Alternative Real Estate Options- Skimming the Surface

Recently we posted an article suggesting a discussion with financial advisors regarding alternative real estate and inclusion in financial plans. This follow-up is a result of inquiries from that post.

June 14, 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

There are a variety of alternative real estate options and not every option may be suitable for all investors.  Certain alternatives have requirements regarding who may invest, for example accredited investors. As with all investments there may be advantages to mixing the types of alternatives if the investor has a substantial amount of funds to invest.  Investors with limited funds coming from the sale of an appreciated asset may have fewer options.

When considering which alternative real estate investments to include in a portfolio—such as Delaware Statutory Trusts (DSTs), Tenants-in-Common (TICs), Limited Liability Companies (LLCs), and Opportunity Zone (OZ) funds to name a few, there are overall guiding principles. Some of these principles are the individual investor’s investment goals. Typically, advisors will ask questions regarding income focus, growth focus or potentially a combination of both.  There is also risk tolerance, tax situation and time horizon (which may be tied to investor age). Investors may also have a different degree of the need for control (of the alternative real estate) enabling investors with more options for liquidity.

We are not taking a deep dive in this post but are skimming the surface to provide simply an overview. Our goal is to provide a glimpse of the investment vehicle and key characteristics.

Delaware Statutory Trusts (DSTs)

We have extensive writings on our website. We do focus on education regarding DSTs (notably the name of our website DSTNews.org). Many of our writings focus onthe use of DST as being best for§1031 exchange.

DST Pros: Most top reasons are investors seeking passive income, diversification, and no active management. The passive ownership is also coupled with institutional asset management.  Investors have access to commercial properties typically out of reach of most investors.  There is also monthly income potential (distribution) for most DST.

DST Cons: On the flip side there are holding periods required by design. This may be stated or described in the Private Placement Memorandum (PPM).  A 7–10-year time period is typically the holding period. There is also no investor control over the asset management.  Recently one investor shared their concerns about moving into a DST because they wanted to continue active management. Based on certain assets there may be limited capital appreciation over a short period of time.

Best practices and use in the portfolio may be for income stability as well as a tax-deferred §1031 exchange solution. This may be especially attractive for investors transitioning from active property management.

Tenants-in-Common (TICs)

Since 2004 when DSTs were cleared for the use in a §1031 exchange, TICs may have lost favor among many investors.  However, there are still investors who enjoy this alternative for a number of reasons. Investors seeking fractional ownership that qualifies for §1031 exchange enable investors to participate in a larger property but with some shared control.

Pros of a TIC first and foremost may be §1031 exchange potential as mentioned.  There is also a potential higher investor control than a DST.  This is reflected in co-ownership of larger properties. There is a newer version of TIC offerings we will review in future writings.

The Cons of a TIC may be a more complicated decision-making process with up to 35 owners (investors) in the TIC.  There is also unanimous decision consent which may be difficult.  Financing may also be complicated especially because most private TICs have recourse financing and potential liability for other investors.

Use in portfolio for accredited investors seeking tax deferral and willing to manage governance complexity. TICs that are offered by real estate sponsors under Regulation D, are for accredited investors.  There may be privately arranged TICS among friends and family. Small group real estate purchases where the TIC interest is not marketed as a security. This may be a direct ownership situation without the use of Reg D exemption.  However, these private TICs may not qualify for §§1031 exchanges benefits unless the IRS requirements are met. There may also be Diversification with some voting rights

Real Estate LLCs (Syndications)

There are investors who are not involved in a §1031 exchange (or have already satisfied their tax deferral situation) and seek potential above average returns provided by Real Estate Syndication.  Typically, these structures are also for accredited investors with some control.

Pros of Syndication may be the flexibility in structuring.  There is also potential for higher returns, especially in a value-add project or development project.  There may also be an income and appreciation play.

Cons of syndication may be a higher risk depending on where the project is currently regarding entitlements, permits, etc.  The offer may depend on the sponsor’s experience and proposed exit strategy.  There is also a degree of illiquidity and capital being tied up for extended periods of time.

Capital appreciation may be the focus for use in portfolio.  There may also be tax advantages or benefits with potential cost segregation especially in a non §1031 strategy.  Recently there were several IRA to Roth Conversion that employ the development strategy. More on that specific strategy in a later follow-up post.

Opportunity Zone (OZ) Funds

Investors with recent capital gains seeking long-term tax advantages may benefit from this strategy. Capital gains from any investment may qualify. This includes stock gains, artwork, collectibles, business sales (goodwill valuation) as well as real estate gains.

Pros of the OZ may include Capital gains deferral (until 2026). Tax-free appreciation after 10 year holding period. There is anticipation of changes to the current OZ program. This strategy focuses on development and value creation. There are regulations regarding the additional capital to be deployed in the development of the property.

The Cons may be a long hold (10+ years), high risk (early-stage projects) and complex compliance and reporting.

Investors mayuse a portfoliofor growth-focused, tax-advantaged investment. There may be an income stream after the properties are placed in service and rental income begins. This is suitable for investors who don’t need liquidity for 10+ years. Actually, when compared to a §1031 exchanges many investors continue to roll over properties potentially in perpetuity. (Swap until you drop has been a phrase used frequently).  The references the investors passing on the assets to the heirs who benefit from a step-up in basis. In an OZ the investors may benefit directly.

Alternative Real Estate Role in Portfolio

If the investors (or single-family office) have a sizable actively managed real estate portfolio and wish to move to a more passive approach, there may be a strategy of diversification.A Suggested Allocation Framework (Sample for Conservative to Moderate Investor)

Note: Adjust percentages based on individual investor profile, liquidity needs, and tax objectives.

Starting with the end in mind or Recommendations.

We suggest that investors start where we start. We conduct due diligence on sponsors, track records, and underlying assets. We are not a Qualified Intermediary but have worked with QIs over the years.  If investors are utilizing a §1031 exchange a consultation with a §1031 exchange accommodator is required.  In addition, we are not CPAs (work with many over the years) for identifying your individual tax situations.  For real estate investment we consider sector and geographic diversification (e.g., multifamily, industrial, Sunbelt vs. Northeast). The final point may be to understand the exit strategies and timelines for each investment and asset type.

If you would like additional information on the wide variety of alternative real estate investment options, please contact us.

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, Opportunity Zones, TICs and Syndications 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, 97035MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.