March Landscape Review.

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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