January 2024 Landscape Review 2023 DST Equity Raises over $5 Billion!

Dur­ing 2023 we mon­i­tored the equi­ty raised in the Delaware Statu­to­ry Trust (DST) mar­ket. With much antic­i­pa­tion the over­all mar­ket did achieve over $5 Bil­lion in equi­ty!  

By Al DiNi­co­la, AIF®, CEPA™
Jan­u­ary 17, 2024
Adinicola@namcoa.com
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

Why the Con­trac­tion?
The con­trac­tion of the DST mar­ket was antic­i­pat­ed giv­en a vari­ety of mar­ket dynam­ics, the least of which was the ris­ing inter­est rates.  The rise in inter­est rates caused an over­all slow­down in the real estate mar­ket. Investors hold­ing tra­di­tion­al real estate may have seen few­er buy­ers. These buy­er may have need­ed access to cap­i­tal at an accept­able bor­row­ing rate. How­ev­er, there is much expec­ta­tion that con­di­tions will improve in 2024.

§1031 DST/TIC Mar­ket Equi­ty Update is pro­vid­ed by Moin­tain Dell Con­sult­ing. Moun­tain Dell tracks equi­ty invest­ed into alter­na­tive invest­ments. The record-break­ing years of 2021 ($7.5 B) and 2022 ($9.2 B) may be hard to repli­cate. The $5,041,949 achieved in 2023 is very respectable when con­trast­ed to the 2019 ($3.486B) and 2020 ($3.192) results. Many con­sul­tants feel that the imme­di­ate COVID effects cre­at­ed an increase in the amount of real estate being sold cre­at­ing addi­tion­al 1031 activ­i­ty in 2021 and 2022. This may be a return to nor­mal mar­ket­place for DST equi­ty invest­ing.

Mar­ket Met­rics.
When com­par­ing year over year mar­ket met­rics (aside from equi­ty vol­ume) there are a few items to com­pare.

There is less equi­ty cur­rent­ly avail­able com­pared to end of 2022. How­ev­er, there are more pro­grams to select from when seek­ing a replace­ment prop­er­ty. The days on mar­ket has increase which means longer time to sell out a DST asset. The longer time may pro­vide investors with addi­tion­al options. There has also been an increase in the pro­ject­ed aver­age first year dis­tri­b­u­tion. One item that was not includ­ed in the Moun­tain Dell Report is the num­ber of all cash DST.  There has been a dra­mat­ic increase in all cash DST as well as reduced LTV (Loan to val­ue) or reduced lever­age in the DST offer­ings.  This may not be all good news for investors who need to bal­ance their exchanges with debt.  Investors with high­er than 60% LTV replace­ment are most affect­ed.

Asset Class Met­rics

Spon­sors have entered a more con­ser­v­a­tive under­writ­ing reduc­ing the LTV and increas­ing the equi­ty need­ed for each DST.  Not­ed in the chart above is aver­age LTV for each asset class. There are no asset class­es with an aver­age LTV of over 50%.  Thus, for investors with a high­er LTV need we have a few alter­na­tives.  Please con­sult with us for that strat­e­gy.

Final DST Mar­ket Overview Com­ments
If we reflect on the five (5) year aver­age of equi­ty raised pri­or to 2023 that num­ber was $5.1 Bil­lion.  The total raised in 2023 was $5,041,949,394. So, in some respects 2023 was on aver­age for equi­ty raised.  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. The under­ly­ing demo­graph­ics for investors want­i­ng to sell active­ly man­aged real estate and move into pas­sive own­er­ship could be at an all-time high.  We will see if the oth­er mar­ket dynam­ics pro­vide momen­tum for investors to see their exist­ing prop­er­ties.

We con­tin­ue to research, review, and mon­i­tor all the major DST spon­sors.  We speak week­ly with our spon­sor con­tacts and con­duct due dili­gence on DST offer­ings. Our con­tin­ued research enables us to pro­vide a quick response to investor ques­tions regard­ing their cash invest­ing needs as well as their §1031 tax deferred exchange.  We are espe­cial­ly skilled at bal­anc­ing the exchange debt equi­ty require­ments. We also spe­cial­ize in the §1033 exchange in the case of nat­ur­al dis­as­ter or emi­nent domain cas­es.

What to Look for in 2024 and 2025
Keep an eye on the Fed­er­al Reserve!  Low­er inter­est rates will mean the open­ing of the flood gates of cur­rent real estate own­ers who have been wait­ing to sell their cur­rent­ly prop­er­ties but have been hes­i­tant due to the high inter­est rates envi­ron­ment.  The DST Spon­sors are aware of this as well, so you can expect more DST solu­tions to be intro­duced in the event the Fed starts to low­er rates.  

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.

Click Here for more infor­ma­tion on DST News.org

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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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