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
