Equity Invested in DST Slowing in 2023
The amount of equity being directed into Delaware Statutory Trust (DST) offerings has slowed after the record year in 2022. Most of the equity invested in DST is used by investors to facilitate securitized §1031 tax deferred exchanges. Mountain Dell Consulting has reported there was of approximately $1.5B in equity invested through March 2023.
By Al DiNicola, AIF®, CEPA ™
adinicola@namcoa.com
April 5, 2023
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC
Utilizing the amount of equity invested so far in 2023 there is a potential to reach $6+B in equity investment by the end of 2023. What is the significance of this number? It is always a challenge to surpass the record-breaking year such as in 2022 ($9.4B). However, what should be a reasonable amount of equity? Prior to the COVID years invested equity was in the $3.2B to $3.4B range. 2021 equity raise reached $7.4B. Sponsors responded during the record-breaking year by establishing additional DST offerings. Monthly equity investment has slipped to under $500M per month which is the lowest amount of equity raised since August 2020.
Changes in available Equity.
We track the velocity of sales and the amount of available equity on a weekly basis. We obtain our information through a subscription service called AI Insight. AI Insight is a web-based tool that provides financial professionals with access to hundreds of open and closed alternative investment programs including Delaware Statutory Trust (DSTs). It also serves as a documented protocol to help meet regulatory compliance requirements associated with alternative investments.
AI Insight (not to be confused with Artificial Intelligence) by iCapital is a leader in alternative investment research, education, and compliance documentation. We use our access to research individual investment offerings from AI Insight’s universe of programs to train, track compliance activity, access marketing support, and monitor ongoing performance. When comparing the number of offerings and volume between 2022 and 2023 there is a big difference. In March 2022 there were 31 DSTs available representing $1.5B in equity. In March 2023 there were 84 offerings with an equity total of $2.9B. Two observations are obvious more offerings available as well as more equity. In 2022 there was more inventory coming on the market as well as being secured. In 2023 we are looking at a longer absorption time for many of the DSTs.
When did Equity Investment begin to Slow?
In retrospect we may now look at what caused the record-breaking year. COVID (and the immediate year following) prompted many investors to sell their investment properties that needed active management and move to DST properties which provide passive management and passive income. There is also a list of other benefits of a DST when coupled with the §1031 exchange (most attractive for baby boomers). When did the amount of equity investment start to slow? Looking back into 2023 we can point to the time when interest rates began to rise. There may be a direct cause and effect of the interest rate rise. Investors who want to sell their investment property to a new investor, are challenged with maintaining the offering price with the financing rates that started to rise after mid-year 2023. How long will the interest rates continue to suppress commercial real estate is still up for discussion.
Certain Market Forces will continue. As baby boomers continue to age, their tolerance for active management of their investment property will decrease. The need to move off the active management roles can prompt sellers to look at alternatives in selling their property.
The multifamily DST asset class continues to have the greatest number of assets or properties available for investment. Necessary retail also continues to be a sought-after replacement property.
Is there a silver lining?
More inventory available creates more opportunities for investors. If investors are still seeking all the benefits of a DST investment and the investor can sell their current investment property, then investors are in the driver’s seat. All the same due diligence activities need to take place. Consult your financial advisor who concentrates on the DST investment alternative.
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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