January 2025 Landscape Review ~2024 DST Equity raise Increased 12% over 2023

Dur­ing 2024 we mon­i­tored the equi­ty raised in the Delaware Statu­to­ry Trust (DST) mar­ket. With much antic­i­pa­tion the over­all mar­ket did achieve a 12 per­cent increase when com­pared to 2023.

Jan­u­ary 16, 2024

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

Adinicola@namcoa.com

There was an equi­ty raise (from investors) of $5.67 Bil­lion dur­ing 2024.  This was report­ed by Moun­tain Dell Con­sult­ing who engages and tracks activ­i­ties from spon­sors of Delaware Statu­to­ry Trust (DST) and TIC Mar­ket Equi­ty invest­ment.   

2024 Reversed the Con­trac­tion

Macro­eco­nom­ic head­winds impact­ed the equi­ty raise in 2023. The 12% increase in equi­ty raise (2024 year over year) is an encour­ag­ing sign for investors. 2023 may have been the “Val­ley” in trans­ac­tion vol­ume. This 2024 increase may be eval­u­at­ed as a mild rebound, or a thaw­ing of the trans­ac­tion vol­ume and more trans­ac­tions were flow­ing again.  In look­ing back in 2023 there were many escrows that were delayed and fell out due to many issues fac­ing investors. The increase in 2024 may be due to peo­ple get­ting used to high­er rates. (Although I remem­ber my first mort­gage in Flori­da was at 14%). Investors are accept­ing the real­i­ty of high­er rates (and maybe rates will come back down). There are oth­er macro­eco­nom­ic head­winds affect­ing many class­es of real estate (mul­ti­fam­i­ly, stu­dent hous­ing, etc.). The dras­tic rise in insur­ance pre­mi­ums and oth­er oper­at­ing costs effects the bot­tom line. Con­trac­tion of the DST mar­ket was antic­i­pat­ed giv­en a vari­ety of mar­ket dynam­ics, the least of which was the ris­ing inter­est rates.  The rise in inter­est rates caused an over­all slow­down in the real estate mar­ket. Investors hold­ing tra­di­tion­al real estate may have seen few­er buy­ers. These buy­ers may have need­ed access to cap­i­tal at an accept­able bor­row­ing rate. How­ev­er, there is much expec­ta­tion that con­di­tions will improve in 2024.

Mar­ket Met­rics.

When com­par­ing year over year mar­ket met­rics (aside from equi­ty vol­ume) there are a few items to com­pare.

There is less equi­ty cur­rent­ly avail­able com­pared to the end of 2023. The num­ber of over­all pro­grams remains the same.  Hav­ing a vari­ety of asset class­es helps investors who seek a replace­ment prop­er­ty for a 1031 tax deferred exchange.  The days on the mar­ket have increased which means longer time to sell out a DST asset. The longer time may pro­vide investors with addi­tion­al options. There has also been an increase in the pro­ject­ed aver­age first year dis­tri­b­u­tion. One item that was not includ­ed in the over­all sum­ma­ry of the Moun­tain Dell Report is the num­ber of all cash DST.  There con­tin­ues to be a con­sis­tent num­ber of all cash DST (an increase on pre­vi­ous years) as well as reduced LTV (Loan to val­ue) or reduced lever­age in the DST offer­ings.  This may not be all good news for investors who need to bal­ance their exchanges with debt.  Investors with high­er than 60% LTV replace­ment are most affect­ed.

2024 Equi­ty Invest­ed by Asset Class

There is a rela­tion­ship between the above chart of equi­ty raised and the below chart equi­ty avail­able. It should be clear that because there is more equi­ty avail­able in the Mul­ti­fam­i­ly and Indus­tri­al asset class there would be more equi­ty raised.  Mul­ti­fam­i­ly and Indus­tri­al are still in much demand.

Cur­rent Asset Class Met­rics

Spon­sors have entered a more con­ser­v­a­tive under­writ­ing reduc­ing the LTV and increas­ing the equi­ty need­ed for each DST.  Not­ed in the chart below is aver­age LTV for each asset class. There are no asset class­es with an aver­age LTV of over 50%.  Under­stand­ing that when dis­play­ing an aver­age there may be (depend­ing on the asset class) an LTV over 50%. Thus, for investors with a high­er LTV need we have a few alter­na­tives.  When we assist an investor with a larg­er §1031 exchange ($1M and above) espe­cial­ly when debt needs to be replaced, we typ­i­cal­ly blend mul­ti­ple DSTs with lever­age to diver­si­fy the replace­ment port­fo­lio for the investor.  Please con­sult with us for that strat­e­gy.

Final DST Mar­ket Overview Com­ments

If we reflect on the six (6) year aver­age of equi­ty raised pri­or to 2024 that num­ber was $5.1532 Bil­lion.  (See Chart below). In review­ing the num­bers 2024 is high­er than the 6‑year aver­age for equi­ty raised.  If you use a 5‑year mov­ing aver­age, it was just slight­ly above.  It may take a few years to get close to the record high reach of $9.2 bil­lion in equi­ty raised in 2022 or the $7.2 bil­lion of equi­ty raised in 2021. The under­ly­ing demo­graph­ics for investors want­i­ng to sell active­ly man­aged real estate and move into pas­sive own­er­ship could be at an all-time high.  We will see if the oth­er mar­ket dynam­ics pro­vide momen­tum for investors to see their exist­ing prop­er­ties.

We con­tin­ue to research, review, and mon­i­tor all the major DST spon­sors.  We speak week­ly with our spon­sor con­tacts and con­duct due dili­gence on DST offer­ings. Our con­tin­ued research enables us to pro­vide a quick response to investor ques­tions regard­ing their cash invest­ing needs as well as their §1031 tax deferred exchange.  We are espe­cial­ly skilled at bal­anc­ing the exchange debt equi­ty require­ments. We also spe­cial­ize in the §1033 exchange in the case of nat­ur­al dis­as­ter or emi­nent domain cas­es. The time­line for investors to decide on their uti­liza­tion of a §1033 may extend beyond the bench­mark 2 years as iden­ti­fied in the §1033 Code and poten­tial­ly extend to 4 years.  With the 2023 hur­ri­canes in Flori­da and North Car­oli­na as well as the 2024 fires in Cal­i­for­nia, it may be too ear­ly to make any pre­dic­tion on how many investors will take advan­tage of the §1033 tax advan­tages. Over the years we have assist­ed investors in deal­ing with their emo­tions as well as their replace­ment strat­e­gy. We are so for­tu­nate in our spe­cif­ic loca­tion in Flori­da deal­ing with three hur­ri­canes in 2024.  Even though the eye of hur­ri­cane Mil­ton came over us we were spared dam­age to our prop­er­ty. Our thoughts and prayers are with the peo­ple in south­ern Cal­i­for­nia at this time.

What to Look for in 2025 and 2026

DSTs have been gain­ing broad­er insti­tu­tion­al expo­sure and accep­tance. The inclu­sion of the 721 UPREIT (after a safe har­bor peri­od).  Large insti­tu­tion­al investors have been step­ping into the space. Not only on the spon­sor lev­el but also the large insti­tu­tion­al play­er and advi­sors prospec­tive. Schwab and Fideli­ty have entered the par­tic­i­pa­tion via plat­form­ing DSTs.  Large wire hous­es are step­ping into the 1031 space on the wealth man­age­ment side of the busi­ness. On a dif­fer­ent top­ic, but poten­tial­ly of vast inter­est may be the exten­sion of the tax cuts with the new admin­is­tra­tion as well as a poten­tial mod­i­fi­ca­tion and exten­sion to the Oppor­tu­ni­ty Zone (OZ) invest­ment oppor­tu­ni­ty.

NAMCOA® is a SEC reg­is­tered invest­ment advi­so­ry firm that pro­vides com­pre­hen­sive port­fo­lio man­age­ment, finan­cial plan­ning, and fidu­cia­ry deci­sion-mak­ing ser­vices on behalf of retire­ment plan spon­sors. Our Dif­fer­ence is sum­ma­rized by our fidu­cia­ry approach which enables us to bet­ter meet port­fo­lio and retire­ment plan objec­tives, result­ing in stronger risk adjust­ed returns for investors and peace of mind for Clients. We also focus on alter­na­tive real estate invest­ment. Many real estate investors are seek­ing tax deferred solu­tions uti­liz­ing §1031 exchanges or Oppor­tu­ni­ty Zones.

DSTs are not for all investors.  The acqui­si­tion of a DST is for accred­it­ed investors only.  Con­tact your invest­ment advis­er for addi­tion­al details on how a DST may be a solu­tion to your 1031 Exchange and suit­ed for your invest­ment future. 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, whether pub­lic or pri­vate, 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.

Thank you.