December 5, 2020
It has been stated so many times this year that 2020 is a year like no other with many factors. These factors include many effects from COVID issues, business uncertainty, shifts to working at home (rather than being in the office), parents assisting children with at home classroom, and the overall economic changes the country and the world is dealing with this year. In addition, there is a change in the political scene and climate in Washington. At the same time there are sectors of the economy that has responded to the challenges and created opportunities. The online economy and the delivery process of all the in-home shopping has energized certain businesses. The end of the year traditionally creates a push or rush to settle certain tax and investment positioning continues to be a goal among investors, buyers and sellers. The Delaware Statutory Trust (DST) environment will be no different.
Sponsors, working with financial advisors representing investors, have secured reservations and indication of interest in many assets and properties. These assets may represent single properties or may be portfolio of assets (from 2 properties to nearly 20 properties). The assets that may be smaller offering, under $20MM may have a shorter “runway” for potential investors. Runway meaning how long an investor may have to identify and ultimately close on an identified property. Larger offerings, over $50MM provide longer periods of time. This longer period of time may assist investors who are engaged with a 1031 tax deferred exchange especially if the investor is anticipating on closing and not within their 45-day identification period. Cash investors or 1031 investors who are already “in cash” do have an advantage with the ability to close. In Cash references the 1031 funds are already being held by a Qualified Intermediary (QI).
The multifamily sector continues to have the largest availability for investors. If we look at a total of twenty DST offerings 10-12 may be multifamily. The balance is comprised of industrial/distribution center, senior housing, student housing, medical, necessary retail and manufactured housing. The multifamily sector continues to have great appeal to many investors especially in the geographic regions that continue to see increased population such as Texas, Nevada, Tennessee and Florida. There are specific examples of infill locations that may be considered trophy locations. When multifamily dominates the offering selection there are the occasional high demands for other asset classes such as industrial/distribution. Many of these offerings are associated with the “Amazon Factor”. This factor represents the supply chain associated with the online shopping increase. The online increase not only was evident before the COVID with a shift away from the shopping center or mall experience, but also with the COVID restrictions.
The interaction between the sponsors and financial advisors is critical for obtaining the right asset for the investors. Sponsors who are preparing to close on the initial acquisition of the property by year end will see continued interest not only by year end but moving into 2021. There will be a push to close as many cash positions as well as completing the 1031 exchanges. Currently 1031 exchangers anticipating closing on their “down-leg” (property they are selling) in December, may seek to have a quick turnaround and close on their “up-leg” (replacement property) by year end. While this is possible it requires financial advisors identifying the best replacement solution that have available equity. Especially with the ability for the sponsors’ closing department having the capacity to handle all the paperwork necessary for completing the transaction.
Sponsors have also been able to communicate to the financial advisors of upcoming releases. Recently we were fortunate to position investors with specific requested assets prior to the actual release of the assets. This was done with indication of interest or reservations. This helps the cash investors but more importantly the 1031 exchangers with knowing the replacement property. Frequently investors contemplating selling their real estate holdings may resist not knowing what property will replace their current real estate. The DST has provided an easy path to solving the replacement property dilemma
2020 will go down as an unusual year. What will remain constant will be the success the sponsors and investors have experience. Sponsors will report an outstanding year in volume of equity invested as well as the value of real estate that has been sold. We have enjoyed providing the monthly landscape update on the DST markets. We also appreciated all those who have engaged in conversation with us sharing your questions as well as encouragement.
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 1031Tax 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 firstname.lastname@example.org.
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