November 2024 DST Landscape Review – Industrial Revolution Continues

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.