January 2023- MONTHLY LANDSCAPE COMMENTARY
The amount of Delaware Statutory Trust (DST) equity raised in 2022 did exceed the previous record set in 2021 by $1.8 Billion which represented a 24.43% increase year over year.
By Al DiNicola, AIF®, CEPA™
January 21, 2023
Adinicola@namcoa.com
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD
Over the past 31 months we have closely monitored the investment pace of equity into DSTs. We reflect on the landscape, asset classes and volume of investment either through direct cash investment or 1031 tax deferred exchanges monthly. As previously reported 2021 did produce the highest volume of investment into the DST offerings. We base our comments on the reports supplied by the sponsors. As we entered 2022, we experienced tremendous tail winds from 2021. 2021 produced $7.4 Billion in invested equity. 2022 was off to a continued frenzied pace. There was anticipation of hitting the $7.4 Billion mark before the end of 2022 and potentially $8 Billion or $9 B and then even $10 B. The same question was posed again, is this a blip or trend?
Year in review
Let’s take a quick review of 2022 with a Part 1 & Part 2. Similar to other financial services, traditional real estate and the DST equity investment experienced somewhat of a two-part year in 2022.
- Part 1 (January – August). The first 8 months of the year reflected a tremendous increase in not only the amount of DST products being offered but also in the amount of investor equity. The increased velocity in 2021 moving into 2022 prompted sponsors to accelerate the acquisition process of assets that would become DST offerings. While the number of sponsors did not increase, the number of offerings increased. This resulted in being an advantage for the individual investors. With more product offerings on the market at any given point in time, investors were able to review and analyze the different offerings with their financial representatives to ensure all options were reviewed.
- Part 2- (September-December). Once we entered the fall period of the year it appeared that the equity investment began to cool. Beginning to cool is a relative statement especially if we reflect on what the normal pace of investment was prior to 2021. The cause and effect of the rising interest rates spilled over creating a slowdown in the processing of traditional real estate especially in the 1031 exchange space. However, what many of our investors experienced was a more relaxed time while identifying and analyzing DST offerings. This enabled advisors working with investors to develop the right blend and balance of investments.
Flashback Jan 2022
What happened during the beginning of 2022 was a feeling of exuberance with hundreds of millions being invested monthly. The conversation among advisors and sponsors of reaching over $10 billion started around April. Granted 24.43% increase year over year is an outstanding record. One item to mention would be how many industries can continue to break records year after year.
We have opined in the past on several reasons for the drastic increase of investments into this alternative investment vehicle (DSTs) as well as the other outstanding investments in Opportunity Zone projects and funds.
Asset Class Availability
Certain asset classes produced greater results than other. One of the major reasons may come back to the numbers of offerings available. The results typically mirror the number of assets offered in each asset class. You will notice several increases in the amount of equity invested in a specific asset class and also decreases Year over Year (YOY). The initial evaluation for these stems back to what assets are available when the investor is ready. Case in point is the constant performance of multifamily as well as the increase in Industrial simply because there was product on the market. Contrasting those numbers to Manufactured housing with limited new offerings in 2022 and the reemergence of Senior housing and hospitality.
The Tale of the Tape
The following results were reported by Mountain Dell Consulting
| Asset Class | 2021 Equity | 2022 Equity Raise | YOY Increase |
| Multifamily | $3,621,091,704 | $3,722,627,199 | $101,535,495 |
| Industrial | $1,326,824,823 | $2,281,263,842 | $954,439,019 |
| Retail | $980,326,738 | $892,423,706 | $(87,903,032) |
| Self-Storage | $487,108,664 | $701,976,138 | $214,867,474 |
| Office | $208,645,284 | $556,943,717 | $348,298,433 |
| Senior Housing | $164,984,940 | $541,423,249 | $376,438,309 |
| Hospitality | $0 | $173,393,899 | $173,393,899 |
| Student Housing | $109,657,601 | $117,985,296 | $8,327,695 |
| Energy (Oil & Gas) | $32,774,540 | $80,737,819 | $47,963,279 |
| Manufactured Housing | $267,453,668 | $61,599,992 | $(205,853,676) |
| Office/Medical | $153,945,238 | $60,542,310 | $ (93,402,928) |
| Other | $47,200,000 | $16,795,156 | $ (30,404,844) |
| Total | $7,400,013,200 | $9,207,712,323 | $1,807,701,145 |
Asset Class Comments
Multifamily continued to be the largest number of assets offered and top performing sector with 40.43% of total equity raised. The other sub categories of multifamily added another 7.83% total with Senior housing at 5.88%, student housing 1.28%, and Manufactured Housing .67%. Senior housing enjoyed an increase due to added inventory (some all cash offerings). There was limited student housing offerings as well as limited manufactured housing offerings. Industrial provided 24.78% of the equity. This increase was due to the increased inventory brought on the market. Industrial continues to be a sought after asset class. The other notable increase was in Self-storage which contributes 7.62% of total equity and the noticeable increase in office with 6.05%. Hospitality while not a big contributor in the overall results had a noticeable increase of many all-cash offerings (eliminating the potential of foreclosure). The medical office offerings were few and far between and may be the reason of the reduction of equity invested.
Sponsors created more DST offerings.
Entering 2022 there was a focused view by the sponsors of securing assets, conducting due diligence and then packaged to offer DST to individual investors. The average Days on Market (DOM) of an offering in 2021 was 107 days. The average DOM in 2022 was 127 days. There were also 204 closed offerings provided by 42 sponsors. Average first year return 3.99%
What is in store for 2023?
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.
Another noticeable change was the structure of the offerings. There are more 506(c) offerings being offered currently. Most of the DST offerings in the past have been 506(b). The biggest difference typically is the ability to advertise in a 506 (c) and the 506(b) is restricted from advertising. One of the potential l reason DST are not well known is simply because of the restriction of advertising. That may change with more 506(c) offerings.
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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.
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