Another Record Year in DST  Equity Raise! $9.2 Billion

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© 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 © 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© 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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