Fast, Fluid, and Forward Thinking

BY Al DiNi­co­la June 10, 2021

As the weath­er warmed up in most of the coun­try (our weath­er in Naples, Flori­da is stun­ning) cash investors as well as the dra­mat­ic increase of sell­ers uti­liz­ing the 1031 tax deferred exchange pro­gram con­tin­ued to fuel the DST mar­ket. On our week­ly calls to Spon­sors many are scratch­ing their heads as dai­ly reser­va­tion agree­ment come across their desk.  At NAMCOA we have always pro­posed to assess the client’s needs and then pre­scribe a bal­ance port­fo­lio of DST acqui­si­tions.  For exam­ple, a sell­er sell­ing a real estate hold­ing (com­mer­cial brick and mor­tar) for $500,000 and uti­liz­ing the ser­vices of a real estate bro­ker would typ­i­cal­ly pur­chase anoth­er $500,000 prop­er­ty.  We assess the client needs and may rec­om­mend split­ting the sales pro­ceeds into at least two DST acqui­si­tions. The feed­back from the spon­sors dur­ing May has been investors are adopt­ing this strat­e­gy and break­ing their pro­ceeds into man­age­able asset acqui­si­tions of about $500,000. Odd­ly enough that num­ber. under Pres­i­dent Biden’s tax plan, has been tossed around as one of the bench­marks for a new 1031 tax deferred exchange (not a loop­hole) lim­it for cer­tain tax­pay­ers.  We do not know the exact cri­te­ria for 1031 exchanges going for­ward.  Suf­fice to say that advi­sors and investors are seek­ing to pro­tect their assets.  Anoth­er inter­est­ing focus of Pres­i­dent Biden’s Tax Plan may be elim­i­na­tion of the step up in basis on the trans­fer of the prop­er­ty.  Under cur­rent rules if a prop­er­ty own­er who acquired the prop­er­ty for $250,000 years ago (with a cur­rent mar­ket val­ue of $1,500,000) pass­es away, the heirs will acquire the prop­er­ty at a val­ue of $1,500,000. There would be no tax on the trans­fer. If the basis is elim­i­nat­ed, the heirs would need to pay tax on the dif­fer­ence between the acqui­si­tion price and the trans­fer price.  Mean­ing the heirs would come out of pock­et and pay cap­i­tal gains if the heirs are to retain the prop­er­ty. The gain of $1,250,000 would be taxed let’s say at cur­rent 21% up to pro­posed 43%. That amount may vary between $225,000 to over $500,000 in cash on the trans­fer.   If the heirs don’t have the cash, then the prop­er­ty will need to be sold.   

So, what hap­pen in May in the DST equi­ty land­scape?  It has become fast, flu­id, and for­ward think­ing.  As you may be aware we track most of the major spon­sors on a week­ly basis either by email and more often phone calls for the week­ly updates and in some cas­es with small­er offer­ings twice a week.  We do that so when we receive a call from an investor, we already have guid­ance on what assets may still be avail­able. We are well pre­pared so we may be respon­sive to the investor call. Espe­cial­ly when we receive a call from an investor who is already well with­in their 45-day iden­ti­fi­ca­tion peri­od.  In many cas­es we are able to sug­gest alter­na­tives either as a first options or at least a back­up.  Pre­ferrable we would like to have more than 48 hours remain­ing in the 45-day iden­ti­fi­ca­tion peri­od and prefer­able not receive the request on 5 PM Fri­day. Yes, that hap­pened on one occa­sion.  Even with 4 days remain­ing we have been suc­cess­ful in cre­at­ing an alter­na­tive.

Dur­ing May we con­tin­u­ous­ly updat­ed the Land­scape sum­ma­ry of offer­ings.  In one stretch of 10 days the Land­scape was very flu­id. From the post­ed num­bers it may not have seen to be a big move­ment.  How­ev­er, dur­ing that stretch of 10 days there was $400,000,000+ of equi­ty secured.  The over­all avail­able equi­ty was reduced from $850,000,000 down to $425,000,000.  How­ev­er, with­in a three-day peri­od Spon­sors were able to make avail­able addi­tion­al equi­ty in the forms of new offer­ings.  When look­ing at the Land­scape Sum­ma­ry you may see 28–34 avail­able DST offer­ings.  How­ev­er, what you don’t see is the 90 fund­ed offer­ings over the past 12–15 months.

The big ques­tion may be how to stay ahead of the curve on what may poten­tial­ly become avail­able?  We have  very good com­mu­ni­ca­tions with the spon­sors on what the Spon­sors have in the pipeline.  Through our week­ly con­ver­sa­tions we under­stand the geo­graph­ic loca­tions and asset class­es the Spon­sors are prepar­ing to close on which will become DST oppor­tu­ni­ties.   We are able to under­stand the Spon­sor strate­gies for future acqui­si­tions and align that with the investors who are in the process of sell­ing their real estate and look to doing a 1031 exchange.  When we are engages a few weeks pri­or to investors clos­ing on their prop­er­ty we have a much bet­ter oppor­tu­ni­ty to sug­gest a tai­lored designed strat­e­gy. Once a prop­er­ty own­er close on their prop­er­ty being sold and the qual­i­fied inter­me­di­ary is hold­ing the sales pro­ceeds then we quick­ly can offer sev­er­al sol­id rec­om­men­da­tions. Nat­u­ral­ly, the cash investors who uti­lize DST are at an advan­tage in as much as they are ready to acquire the asset.

May was also a great month for edu­ca­tion of poten­tial investors.  We have engaged in many dis­cus­sions with poten­tial clients i.  These were investors who have long stand­ing rela­tion­ship with their cur­rent advi­sor who sim­ply want­ed anoth­er opin­ion for plan­ning.  We wel­come all dis­cus­sion with investors.  DST acqui­si­tion by investors will con­tin­ue and we are extreme­ly hap­py with the trust our investors place in us when we have the oppor­tu­ni­ty to assist them.  Last month we pre­dict­ed the 2021 total DST equi­ty invest­ment to be $4.25B.  We are rais­ing that mount to $4.5B.  Check back next month for the DST Land­scape Sum­ma­ry Update.

Please con­tact us for for­ward think­ing strate­gies involv­ing your real estate, 1031 tax defer­ral poten­tials or any oth­er dis­cus­sion regard­ing secu­ri­tized real estate offer­ings.

Please refer us to any oth­ers you may know that may need advice on their 1031 Exchange!

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.

Any infor­ma­tion pro­vid­ed has been pre­pared from sources deemed to be reli­able but is not guar­an­teed to be a com­plete sum­ma­ry or state­ment of all avail­able data nec­es­sary for mak­ing an invest­ment deci­sion. Past per­for­mance is not a guar­an­tee of future results. Price and yield are sub­ject to dai­ly change and as of the spec­i­fied date. Any infor­ma­tion pro­vid­ed is for infor­ma­tion­al pur­pos­es only and does not con­sti­tute a rec­om­men­da­tion.  

DST 1031 con­sult­ing advi­so­ry ser­vices may be offered through: NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC | 999 Van­der­bilt Beach Rd, Suite 200 | Naples, FL 34108.  Direct:  239–691-8098.  www.NAMCOA.com Click here to view our Firm Brochure (ADV2)

Secu­ri­ties may be offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC.  CRD #142927.  NAMCOA® and MSC-BD, LLC are Inde­pen­dent­ly owned and oper­at­ed.