DST.EDU Series A- Part 6: Allowances for Broker Dealers

In this part we con­tin­ue to review expens­es that are includ­ed in the Delaware Statu­to­ry Trusts (DSTs). As with many real estate prop­er­ties and oth­er prod­ucts there is a cost to struc­ture and cre­ate the ulti­mate prop­er­ty in order to bring the offer­ing to mar­ket. 

Wel­come DST News! Our goal is to pro­vide non-biased edu­ca­tion and mar­ket infor­ma­tion for Accred­it­ed Investors on DSTs. We hope to pro­vide a Depth & Breath of knowl­edge for Investors About Delaware Statu­to­ry Trusts (DSTs).

Updat­ed Post: Feb­ru­ary 1, 2024
Orig­i­nal Post Feb 11, 2022

By Al DiNi­co­la, AIF®, CEPA™
DST 1031 Spe­cial­ist
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC-  Mem­ber of FINRA/SIPC

Mar­ket­ing expens­es are typ­i­cal­ly includ­ed in many prod­ucts that are off­set by or includ­ed in the sell­ing prices. There are addi­tion­al expens­es that may reim­burse the mar­ket­ing efforts of the Bro­ker deal­er for due dili­gence and mar­ket­ing efforts. Due dili­gence as well as investor suit­abil­i­ty become key in select­ing the right offer­ing for the right investor.

There is a Man­ag­ing Bro­ker-Deal­er respon­si­ble for the offer­ing. DSTs are rec­og­nized as secu­ri­ties offer­ings and only for accred­it­ed investors (we will review the def­i­n­i­tion of accred­it­ed investors in a future part). There are many reg­u­la­tions involved with these types of invest­ments. The offer­ings are issued through a man­ag­ing bro­ker deal­er (this may be like a trans­fer agent on oth­er invest­ments) for com­pli­ance stan­dards.  At this lev­el there are expens­es involved with oth­er costs involv­ing doc­u­ment prepa­ra­tion, com­pli­ance with secu­ri­ties laws and oth­er due dili­gence items. Many of the reg­u­la­tions were insti­tut­ed to pro­tect the indi­vid­ual investors.

Who are Whole­salers?  Whole­salers are the in-house rep­re­sen­ta­tives of the Spon­sor of the DST. These rep­re­sen­ta­tives pro­vide all the nec­es­sary infor­ma­tion to licensed reg­is­tered rep­re­sen­ta­tives.  The rep­re­sen­ta­tives have a thor­ough under­stand­ing of the spon­sors’ back­ground as well as the indi­vid­ual offer­ing that is cur­rent­ly avail­able. The amount of doc­u­men­ta­tion may be viewed as over­whelm­ing at times.  Most infor­ma­tion comes in the form of a Pri­vate Place­ment Mem­o­ran­dum (PPM). PPMs will be cov­ered as a sep­a­rate top­ic.  Many spon­sors will have wholesalers/representatives who are locat­ed through­out the coun­ty to assist in meet­ing with finan­cial advi­sor rep­re­sen­ta­tives and pro­vide addi­tion­al sup­port includ­ing edu­ca­tion. Like many sales posi­tions whole­salers are com­pen­sat­ed by the man­ag­ing bro­ker deal­er or the spon­sor.

How are DSTs offered to indi­vid­ual Investors? The spon­sors in con­junc­tion with the man­ag­ing bro­ker deal­er estab­lish work­ing rela­tion­ships with indi­vid­ual finan­cial advi­sors as well as bro­ker deal­ers’ rep­re­sen­ta­tives. The pur­pose of the rela­tion­ship is to pro­vide infor­ma­tion on the sponsor’s offer­ing enabling the advi­sors and rep­re­sen­ta­tives to offer the DSTs to indi­vid­ual investors. Both of these groups will offer DST and 1031 con­sult­ing ser­vices to indi­vid­ual investors. There are two ways investors acquire a DST. Indi­vid­ual investors may invest direct cash. Investors may also use the pro­ceeds from a §1031 tax deferred exchange via a Qual­i­fied Inte­me­di­ary (QI). Rep­re­sen­ta­tives must adhere to the Reg­u­la­tion Best Inter­est (BI). Finan­cial advi­sors typ­i­cal­ly are fidu­cia­ries and work on behalf of the investor.  Both rep­re­sen­ta­tives as well as advi­sors must also con­duct their own due dili­gence on the offer­ing and fre­quent­ly uti­lize third par­ty inde­pen­dent research for addi­tion­al due dili­gence.

Investors have clear insight into costs asso­ci­at­ed with any of the DST offer­ings in the PPM.  We will pro­vide addi­tion­al insight in future parts as we review the “load”.

Look for Part 7: Cost of Acqui­si­tion

Edi­to­r­i­al Com­ment: We are reg­is­tered invest­ment advi­sor. We rep­re­sent the client, not the spon­sor, mean­ing the issuer of the DST prop­er­ty.  This is a sig­nif­i­cant dif­fer­ence because many rep­re­sen­ta­tives out there and in today’s mar­ket­place pro­mote offer­ings that they them­selves may be spon­sor­ing and, in many cas­es, are mak­ing dou­ble dig­it returns in fees ini­tial­ly, and some­times ongo­ing.  Our fee is based upon a con­sul­ta­tive rela­tion­ship rep­re­sent­ing the client’s needs and objec­tives. This is the promi­nent dif­fer­ence between us and oth­er providers of DST place­ment ser­vices. 

DST’s (Delaware Statu­to­ry Trusts) are not for every­one and are for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and com­pli­ment your finan­cial objec­tives. 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, in any form, 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.