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
