Diving into Nontraded REIT Structures

There are a few ways to get into Non-trad­ed REITS.  One method is via a Sec­tion 1031 tax deferred exchange but only when uti­liz­ing a Delaware Statu­to­ry Trust (DST) as a vehi­cle or step­ping­stone.

April 14, 2025

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

There are a few details to ensure com­pli­ance not only with the exchange but also a safe har­bor peri­od. We want­ed to take a deep­er dive into the final REIT prod­ucts where a DST may end up after what is known as a Sec­tion 721 UPREIT. We will take a look at the non-trad­ed REIT in this arti­cle.  We will do a fol­low up on the DST mov­ing into a REIT via Sec­tion 721 UPREIT in the fol­low up arti­cle.

This arti­cle was prompt­ed by one of our investors seek­ing to uti­lize a §1031 exchange and even­tu­al­ly end up in a REIT. There are sev­er­al com­po­nents or areas to ana­lyze to deter­mine and eval­u­ate the spe­cif­ic REIT.

Div­i­dend Yields and AFFO Ratios (Adjust­ed Funds from Oper­a­tions).  This is a met­ric some may use to ana­lyze where the dis­tri­b­u­tions are obtained.  Mean­ing are the dis­tri­b­u­tions com­ing from income from the oper­a­tion or are the dis­tri­b­u­tion being sup­ple­ment­ed from cash in the REIT.  We have recent­ly ana­lyzed 8–10 spon­sors of REIT (many have 721 UPREIT pro­grams). Not all REIT spon­sors have a step­ping­stone from a DST.  Not all DST spon­sors have their own REIT or offer the 721 as a poten­tial exit strat­e­gy.

There are also the Invest­ment Strat­e­gy and Asset Class­es each REIT will invest in for either asset class, style, type and geo­graph­ic diver­si­fi­ca­tion. What has caught my atten­tion is the triple net lease (NNN) offer­ings that have been resilient over the past few years.  There is an invest­ment strat­e­gy that points to bal­anc­ing the REIT port­fo­lio that may include a diver­si­fied hold­ings across mul­ti­ple NNN ten­ants and in dif­fer­ent geo­graph­i­cal areas.  Over the past few years some of our 1031/DST investors have acquired the Net Lease Port­fo­lios.  Their port­fo­lios are typ­i­cal­ly NNN prop­er­ties locat­ed in dif­fer­ent mar­kets and sev­er­al states (as a note dis­tri­b­u­tion have nev­er been missed). Great diver­si­fi­ca­tion but may require tax fil­ing in a few states. Once the UPREIT hap­pens fil­ing becomes sim­pler.

Net Inflows is an inter­est­ing met­ric.  Basi­cal­ly, this takes a snap­shot of the trail­ing twelve-month (TTM) REIT cap­i­tal raised com­pared to the TTM Redemp­tions to arrive at NET Inflow.  While the is not an indi­ca­tion of the strength of the REIT (because investors request a dis­tri­b­u­tion for sev­er­al rea­sons) it is inter­est­ing to look at the sta­bil­i­ty of the REIT.

The Bal­ance Sheet met­rics typ­i­cal­ly will reflect the typ­i­cal Assets and Lia­bil­i­ties as well as what is known as non-con­trol­ling inter­est that is reflect­ed in Gen­er­al Accept­ed Account­ing Prin­ci­ples.  REITs are cap­i­tal-inten­sive and often high­ly lever­aged. This ratio helps investors under­stand the lever­age pro­file of the REIT. A high­er per­cent­age means low­er lever­age and poten­tial­ly low­er risk. A low­er per­cent­age may indi­cate more aggres­sive financ­ing through debt.

Debt plays an impor­tant role in most REITS. Debt Struc­ture also reflects inter­est cov­er­age as well as the amount of fixed rate debt com­pared to vari­able rate debt sub­ject to refi­nanc­ing, rate swaps or caps.

Liq­uid­i­ty Pro­vi­sions for many REITS are the same. For DST con­ver­sions there is a one year lock up peri­od typ­i­cal­ly.

Acqui­si­tion Fee Struc­tures are gen­er­al­ly the same (with a few nuances). The Ongo­ing Fees are gen­er­al­ly the same (about 0.85% annu­al­ly) with one or two with­out any ongo­ing fees.

Per­for­mance Struc­ture will ref­er­ence how the REIT spon­sor earns their fee. Typ­i­cal­ly, this is quar­ter­ly or annu­al­ly as a per­cent­age of return.  There are a few who have restric­tions or hur­dles to meet pri­or to tak­ing a fee.

We inter­face with many investors who are already on their way to com­plet­ing their exchange and uti­lize our exper­tise as a sound­ing board. We wel­come the oppor­tu­ni­ty to dis­cuss cur­rent and future exchanges. We may have a few addi­tion­al strate­gies and solu­tions to avoid over­pay­ing for the replace­ment prop­er­ty.  This may add extra val­ue to the invest­ment and open up a new exit strat­e­gy. We have over 80 years of expe­ri­ence in the real estate and invest­ment advi­so­ry. We also review on a week­ly basis many DST offer­ings so we can quick­ly respond when investors are faced with the clock run­ning out on their 45-day iden­ti­fi­ca­tion peri­od. If you are in a posi­tion to move to a broad­er invest­ment strat­e­gy includ­ing diver­si­fi­ca­tion of a DST with a def­i­nite defined exit strat­e­gy in about two years give us a call. 

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 §1031 Tax 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, 97035. MSC-BD, LLC and NAMCOA are inde­pen­dent­ly owned and are not affil­i­at­ed.

Thank you.