September 2023 Landscape Review

DST Equi­ty may reach over $5.5 Bil­lion.

There has been over $1 Bil­lion in equi­ty secured, which rep­re­sents over twice the pre­vi­ous month’s acqui­si­tion.  Is this a “Blip” or a poten­tial “Trend”.

By Al DiNi­co­la, AIF®, CEPA™
Octo­ber 5, 2023
Adinicola@namcoa.com
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD

Pre­vi­ous­ly we men­tioned that many indus­try experts will gath­er in August to review the state of the Delaware Statu­to­ry Trust (DST) and Equi­ty Mar­kets. Since the gath­er­ing there has been some­what of a blip in equi­ty secured in many asset class­es. That gath­er­ing took place in Salt Lake City in late August. At that time there were over 90 DST offer­ings rep­re­sent­ing $3 Bil­lion in avail­able equi­ty.  We track equi­ty avail­abil­i­ty on a week­ly basis. In a month since the SLC meet­ing there has been a sig­nif­i­cant uptick in equi­ty.  The ques­tion would be was this a blip or a trend.

There addi­tion­al acqui­si­tion may be due to the pend­ing dead­line for Cal­i­for­nia §1031 investors who have an exten­sion until Octo­ber 16^th to iden­ti­fy and close on replace­ment prop­er­ties. The IRS extend­ed the 45-day and 180-day §1031 exchange dead­lines for eli­gi­ble tax­pay­ers. Cer­tain investors in dis­as­ter effect­ed coun­ties have an exten­sion to com­plete their 1031 exchange. Those who qual­i­fy will now have an extend­ed Gen­er­al Post­pone­ment date of Octo­ber 16, 2023, to find a replace­ment prop­er­ty and close on their 1031 exchange trans­ac­tion. We may not know the full impact of the Cal­i­for­nia exten­sion.  Cal­i­for­nia remains the leader in §1031 tax deferred exchanges in the coun­try.

If the pace of equi­ty invest­ment con­tin­ues total year end fundrais­ing could reach $5.5 Bil­lion and poten­tial­ly high­er.  There is a back­log of investor §1031 exchanges that if exe­cut­ed could add to the equi­ty.  The alter­na­tive for the investors if they do not com­plete the exchange may be invest­ment dol­lars mov­ing into Oppor­tu­ni­ty Zones (OZ).  At the end of Sep­tem­ber there was an esti­mat­ed $3.8 Bil­lion in equi­ty invest­ed as report­ed by Moun­tain Dell Con­sult­ing. Antic­i­pa­tion of exceed­ing the $5.5 Bil­lion lev­el is with­in reach.

Change in Cur­rent Land­scape (Equi­ty Avail­able)

There was a total of 92 dif­fer­ent alter­na­tive invest­ment pro­grams at the begin­ning of August.  With­in a month that num­ber was reduced by near­ly 20 offer­ings and over a bil­lion in equi­ty.  Grant­ed some of the offer­ings that were ful­ly sub­scribed were offer­ings with lim­it­ed equi­ty.  How­ev­er, the acqui­si­tion a $1 Bil­lion dol­lars in equi­ty in about four (4) week is encour­ag­ing for the over­all mar­ket.  Poten­tial­ly this is a sign that the over­all com­mer­cial real estate mar­ket is show­ing signs of move­ment.

Moun­tain Dell Con­sult­ing reports with a slight­ly dif­fer­ent mes­sage but along the same lines.

DST Mar­ket Overview 

“Despite the eco­nom­ic head­winds occa­sioned by infla­tion and ris­ing inter­est rates, fifty-three (53) DST spon­sors man­aged to raise $3.880 bil­lion in equi­ty across 98 pro­grams through Q3 2023.  This rep­re­sents an increase of about $1.342 bil­lion from what was report­ed at mid-year (i.e., $2.538 mil­lion).  Assum­ing this trend con­tin­ues, the 1031 real estate prod­uct sec­tor would appear to be posi­tioned to be at about $5.0-$5.50 bil­lion in equi­ty raised in 2023.” 

“In terms of sec­tor cov­er­age, mul­ti-fam­i­ly assets con­tin­ue to account for the high­est per­cent­age of the DST equi­ty (38%), which was fol­lowed by indus­tri­al (29%), office (15%), retail (6%), and senior hous­ing (4%). A break­out of equi­ty sought, loan-to-val­ues, days on mar­ket, and year-one cash-on-cash returns among the var­i­ous real estate sec­tors in terms of open pro­grams is pro­vid­ed in the fol­low­ing table:”

* Zero coupon offer­ing exclud­ed from the aver­age

**Oil & Gas 1031s are struc­tured as frac­tion­al inter­est pro­grams

Mov­ing into the fourth quar­ter. Many investors will be review­ing their real estate port­fo­lios and attempt­ing to decide on repo­si­tion­ing their hold­ings. Investors with prop­er­ty cur­rent­ly list­ed for sale will eval­u­ate retain­ing cur­rent pric­ing or offer buy­er incen­tives to affect a sale.  Investors with a large amount of equi­ty may offer sell­er financ­ing poten­tial­ly in an install­ment sale. Oth­er investors may poten­tial­ly use some of their equi­ty to arrange assump­tion of cur­rent loan.

Accord­ing to Moun­tain Dell Con­sult­ing

Of the 95 §1031 deals that were open at the end of Q2 2023, the aver­age days on the mar­ket was 214 and the aver­age year-one cash on cash return was 4.33%. Also, of the open 1031 prod­ucts on the mar­ket, about a third are report­ing that they are all cash with no lever­age used. Of the deals that are using lever­age, a sub­stan­tial major­i­ty are using it at loan-to-val­ues from 30% to 50%.

The oth­er poten­tial invest­ment in the fourth quar­ter may be investors seek­ing tax advan­tage invest­ments that may off­set pas­sive income.  There are spe­cif­ic pro­grams that offer accel­er­at­ed write offs that may assist cer­tain investors.

We did have sev­er­al com­ments about the com­ments we made last time about the five (5) year aver­age of $5.1 Bil­lion.  Occa­sion­al­ly we need to under­stand cer­tain out­stand­ing years of per­for­mance.  In the ear­ly 1980s mon­ey mar­kets were pay­ing 16% inter­est.  Grant­ed inter­est rates were at 18%. It may be a few years to get close to the record high reach of $9.2 bil­lion in equi­ty raised 2022 or the $7.2 bil­lion of equi­ty raised in 2021.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

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.

SOCIAL MEDIA

Social Media plat­forms are sole­ly for infor­ma­tion­al pur­pos­es. Advi­so­ry ser­vices are only offered to clients or prospec­tive clients where the advi­so­ry firm and its rep­re­sen­ta­tives are prop­er­ly licensed or exempt from licen­sure. Past per­for­mance is no guar­an­tee of future returns. Invest­ing involves risk and pos­si­ble loss of prin­ci­pal cap­i­tal. No advice may be ren­dered by NAMCOA unless a client ser­vice agree­ment is in place.

Thank you.