April 2024 DST Landscape Review – Steady Absorption

The first quar­ter has end­ed, and the equi­ty raised for Delaware Statu­to­ry Trusts (DSTs) con­tin­ues to move for­ward at a steady pace.  How­ev­er, there were no March Mad­ness events to be expe­ri­enced mean­ing a rush of place­ment of equi­ty.

April 15, 2024

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

Some indus­try experts point to the con­sis­tent absorp­tion as an encour­ag­ing sign that investor inter­est is still evi­dent. Sim­ply put DSTs are being uti­lized as replace­ment prop­er­ties in Sec­tion 1031 tax deferred exchanges as well as cash investors.  Real estate experts may con­cur that the over­all real estate mar­ket while mak­ing progress is still lin­ger­ing from the divorce from low­er inter­est rates that may have dri­ven up prices over a few years ago.  Either way there is opti­mism sprin­kled with a lit­tle cau­tion on the future of the over­all real estate mar­ket, espe­cial­ly in an elec­tion year. New real estate investors with cash are seek­ing sta­ble income with pas­sive man­age­ment at a low­er invest­ment lev­el typ­i­cal­ly required for insti­tu­tion­al type real estate.

2024 Year End Pre­dic­tion:

Pre­vi­ous­ly we report­ed the elu­sive goal (for 2024 end of year) of $5 Bil­lion in equi­ty invest­ed may be some sort of bench­mark as a nor­mal mar­ket.  We ref­er­enced pre­vi­ous­ly the 2023 results with just over $5 Bil­lion in equi­ty invest­ed. As of this writ­ing there is an esti­mat­ed $1.3 Bil­lion in equi­ty which was an increase of over $500 Mil­lion since the last writ­ing.   Indus­try experts do not expect any run up of equi­ty near the lev­els of 2022.

Con­tin­ued Offer­ings:

Over the past month there have been lim­it­ed new offer­ings with only one sig­nif­i­cant All Cash retail offer­ing. Spon­sors have turned their focus to their cur­rent open offer­ings. There is over $2.7 Bil­lion in equi­ty avail­able. This is down from the over $3 Bil­lion typ­i­cal­ly on the mar­ket at any giv­en time.

Track­ing Inven­to­ry:

 We con­tin­ue to track inven­to­ry being ful­ly sub­scribed as well as the new inven­to­ry that comes on the mar­ket.  Cur­rent­ly there are over 80 options with over thir­ty (30) per­cent being all cash offer­ing, mean­ing no lever­age.  Cur­rent­ly the aver­age days on mar­ket is 300 days. Notable that small­er offer­ings may be sub­scribed to quick­er than larg­er offer­ings.

Aver­age offer­ing Size:

The aver­age size of the DST offer­ings is still over $50 Mil­lion.  This is dri­ven by a few very large offer­ings bring­ing the aver­age up some­what. There are over 50 offer­ings below the aver­age. Larg­er offer­ings may take addi­tion­al time to be ful­ly sub­scribed to but pro­vide investors with addi­tion­al due dili­gence time.   One notable increase has been the aver­age first year pro­ject­ed dis­tri­b­u­tion.

Tax Advan­taged:

Some sell­ers of tra­di­tion­al real estate may be hold­ing out for an uptick in the mar­ket cre­at­ing the first leg of their exchange. The tax defer­ral ben­e­fits of the 1031 con­tin­ue to dri­ve the inter­est. Most investors enjoy the tax advan­taged income. The high­er cost of cap­i­tal in the lever­aged DST has caused cap rates to increase on aver­age. Spon­sors are seek­ing to add addi­tion­al offer­ings but may con­tin­ue the more con­ser­v­a­tive lever­age approach. This is specif­i­cal­ly dri­ven by the cost of cap­i­tal in most cas­es.  Investors with debt to replace (1031 require­ments) and need­ing a high­er LTV may be chal­lenged.  Finan­cial advi­sors who review mul­ti­ple offer­ings, rather than only pro­pri­etary offer­ings, can assist investors with more options.  

Spring & Sum­mer sell­ing sea­son

As the mar­kets move into the spring and sum­mer peri­ods real estate pro­fes­sion­als are antic­i­pat­ing increased sales.  This may be due to the accep­tance of the high­er inter­est rates.  Some sell­ers may adjust ask­ing prices to incen­tivize prospec­tive buy­ers.  Sell­er who want to progress to the next phase of real estate own­er­ship may con­sid­er now  to hold the prop­er­ty or how long to hold up their next move.   There may also be a con­tin­ued slow­down as buy­ers grow weary of high­er inter­est rates and lack of over­all inven­to­ry in the res­i­den­tial mar­kets in cer­tain loca­tions in the US.

The ample sup­ply of DST inven­to­ry may ensure investors will have the abil­i­ty to cre­ate a diver­si­fied replace­ment port­fo­lio. The diver­si­fi­ca­tion may be geo­graph­ic (mean­ing dif­fer­ent areas of the coun­try) or asst class (com­bin­ing a vari­ety of prop­er­ties such as mul­ti fam­i­ly, indus­tri­al or self-stor­age).

Investor Restric­tion:

DST’s (Delaware Statu­to­ry Trusts) 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. 

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.