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.