Equity absorption from the end of September through November 15 increased by nearly $1 Billion. The interest in the Industrial Asset class continues to outpace all other asset classes.
November 30, 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
Equity absorption as well as equity availability of industrial asset classes cannot be overlooked. There were nine (9) Delaware Statutory Trust (DST) programs fully subscribed to or closed. Noted there were six (6) new offerings that came on the market for investors. There is continued absorption. Through the middle of November the total equity raised was $4,857,875,707 This is according to Mountain Dell Consulting. Mountain Dell communicates with the various sponsors of DSTs. With approximately 6 weeks of reporting unit the end of the year and at the current investment pace the total absorption of $5.3 Billion may be achieved at year end 2024. This would exceed 2023 by nearly $250 Million. Having the presidential election in the rear-view mirror may provide momentum moving into 2025. It is unlikely that investors who have not planned on selling property and moving in DSTs will have the proper planning to complete the transaction. Although DST are prepackages and can be acquired in less than a week by accredited investors. However, the overall market should be able to absorb another $450 Million by the end of 2024. Another sign indicating movement in the right direction and helps to ring in the new year.
Available equity:
We reported a change to be noted in the increase in availability in the industrial asset class of properties last month. Investors are drawn to the stability of the industrial sector. Currently there is more equity available in the industrial asset class when compared to all residential offerings that include multi family, student housing, manufactured housing and senior housing. Some of the industrial offerings are very large and maybe 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 increased slightly to $2.7 Billion. Nearly $1 Billion is in the industrial asset class. Not exactly a revolution but the trend seems to be continuing. This represents over 37% of available equity. This is a slight decrease from 34.5% last month and may be based on additional absorption in the industrial class. Another notable indicator is the Loan to Value (LTV) of the industrial offerings averaging less than 24%. There are currently (at the time of this writing) 24 offerings of which 12 are all cash. In contrast to multifamily there are currently 26 offerings and only 5 are all-cash. There was a decline of 5% for multifamily offerings down to 21%. Necessary retail currently has 20 offerings of which 13 are all -cash. The trend to enter into a more conservative underwriting especially for necessary retail continues. Self-storage offerings as well as student housing 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 & Challenge to Some Investors
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. AS noted above in increase in all cash offerings as well as lower LTV offerings creates additional challenges for 1031 investors who need to replace debt.
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 4.82% 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 2025.
While it may be too late to sell current real estate holding to move into another investment vehicle there are rebalancing discussions to enter into with your advisory team. Investors seeking to sell other assets such as stocks may also be able to move into Opportunity Zones as an alternative. We have also reviewed investment strategies involving moving from a traditional IRA to a ROTH Conversion. The initial indication with a new political party moving into the White House provide signs that §1031 exchange should continue. There are also favorable signs the tax cuts may stay in place. In additional there appears to be favorable signs for Opportunity Zones to continue and potentially with some augmentation. Reach out to us for a consultation on how to prepare for 2025.
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.
