Less Leverage on DST- All Cash DST surge to over 60 Percent ~ Cause and Potential Challenges

We have been report­ing the rise in the “All Cash” DSTs for near­ly two years. A mid-month report illus­trates that of the 81 DSTs (we track) 50 are all cash offer­ings. The time­ly ques­tion may be “why are more Delaware Statu­to­ry Trusts (DSTs) offer­ings using less lever­age”.

August 24, 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

What effect does this have on a §1031 tax deferred exchange?  If you were a weath­er­man report­ing this, you would ref­er­ence this as gust to 60% LTV with sus­tained LTV at 45%). Lever­age (aka Loan-to-Value(LTV) becomes impor­tant con­cept when address­ing the require­ments of com­plet­ing a §1031 deferred exchange. This is crit­i­cal if there was a loan paid off on the relin­quished prop­er­ty. Let’s review why there is an over­all rise in all cash DST offer­ings as well as low­er lever­age in the offer­ings. Poten­tial­ly we will pro­vide some insight and enhanced strate­gies.

Key Rea­sons DST Offer­ings Are Mov­ing Toward Less Lever­age

1. Ris­ing Inter­est Rates & Refi­nanc­ing Risk

With inter­est rates sig­nif­i­cant­ly high­er than in pre­vi­ous years, DST spon­sors are choos­ing less debt—or none at all. By design or require­ments DST can­not refi­nance. The increased cost of financ­ing increas­es the pres­sure on oper­at­ing income. Most real estate refi­nanc­ing that is hap­pen­ing now may be forced into unfa­vor­able refi­nanc­ing sce­nar­ios. You may see reports on the impli­ca­tion of the com­mer­cial assets that will require refi­nanc­ing over the next few years.

2. Greater Cash Flow Sta­bil­i­ty

All-cash (debt-free) DSTs typ­i­cal­ly may offer high­er pro­ject­ed net cash flows to investors, since there’s no debt ser­vice that eats into month­ly dis­tri­b­u­tions. Many investors pur­su­ing pas­sive income are favor­ing sol­id, reli­able month­ly returns. All cash investors (with­out uti­liz­ing a §1031 exchange may be enter­ing the mar­ket uti­liz­ing DST to start­ing build­ing a diver­si­fied real estate port­fo­lio. An accred­it­ed investor may be able to deploy $300,000 into sev­er­al DSTs offer­ing pas­sive income.

3. Con­ser­v­a­tive Under­writ­ing by Spon­sors

Our mar­ket data from the start of 2024 and ear­ly-to-mid 2025 shows a clear decline in aver­age LTV across DSTs.

• We report­ed that at the End of 2024, no asset class aver­aged LTV above 50% LTV.
• In April 2025 we report­ed no asset class aver­aged over 37% LTV—a 3% reduc­tion from pri­or aver­ages.
• By Mid-2025, more than 52% of DST offer­ings were all-cash, with aver­age LTVs well below 36% for most sec­tors. Indus­tri­al offer­ings aver­aged just 18.9% LTV, while mul­ti­fam­i­ly aver­aged 35.7%.
• Mid-August the total amount of all cash DST has surged to 60%. This may be a blip or con­tin­u­ing a trend. This is accord­ing to the mid-August report from Moun­tain Dell Con­sult­ing.   

4. Struc­tur­al Shifts Favor­ing Resilience

Our com­ments over the past few months have report­ed that the mar­ket is trend­ing toward indus­tri­al and mul­ti­fam­i­ly DSTs, which are often larg­er and attract a big insti­tu­tion­al investor base. (Cur­rent­ly 43 of the 81 offer­ings are in indus­tri­al and mul­ti­fam­i­ly). Reduced lever­age gives these offer­ings more stay­ing pow­er dur­ing downturns—less risk of default, less pres­sure to sell under dis­tressed con­di­tions, and more abil­i­ty to endure cycles.  Ener­gy, hos­pi­tal­i­ty, retail, self-stor­age and senior hous­ing asset class­es all favor all cash or very low LTV.

5. Debt Replace­ment Stress

A reduc­tion in lever­age among Delaware Statu­to­ry Trust (DST) offer­ings direct­ly impacts 1031 exchange investors who must replace debt to avoid tax­able “boot.”

1031 Exchange Require­ment: Debt Replace­ment

• In a 1031 exchange, an investor must replace both the val­ue and the debt from the relin­quished prop­er­ty.
• Exam­ple:
  • Sold prop­er­ty: $2,000,000
  • Debt at sale: $1,000,000
  • Equi­ty: $1,000,000
• To avoid tax­able boot, the investor must rein­vest at least $2,000,000 in a like-kind prop­er­ty and car­ry at least $1,000,000 in debt (or add equiv­a­lent cash to off­set debt).

Impact of DSTs Using Less Lever­age or All-Cash

1. Debt Replace­ment Becomes Hard­er
   • If a DST offer­ing is all-cash or has very low Loan-to-Val­ue (LTV), there may not be enough prop­er­ty-lev­el debt for the investor to assume pro­por­tion­al­ly.
   • Exam­ple: A DST with 20% LTV may only pro­vide $400,000 in debt for a $2,000,000 investment—leaving a short­fall vs. $1,000,000 require­ment.
2. High­er Risk of Mort­gage Boot
   • Any debt not replaced is treat­ed as mort­gage boot and becomes tax­able as cap­i­tal gain (or depre­ci­a­tion recap­ture, if applic­a­ble).
3. Pos­si­ble Need for Alter­na­tive Strate­gies
   • Mix of DSTs: Pair a low-lever­age DST with a high­er-lever­age DST to bal­ance debt needs. Occa­sion­al­ly Zero-Coupon DST are specif­i­cal­ly struc­tured with­out a cash flow cou­pled with a high LTV.  The nor­mal dis­tri­b­u­tion (due to investors) is used to pay down the loan on the asset (build­ing equi­ty poten­tial­ly). This enables blend­ing the debt replace­ments.
   • Ana­lyz­ing no cash flow vs. mort­gage boot and tax­es. Investors man be faced with the tax impli­ca­tions on not replac­ing the total debt from the exam­ple above and a blend­ed DST replace­ment port­fo­lio. Each investor has dif­fer­ent sit­u­a­tion. Our strate­gies may be of assis­tance in pro­vid­ing a solu­tion.
   • Sup­ple­men­tal Financ­ing: Investor may add per­son­al debt out­side of the DST (e.g., secu­ri­ties-backed line of cred­it) to meet debt replace­ment.
   • Ten­ant-in-Com­mon (TIC) Inter­ests: May offer more flex­i­ble lever­age struc­tures than most DSTs.

Sum­ma­ry

More DST offer­ings are using less lever­age due to:

• Ele­vat­ed inter­est rates and refi­nanc­ing uncer­tain­ties.
• Desire to offer stead­ier, poten­tial­ly high­er net cash dis­tri­b­u­tions.
• Spon­sor incli­na­tion toward con­ser­v­a­tive underwriting—markedly low­er LTVs.
• Strength in asset types like indus­tri­al and mul­ti­fam­i­ly, where reduced lever­age enhances resilience and long-term via­bil­i­ty.
• This shift may ben­e­fit risk-averse investors or those seek­ing sta­ble income—yet pose a chal­lenge for those investors need­ing lever­age for §1031 exchanges.

Key Take­aways for Investors

• Care­ful Pre-Plan­ning: Match relin­quished prop­er­ty debt struc­ture to replace­ment options before clos­ing.
• Com­bi­na­tion Approach: Blend mul­ti­ple DSTs (some all-cash, some high­er lever­age) to match debt. This has become one of our best strate­gies for a suc­cess­ful exchange.
• Pro­fes­sion­al Guid­ance: Tax advi­sors (who are proac­tive) and qual­i­fied inter­me­di­aries should mod­el pro­ject­ed boot expo­sure under var­i­ous sce­nar­ios.
• Finan­cial advi­sors and rep­re­sen­ta­tives who han­dle DST on a reg­u­lar basis are best qual­i­fied to pro­vide guid­ance.

As always please con­tact us for a com­pli­men­ta­ry con­sul­ta­tion.

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.

Alter­na­tive invest­ments and DSTs are not for all investors.  The acqui­si­tion of a cer­tain alter­na­tive invest­ments includ­ing DSTs 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.