January 2022- MONTHLY LANDSCAPE COMMENTARY: Record Setting Year for Equity Raise! What is the Future?

By Al DiNi­co­la, NAMCOA, RIA

Jan­u­ary 15, 2022

Secu­ri­ties offered through MSC-BD, LLC

We have mon­i­tored the Delaware Statu­to­ry Trust (DST) land­scape avail­able for cash investors as well as 1031 Exchanges. The end of 2021 was pro­ject­ed to be a whirl­wind of a month with Spon­sors work­ing over­time to process the amount of equi­ty being moved into DST prod­ucts.  Qual­i­fied Inter­me­di­aries (QIs) also worked tire­less­ly to get the nec­es­sary paper­work processed for investors mov­ing mil­lions of investor dol­lars from the clos­ing of an invest­ment prop­er­ties to the acqui­si­tion of replace­ment prop­er­ties. The whirl­wind became a real­i­ty.  2021 was pro­ject­ed to be a stronger year in equi­ty invest­ed when com­pared to 2020 because of the effect of COVID on the entire DST sup­ply chain in 2020.  The spe­cif­ic sup­ply chain issues in 2020 cen­tered on the inabil­i­ty to have prop­er­ties inspect­ed, appraised, and closed by the Spon­sors in order to estab­lish the DST asset/property to offer for cash investors and 1031 exchang­ers. To a less­er degree some investors decid­ed to hold their invest­ment real estate and did not list the prop­er­ty dur­ing the ini­tial year of COVID.  In spite of those issues, 2020 did have a note­wor­thy amount of equi­ty raised of $3.192 Bil­lion as com­pared to 2019 equi­ty raised of $3.486 Bil­lion. What hap­pened in 2021 set a record in this alter­na­tive invest­ment space.  The amount of equi­ty raised was more than the past two years COMBINED.  Investors con­tributed $7.4 Bil­lion in cash and 1031 exchange pro­ceeds. The big ques­tion now is, was this a blip or trend?

We have opined in the past on sev­er­al rea­sons for the dras­tic increase of invest­ments into this alter­na­tive real estate as well as the oth­er out­stand­ing invest­ments in Oppor­tu­ni­ty Zone projects and funds. Over the course of 2021 we reviewed offer­ing mate­ri­als for 150 DST offer­ings. We tracked and chart­ed the pro­ject­ed annu­al dis­tri­b­u­tions, loan to val­ue per­cent­ages (help­ing investors bal­ance debt replace­ment needs as required for 1031 exchanges) as well as geo­graph­i­cal loca­tions and asset class­es. Not all offer­ings were appro­pri­ate for our investors. Many times, investors may not be ready (mean­ing investors have not closed on their dis­posed prop­er­ty with funds sit­ting in the QI’s account) so the investor can­not move for­ward with the acqui­si­tion. Oth­er offer­ings may have not been in the pre­ferred geo­graph­i­cal loca­tions (state) or asset class. How­ev­er, we con­tin­ue to review DST offer­ings pro­vid­ed by the Spon­sors.  At the end of the year, we did par­tic­i­pate in the sell­out of 14 DST offer­ings.  We also sub­scribe to third par­ty due dili­gence reports on offer­ings. The research and review of the assets that were not acquired by our investors enables us to pro­vide insight as we com­pare offer­ings to align the struc­ture and pur­pose of the offer­ings with those of the investors. We also reviewed oth­er Alter­na­tive Real Estate invest­ments includ­ing Oppor­tu­ni­ty Zone Funds, REITS, LLC, and oth­er spe­cif­ic invest­ments request­ed by investors.

Cer­tain asset class­es pro­duced greater results than oth­er.  One of the major rea­sons may come back to the num­bers of offer­ings avail­able. The results mir­ror the num­ber of assets offered in each asset class. Mul­ti­fam­i­ly con­tin­ued to be the largest num­ber of assets offered and top per­form­ing sec­tor with 48.93% of total equi­ty raised ($3.621 M). The oth­ers on the list were: Indus­tri­al 17.93% ($1.326 M); Retail 13.25% ($980 M); Self-Stor­age 6.58% ($487 M); Mul­ti-Man­u­fac­tured Hous­ing 3.61% ($267 M); Office 2.82% ($208 M); Senior Hous­ing 2.23% ($164 M); Office-Med­ical 2.08% ($153 M); Mul­ti-Stu­dent Hous­ing 1.48% ($109 M). There would be more invest­ment into cer­tain asset class­es if there were addi­tion­al assets avail­able for invest­ment.  Absent from DST invest­ment in 2021 was the Hos­pi­tal­i­ty indus­try.  There are oth­er hos­pi­tal­i­ty strate­gies in play for that asset class.  Bal­anc­ing investor asset class inter­est is at some time a chal­lenge.  For exam­ple, for each Muti-Man­u­fac­tured hous­ing offer­ing there may be 12 mul­ti­fam­i­ly offer­ing.

There was also a more focused view of secur­ing assets to acquire. This urgency cre­at­ed a neces­si­ty for advi­sors to be in con­stant con­tact with the spon­sors as avail­able equi­ty changes on a dai­ly basis. This was reflect­ed by a few oth­er met­rics. The aver­age Days on Mar­ket (DOM) of an offer­ing in 2020 was 200 days with a medi­an of 164 days. The aver­age DOM in 2021 was 107 days with a medi­an DOM 69 days. There were also 204 closed offer­ings pro­vid­ed by 42 spon­sors.

What is in store for 2022?  There is con­tin­ue inter­est in the direct cash invest­ment cre­at­ed by the struc­tured pas­sive income pro­vid­ed by the DST offer­ings.  Also, the non-recourse debt aspect of the prepack­aged offer­ings is appeal­ing.  DSTs con­tin­ue to be a viable solu­tion for the 1031 tax deferred exchange, The DST struc­ture pro­vides the nec­es­sary require­ments to adhere to the IRS com­pli­ance.

2022 may also con­tin­ue to have invest­ments into Oppor­tu­ni­ty Zones (OZ) invest­ments. The 2021 results do not reflect the invest­ment into OZs. Recent­ly investors are con­sid­er­ing mak­ing strate­gic moves to har­vest gains from their stock mar­ket port­fo­lios and mov­ing into non cor­re­lat­ed assets such as real estate pro­vid­ed in the OZ offer­ings.  The advan­tages of the OZ con­tin­ue to be worth­while for cer­tain investors. OZs also pro­vide investors sell­ing busi­ness­es to rein­vest only the gains and retain the basis.  We con­tin­ue to review offer­ings that pro­vide alter­na­tive invest­ments as well as par­tic­i­pate in due dili­gence sem­i­nars, so we focus on the top­ics enabling us to match the right asset with the investor’s goals.

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 adinicola@namcoa.com. 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.   NAMCOA, 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. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly