May 2024 DST Landscape Review – Equity Absorption over $400M

Delaware Statu­to­ry Trust (DST) equi­ty acquired by investors con­tin­ues to move along pre­dictable asset class acqui­si­tion. Mov­ing into the sec­ond quar­ter there has been a small shift in the per­cent­age of equi­ty raised in spe­cif­ic asset class­es. 

May 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

There has been just over $460 Mil­lion in equi­ty acquired with­in the last month. This amount is encour­ag­ing.  It may be too soon to indi­cate if this is a trend or a blip.  If this is a trend the annu­al­ize total amount may be over $5 Bil­lion for 2024.  In order to reach this amount, there would need to be aggres­sive absorp­tion by investors. We have report­ed over the past year of the appar­ent bot­tle neck in the com­mer­cial real estate mar­ket giv­en inter­est rates.  Now giv­en the elec­tion year build up some sell­ers and buy­ers of tra­di­tion­al real estate (which dri­ves the 1031 mar­ket and result­ing in DST acqui­si­tion) may take a wait and see atti­tude.    The opti­mism report­ed last month seems to be con­tin­u­ing.

Avail­able equi­ty:

 There has been a notable reduc­tion in the amount of equi­ty that is avail­able. While the shift in the per­cent­age of equi­ty absorbed and avail­able may only be minor there may be ear­ly signs of trends. Avail­able equi­ty nat­u­ral­ly is dri­ven by absorp­tion from the pre­vi­ous month.  For exam­ple, 57% of the equi­ty raised in the past month was in the mul­ti­faly asset class. How­ev­er, the mul­ti­fam­i­ly asset class only makes up 42% of the avail­able equi­ty. This may indi­cate that investors still find the mul­ti­fam­i­ly asset class as being one of the cor­ner­stones to have in their port­fo­lios.

Con­tin­ued Offer­ings:

The amount of net avail­able equi­ty is dri­ven by new inven­to­ry com­ing on the mar­ket and the equi­ty being absorbed. The avail­able equi­ty  in the last report­ing peri­od was $2.7B. Cur­rent­ly avail­able equi­ty stands at $2.45B.  That indi­cates absorp­tion is ahead of new offer­ings com­ing on the mar­ket. How­ev­er, there may be some buy­ing oppor­tu­ni­ties in the future that may prompt spon­sors to acquire cer­tain assets.

Track­ing Inven­to­ry:

 We con­tin­ue to track inven­to­ry being ful­ly sub­scribed as well as the new inven­to­ry that comes on the mar­ket.   There were two large offer­ings that became ful­ly sub­scribed over the last peri­od. This required about 15 months to be ful­ly sub­scribed.  A large indus­tri­al port­fo­lio of over $160M was ful­ly sub­scribed as well as a Mul­ti­fam­i­ly diver­si­fied port­fo­lio of over $119M. This port­fo­lio was ful­ly sub­scribed in about 5 months. 

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.

Attrac­tion to pas­sive man­age­ment & Tax Advan­tages:

There may be some indi­ca­tion of sell­er moti­va­tion as we move for­ward in the year. The attrac­tion to pas­sive man­age­ment (with pas­sive income) cou­pled with the tax advan­tages may prompt sell­ers to con­sid­er slight price incen­tives.  How­ev­er, sell­er of invest­ment prop­er­ties with income com­ing in each month may still be attrac­tive.  We have received investor feed­back in cer­tain areas of the coun­try expe­ri­enc­ing increas­es in insur­ance pre­mi­ums as well as increas­es in tax­es reduc­ing bot­tom line income.  We have also not­ed local munic­i­pal­i­ties increas­ing the tax­es on cer­tain DST prop­er­ties that have become com­plet­ed and in the final stages of leas­ing up. This will be some­thing to mon­i­tor.

1031 effects

Mov­ing into the sec­ond quar­ter has seen an increase in the 1031 exchange activ­i­ty.  AS prop­er­ties go under con­tract we should see an increase in DST equi­ty absorp­tion over ht enext 90 days.  We report­ed some buy­ers accept­ing the high­er inter­est rates and mod­i­fy­ing their invest­ment dol­lars.  The sell­er who wants to progress to the next phase of real estate own­er­ship may con­sid­er slight price improve­ments.

The ample sup­ply of DST inven­to­ry in mul­ti­fam­i­ly and indus­tri­al 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. 

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