September 2024 DST Landscape Review – Industrial Revolution

Equi­ty absorp­tion ticked up dur­ing the month of Sep­tem­ber and the indus­tri­al asset class may be surg­ing.  There were five (5) Delaware Statu­to­ry Trust (DST) pro­grams ful­ly sub­scribed to or closed.

Octo­ber 10, 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

Not­ed there were nine (9) new offer­ings that came on the mar­ket for investors. There is con­tin­ued absorp­tion. Throught the end of Sep­tem­ber the total equi­ty raised was $3,928,762,966.  This is accord­ing to Moun­tain Dell Con­sult­ing.  Moun­tain Dell com­mu­ni­cates with the var­i­ous spon­sors of DSTs. If equi­ty absorp­tion and invest­ment con­tin­ue with this pace the indus­try as a whole can see a total absorp­tion of $5.3 Bil­lion at year end 2024.  This would exceed 2023 by near­ly $250 Mil­lion.     For the third month in a row the equi­ty raised was just about $500 Mil­lion. Anoth­er sign indi­cat­ing move­ment in the right direc­tion.   There is an antic­i­pa­tion that then at the end of the year §1031 exchanges as well as 1031 pace would increase.

Avail­able equi­ty:

A change to be not­ed is the increase in the indus­tri­al asset class of prop­er­ties that are being made avail­able. Investors are drawn to the sta­bil­i­ty of the indus­tri­al sec­tor. Over the past few years, the indus­tri­al asset class seems to have emerged as a dom­i­nant offer­ing.  Some of the indus­tri­al offer­ings are very large and may be a very large dis­tri­b­u­tion cen­ter.  A few of the dis­tri­b­u­tion cen­ters have more robot­ics, and equip­ment inside than the cost of the build­ing. Total avail­able equi­ty from all DST spon­sors is approx­i­mate­ly $2.5 Bil­lion.  Near­ly $1 Bil­lion is in the indus­tri­al asset class. Not exact­ly a rev­o­lu­tion but maybe rev­o­lu­tion­iz­ing the offer­ings. This rep­re­sents over 39% of avail­able equi­ty. This is an increase from 34.5% last month. Anoth­er notable indi­ca­tor is the Loan to Val­ue (LTV) of the indus­tri­al offer­ings.  There are cur­rent­ly (at the time of this writ­ing) 22 offer­ings of which 11 are all cash.  In con­trast to mul­ti­fam­i­ly there are cur­rent­ly 26 offer­ings and only 4 are all-cash.  There was a decline of 3% for mul­ti­fam­i­ly down to 26.5%. Nec­es­sary retail cur­rent­ly has 18 offer­ings of which 12 are all ‑cash. The trend to enter into a more con­ser­v­a­tive under­writ­ing espe­cial­ly for nec­es­sary retail con­tin­ues. Self-stor­age offer­ings as well as stu­dent hous­ings are very lim­it­ed.

Track­ing Inven­to­ry:

We con­tin­ue to tra­ch inven­to­ry on a week­ly basis.  WE also con­tin­ue to con­duct due dili­gence on new offer­ings as well as update exist­ing offer­ings. Under­stand­ing the amount of poten­tial equi­ty that is avail­able at any giv­en time pro­vides us with an advan­tage to assist with investor calls. Investor with­in the 45-day iden­ti­fi­ca­tion peri­od (uti­liz­ing a §1031 exchange) need imme­di­ate atten­tion when seek­ing replace­ment prop­er­ties that are suit­able.

Un-lever­ag­ing the offer­ings- Now a Trend

 We con­tin­ued to be cre­ative when an investor with a high­er required LTV is seek­ing replace­ment prop­er­ties.  We have includ­ed a diver­si­fied port­fo­lio of replace­ment DST (one with high­er lever­age) as well as all-cash to bal­ance out the exchange. Investors exe­cut­ing a 1031 exchange may seek first to defer cap­i­tal gains with a sol­id invest­ment rather than chas­ing a high­er dis­tri­b­u­tion rate.

Aver­age Pro­ject­ed Year One dis­tri­b­u­tion:

Many of the investors who are mov­ing into DSTs are arriv­ing via §1031 tax deferred exchange.  There are many ben­e­fits of that vehi­cle.  Investors enjoy the pas­sive income and poten­tial tax advan­taged income.  The pro­ject­ed first year dis­tri­b­u­tion is still around 4.87% aver­age.  Many DST, by design with inter­est only loans in the begin­ning years and then move to amor­tiz­ing loans. Inter­est only loans pro­vide more ini­tial cash flow to investors. Once the loan begins to amor­tize then addi­tion­al equi­ty is built up as the loan amount is paid down.

Pre­pare for end of Year.

A word of advice for investors think­ing about sell­ing their com­mer­cial or res­i­den­tial real estate would be to be mar­ket dri­ven to affect a sale. Then have a plan in place for exe­cut­ing a §1031 exchange that may move from active to pas­sive invest­ment income.  Reach out to a finan­cial advi­sor well infor­ma­tion on the process.

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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