachtree Park­way Suite 4245, Cum­ming, GA 30041