“In Like a Lion” DST Investments March 2021

by: Al DiNi­co­la

April 9, 2021

The Famers’ Almac notably ref­er­enced the weath­er in March as “In Like a Lion, Out like a Lamb”. Anther state­ment in the Almac include “ideas that there should be a bal­ance in weath­er and life”.  The invest­ments in DSTs con­tin­ued into the begin­ning of March. How­ev­er, there is no indi­ca­tion that the equi­ty invest­ments came out of March like a lamb.  It appears that the search for qual­i­ty DST invest­ments is roar­ing.  While the mul­ti­fam­i­ly assets con­tin­ue to main­tain the lion’s share of the equi­ty invest­ments.  The equi­ty came from 1031 tax deferred exchanges as well as cash investor seek­ing the same advan­tages of a pas­sive, tax advan­taged returns. How­ev­er, as investors seek to bal­ance their port­fo­lios oth­er asset class­es are in high demand.  Sim­ply put for every 10 mul­ti­fam­i­ly offer­ings there may be one stu­dent hous­ings, one self-stor­age, one nec­es­sary retail, one indus­tri­al. The lim­it­ed sup­ply of oth­er assets (oth­er than Mul­ti­fam­i­ly) cre­ates the rapid sub­scrip­tion and sell­out of oth­er assets.  

Even though there is a surge in DST invest­ment there is a need for Spon­sor Due Dili­gence as well as Asset Due Dili­gence. We receive reg­u­lar ques­tions on how to eval­u­ate a DST spon­sor?  For those doing their ini­tial inves­ti­ga­tion on DST here is a quick recap. A DST (Delaware Statu­to­ry Trust), is an invest­ment vehi­cle only for accred­it­ed investors and pro­vides the oppor­tu­ni­ty to own a frac­tion­al inter­est in insti­tu­tion­al-grade com­mer­cial real estate. Cash investors and 1031 investors both seek DSTs. Ben­e­fi­cial inter­ests in DSTs are con­sid­ered “like-kind” prop­er­ty for pur­pos­es of 1031 exchanges. DSTs may own a sin­gle prop­er­ty, prop­er­ties with­in a sin­gle geo­graph­ic region. Oth­er DSTs may be a col­lec­tion of prop­er­ties in a focused geog­ra­phy or mul­ti­ple prop­er­ties in var­i­ous geo­graph­ic loca­tions. In the con­text of a 1031 exchange, investors can allo­cate assets to one or more DSTs, pro­vid­ing a more diver­si­fied real estate port­fo­lio. Cash investors are dri­ving addi­tion­al short­ages in cer­tain assets.

DST spon­sors are pro­fes­sion­al real estate com­pa­nies that iden­ti­fy prop­er­ties and struc­ture DST invest­ment pro­grams own­ing those prop­er­ties. A pri­ma­ry role of an expe­ri­enced spon­sor is, direct­ly or through affil­i­ates, to man­age each prop­er­ty owned by the DST includ­ing asset man­age­ment duties, quar­ter­ly report­ing, annu­al tax and report­ing pack­ages, per­for­mance reviews and bud­gets. In addi­tion, many spon­sors have an investor rela­tions team to han­dle investor requests and inquiries. DST Spon­sors work with rep­re­sen­ta­tives of Bro­ker Deal­er Firms or Reg­is­tered Invest­ment Advi­sors.

Inter­est in DSTs con­tin­ues to grow each year as well as num­ber of DST spon­sors. We do research on each of the spon­sors (due dili­gence) to min­i­mize unnec­es­sary risk to the investors.

Here are a few key areas we eval­u­ate: Indus­try Exper­tise, Track Record, Acqui­si­tion Process, Under­writ­ing Stan­dards, Trans­paren­cy, Spon­sor Fees & Ongo­ing Sup­port & Guid­ance. Many of these areas are required ele­ments to be report­ed or list­ed with­in the Pri­vate Place­ment Mem­o­ran­dum (PPM).  We take to extra steps to com­mu­ni­cate on an ongo­ing basis with the spon­sors as well as review­ing the new offer­ings that are brought to the mar­ket.  The sponsor’s exec­u­tive man­age­ment team is only one com­po­nent. We review how past pro­gram offer­ings have per­formed. The cash flow and total returns are only part of the under­writ­ing stan­dards. We want to under­stand why a cer­tain prop­er­ty was iden­ti­fied for acqui­si­tion. Obtain­ing clear insight into every aspect of the busi­ness is part of the trans­paren­cy aspect. Spon­sor fee struc­ture must be iden­ti­fied in the PPM. Dur­ing and after the pur­chase spon­sor com­mu­ni­ca­tion is vital espe­cial­ly over the past year with the COVID inter­rup­tion. This includes time­ly report­ing for tax mat­ters. Spon­sors also need to pro­tect the integri­ty of the 1031 tax deferred exchange.

We rec­om­mend that every DST investor review the due dili­gence mate­ri­als that should be pro­vid­ed by their finan­cial rep­re­sen­ta­tive. DST, Invest­ments, LLC can assist in your search for qual­i­ty assets offered by Spon­sors whom we have a rela­tion­ship with and under­stand their back­ground and past per­for­mance.

The cur­rent Land­scape Sum­ma­ry on DST News.Org https://dstnews.org/ iden­ti­fies over $600,000,000 of poten­tial DST prop­er­ties from the major spon­sors. There also con­tin­ues to be a con­stant move­ment of what is avail­able on a dai­ly basis. The chal­lenge for both the investors as well as finan­cial advi­sors assist­ing the investors may be secur­ing the assets pri­or to anoth­er investor exe­cut­ing the sub­scrip­tion agree­ment. 

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