DST Education Series A-Part 4: The Economic Focus

Welcome DST News! Our goal is to provide non-biased education and market information for Accredited Investors on DSTs. We hope to provide a Depth & Breath of knowledge for Investors About Delaware Statutory Trusts (DSTs).

By design most DSTs are structured with debt financing. This satisfies 1031 requirements to replace debt. A key element to note is the debt financing is non-recourse debt for the individual investors. The overall health of the economy as well as the rates on borrowed funds may determine how the investment performs.  As the cost of debt increases there is compression of potential returns.  During downturns in the economy, vacancy can rise that will affect the bottom line (Net operating Income- NOI) of the property which in turn may change the selling price during the exit phase of the regular real estate as well as the DST asset. We will cover the relationship of NOI and the Capitalization Rate (CAP Rate) and the price a property may sell for in the marketplace in other educational articles.

Regulations. There is no question that there needs to be strategic planning to carry out a successful 1031 exchange. There are strict timing constraints from the IRS. Over the years Congress has debated the 1031 exchange and may be a subject to being amended by congress. This topic comes up every few years. We have some reliable insight into the benefits of 1031 to the overall economy.

Putting the parts together for success.  There are a variety of variable to be aligned and set up in order for a 1031 exchange to be successful under normal real estate investment. Utilizing a DST also has moving parts as well.  Any misstep between the QI or the Sponsors’ ability to deliver the replacement property will cause the 1031 exchange to fail. We may also add that all 1031 exchanges carry the same cautions. Many things may happen between the end of the 45-day identification period and the total 180 days to close. As to the IRS deadlines there are no exceptions. The list of potential replacement properties must be received by the Qualified Intermediary (QI) by the end of the 45th day from the sale of the relinquished property. You must close on the replacement property or properties by the end of the 180th day from closing on the relinquished property. DST streamline the closing process providing a faster turnaround for investors to put their reinvestment capital to work.

Asset-Classes. Offerings of DST include the same commercial assets as regular real estate. Although the availability of the DST assets at anyone may change.  Asset classes are generally multi-family residential, single family residential, student housing, senior housing, manufactured housing, industrial, retail, office, Office Medical, Self-Storage, and a new asset class Life Science. The scope of each asset will be covered in additional educational materials. In 2021 we reviewed 150 DST offerings over the course of the year. Reviewing as many offerings as possible provides advisor with insight to properly evaluate potential replacement properties.

Remember all IRS Section 1031 Exchange defer capital gains. The capital gains (as well as recapture of depreciation) will still be due unless the investor passes away and the heirs inherit the property. At that time there will be a step up in basis to current value and no capital gains will be due.

We are not CPAs or cannot we offer tax advice. We have some general capital gains calculators on our website DSTNews.org

Look for Part 5: DST Fees… Coming Soon

DST’s (Delaware Statutory Trusts) are for accredited investors only.  Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and compliment your financial objectives. 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, in any form, 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 owned and are not affiliated. 

About the author

Al DiNicola, AIF, CEPA, specializes in 1031 Exchanges utilizing DST as a viable alternative for accredited investors. He also is well versed in Opportunity Zones and Alternative Real Estate Investments. Mr. DiNicola has more than 40 years of experience in commercial & residential sales and development. Al has extensive experience in real estate land acquisitions, development, investment and real estate securities.

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