Underlying Fundamentals Continue to Drive Consumption of DSTs

DST Monthly Landscape Commentary

March 15, 2022

By Al DiNicola, AIF®

DST 1031 Specialist

NAMCOA® – Naples Asset Management Company®, LLC

Securities offered through MSC-BD, LLC

Encouraging DST Activity

Reports on the investor appetite of Delaware Statutory Trust (DSTs) are extremely encouraging. This continues to validate the structure and function of the securitized real estate offerings known as DST. According to Robert A. Stanger & Co., securitized 1031 exchange Delaware Statutory Trust offerings have raised $1.7B through February 2022. It may be too early in the year to predict if 2022 will surpass 2021. DST investments had a record setting year of $7.4 Billion in 2021. However, if the pace continues, we could see over $9B in equity move into DST assets. Section 1031 of the Internal Revenue Code allows investors to defer paying capital gains taxes on investment property sales by reinvesting the proceeds into a similar investment property within a specified time frame. Securitized 1031 exchange programs are structured as securities and sold to retail investors, mainly as DST offerings.

Many of the demographic shifts we have witnessed in the nation may have been blamed on the COVID effect.

Meaning life is too short, which prompted people to change living environments. Housing trends have seen a migration to the southern states. There are many reasons for moving. People may be looking to change jobs, provide a different family environment and work remotely. There are also many landlords who have “retired”. Meaning the landlords (many small investors) who have simply managed their properties long enough and are seeking a simpler investment. When you are the owner of a single rental property or multiple properties, it can be rewarding financially. Naturally, there is a lot of responsibility attached with the ownership. COVID may have added to the stress of owning and managing rental properties. The retiring landlords are seeking a method to avoid or defer taxes on the sale of their property. However, the landlord may want to transition being an investor with a stream of income on a regular basis. DSTs are for accredited investors and provide an easy transition (through a 1031 exchange) to pool resources with other investors.

“Cash investors” as well as the retiring landlords may share a few of the same benefits of a DST.

Relatively speaking, DSTs have a much lower dollar amount for investing than traditional real estate rental property. Meaning a minimal cost of entry, with no debt exposure.

Accredited investors typically invest $100,000 (cash or 1031 proceeds) into the DST offerings. The structure of the DST eliminates all the stress of taking care of the property or dealing with a property manager.

The typical smaller investor may never be able to buy investment grade real estate. The structure of the DST provides for smaller investors to participate in much larger properties or portfolios of properties.

The Red-Hot real estate market also prompted real estate investors doing a 1031, to utilize a DST as a backup. This may be used in the event their other identified properties fell out of contract or experienced other complication. Investors like the DST being prepackaged, scalable to almost any dollar amount and with non-recourse debt. One of the requirements to complete a 1031 exchange is to replace the debt being paid off with the sale of the relinquished property. The red-hot real estate market is also a reason for the current landlords to think seriously about selling now.

Investors may also seek diversification from selling one asset to purchasing several DSTs in different classes and geographical locations.

As DST advisors, we need to be current with sponsor offerings. With the amount of equity being invested Sponsors are busy securing future offering sometime referenced as the “pipeline of offerings”. Multiple times a week we are in contact with the sponsors not only to evaluate new offerings but the obtain the status of current offerings to evaluate proper alignment with investors profiles, risks and needs. The current monthly equity being invested has been over $800 million. The same amount is coming on the market which requires us to constantly review new opportunities.

Visit DST News to obtain an overview of currently available DST 1031 landscape.

We recently participated in a three-day due diligence and risk management DST conference, hosted by the nation’s leading DST sponsors. This enabled us to speak not only with the DST sponsors of alternative investments but with the third-party analyst firms who identify strength and concerns with offering structure. This enables us to judge the merits of the offerings to align the proper asset with specific investors needs and goals.

If you are a cash investor you have immediate access to availability. If you are contemplating a 1031 exchange with a DST as a potential alternative or even a backup, now is the time to educate yourself. If you are already within your 45-day identification period, your clock is ticking, and you may identify NOW as well as CLOSE quickly. As a side note, the quicker you close on your DST replacement property, the sooner the potential distribution may be sent to you.

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 owned and are not affiliated.

Thank you,

NAMCOA® – Naples Asset Management Company®, LLC

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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