Mid-March 2025 Landscape Review ~ DST Equity Continues to be Absorbed

After an impres­sive first month equi­ty invest­ment con­tin­ued into and through Feb­ru­ary and into March. Feb­ru­ary equi­ty reached over $565 Mil­lion and the first half of March about $250 Mil­lion. Total equi­ty amount­ed to almost $1.44 Bil­lion.  

March 29, 2025

By Al DiNi­co­la, AIF®
1031 Tax Deferred Exchange Spe­cial­ists & DST Advi­sor
NAMCOA® — Naples Asset Man­age­ment Com­pa­ny®, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

These num­bers come from Moun­tain Dell Con­sult­ing, who engages and tracks activ­i­ties from spon­sors of Delaware Statu­to­ry Trust (DST) and TIC Mar­ket Equi­ty invest­ment.  It is too ear­ly to project the 2025 results. How­ev­er, the over­all pro­ject­ed results may top over $7 Bil­lion   

2025 Ear­ly Indi­ca­tion.

As stat­ed, it is too ear­ly to pre­dict what the final equi­ty num­ber will be at the end of 2025.  What we may be able to use are demo­graph­ic and eco­nom­ic dri­vers that may increase demand for cer­tain prod­uct offer­ings. The above month­ly aver­age of equi­ty raised in Jan­u­ary of 2025 (when com­pared to 2024) may have been as a result of an end of the year sale of invest­ment prop­er­ties.  If investors sold their invest­ment prop­er­ty uti­liz­ing a 1031 tax deferred exchange the move into a DST is rel­a­tive­ly easy.  Easy from the stand­point of the DST offer­ings being prepack­ages with non-recourse debt to facil­i­tate the exchange.  Life events may become more impor­tant than eco­nom­ic dri­vers. Cer­tain life events such as mov­ing from one loca­tion to anoth­er down­siz­ing going off the col­lege or uti­liz­ing self-stor­age facil­i­ties may hap­pen more than eco­nom­ic sit­u­a­tions.

Mar­ket Met­rics.

We mon­i­tor the remain­ing inven­to­ry in each spe­cif­ic offer­ing each week.  There is less over­all avail­able equi­ty now than this time last year. When you ana­lyze the over­all equi­ty avail­able it appears there is an over­sup­ply.  How­ev­er, large investors, espe­cial­ly from large tra­di­tion­al real estate insti­tu­tion­al investors, are mov­ing to a more pas­sive invest­ment vehi­cle.  

One item that was not includ­ed in the over­all sum­ma­ry of the Moun­tain Dell Report is the num­ber of all cash DST.  39 of the 88 cur­rent offer­ings are all cash. That is almost 44%.   

Cur­rent Asset Class Met­rics

Spon­sors have entered a more con­ser­v­a­tive under­writ­ing, reduced the LTV and increased the equi­ty need­ed for each DST. 

Not­ed in the chart above is the aver­age LTV for each asset class. There are no asset class­es with an aver­age LTV of over 40%.  Under­stand­ing that when dis­play­ing an aver­age there may be (depend­ing on the asset class) an LTV over 40%. 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 about that strat­e­gy

There are a few inter­est­ing take­aways from this chart as dis­played. In look­ing at the num­ber of pro­grams offered by a sin­gle asset class mul­ti­fam­i­ly with 24 sure­ly is out­pac­ing the rest of the offer­ings. How­ev­er, the Indus­tri­al Asset class con­tin­ues to be attrac­tive with 17 total offer­ings. Over the peri­od last year there were almost as many indus­tri­al offer­ings as there were mul­ti­fam­i­ly. The top three offer­ings of Mul­ti­fam­i­ly, Indus­tri­al and nec­es­sary Retail rep­re­sent 66% of all offer­ings.  The lim­it­ed sup­ply of the oth­er asset class­es may increase demand, espe­cial­ly for all cash investors. There has been an increased absorp­tion of indus­tri­al assets over the past few months. A note for retail which needs to be explained is that many of the offer­ings may be con­sid­ered “nec­es­sary retail” such as gro­cery stores and need­ed facil­i­ties as com­pared to your depart­ment store retail offer­ings. Notice­ably absent from this is man­u­fac­tured hous­ing. An item which we don’t report on too fre­quent­ly is the inclu­sion of a §721 UPREIT at some point in time after the Delaware statu­to­ry trust is acquired. Some of the offer­ings will have option­al §721 UPREITS, oth­ers will have manda­to­ry upgrades. We will cre­ate an arti­cle on the advan­tages and dis­ad­van­tages of the §721 UPREIT pro­gram. Recent­ly there have been two large insti­tu­tion­al real estate REITs who have intro­duced DSTs as a path to the extreme­ly large REIT.  Migra­tion to the REIT (via 721) would hap­pen after a two-year safe har­bor hold­ing peri­od.

Final DST Mar­ket Overview Com­ments

Recent­ly attend­ing sev­er­al indus­try retreats and con­fer­ences there is opti­mism that the over­all real estate mar­kets will con­tin­ue to improve in many areas of the coun­try. 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 2024 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. 

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. 5 Cen­ter­pointe Dri­ve, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.