Blended Portfolios: DSTs, REITs, and Private Real Estate

Real estate has long been a cor­ner­stone of wealth cre­ation and preser­va­tion. How­ev­er, as invest­ment options have expand­ed, sophis­ti­cat­ed investors are increas­ing­ly look­ing beyond tra­di­tion­al direct prop­er­ty own­er­ship to cre­ate diver­si­fied port­fo­lios that bal­ance income, growth poten­tial, liq­uid­i­ty, and tax effi­cien­cy.

June 29, 2026

By Al DiNi­co­la, AIF®
Pri­vate Fund Advi­sor
DST 1031 Spe­cial­ist
Fidu­cia­ry Cap­i­tal Man­age­ment, LLC
Secu­ri­ties offered through MSC-BD, LLC, Mem­ber of FINRA/SIPC

Intro­duc­tion

Rather than rely­ing on a sin­gle real estate invest­ment vehi­cle, many investors are adopt­ing a blend­ed port­fo­lio approach that com­bines Delaware Statu­to­ry Trusts (DSTs), Real Estate Invest­ment Trusts (REITs), and pri­vate real estate funds.

Each of these invest­ment struc­tures offers unique advan­tages and serves a dif­fer­ent role with­in a broad­er real estate allo­ca­tion strat­e­gy. DSTs pro­vide pas­sive own­er­ship and poten­tial tax defer­ral through 1031 exchanges. REITs offer liq­uid­i­ty, trans­paren­cy, and broad mar­ket expo­sure. Pri­vate real estate funds can pro­vide access to spe­cial­ized invest­ment oppor­tu­ni­ties and poten­tial­ly high­er return pro­files.

By thought­ful­ly com­bin­ing these vehi­cles, investors can cre­ate a more resilient port­fo­lio designed to meet both short-term and long-term finan­cial objec­tives.

Under­stand­ing the Com­po­nents of a Blend­ed Port­fo­lio

Before con­struct­ing a diver­si­fied real estate port­fo­lio, it is impor­tant to under­stand how each invest­ment vehi­cle func­tions and the role it may play with­in an over­all invest­ment strat­e­gy.

Delaware Statu­to­ry Trusts (DSTs)

DSTs have become a pop­u­lar solu­tion for investors com­plet­ing §1031 tax deferred exchanges. A DST allows mul­ti­ple investors to own frac­tion­al inter­ests in insti­tu­tion­al-qual­i­ty real estate while main­tain­ing eli­gi­bil­i­ty for tax-deferred exchange treat­ment under Inter­nal Rev­enue Code Sec­tion 1031.

DST investors enjoy sev­er­al ben­e­fits, includ­ing:

• Pas­sive own­er­ship
• Pro­fes­sion­al prop­er­ty man­age­ment
• Poten­tial month­ly or quar­ter­ly income
• Access to larg­er insti­tu­tion­al assets
• Con­tin­ued tax defer­ral through a §1031 exchange

Because investors are not respon­si­ble for day-to-day man­age­ment, DSTs are often attrac­tive to retirees, land­lords seek­ing relief from man­age­ment respon­si­bil­i­ties, and investors focused on wealth preser­va­tion.

Real Estate Invest­ment Trusts (REITs)

REITs are pub­licly trad­ed or pri­vate com­pa­nies that own and oper­ate income-pro­duc­ing real estate. Pub­licly trad­ed REITs are list­ed on stock exchanges and can be bought and sold sim­i­lar­ly to stocks.

Key ben­e­fits of REITs include:

• Dai­ly liq­uid­i­ty
• Broad diver­si­fi­ca­tion
• Pro­fes­sion­al man­age­ment
• Rel­a­tive­ly low invest­ment min­i­mums
• Expo­sure to mul­ti­ple real estate sec­tors

REITs pro­vide investors with flex­i­bil­i­ty and access to real estate mar­kets with­out requir­ing direct own­er­ship of prop­er­ties. Their liq­uid­i­ty makes them an attrac­tive com­ple­ment to less liq­uid invest­ments such as DSTs and pri­vate funds. You can­not exe­cute a 1031 exchange direct­ly into a REIT.  How­ev­er, there are strate­gies where a DST may move into a REIT via a 721 UPREIT.

Pri­vate Real Estate Funds

Pri­vate real estate funds pool investor cap­i­tal to acquire, devel­op, repo­si­tion, or oper­ate real estate assets. These funds often tar­get spe­cif­ic invest­ment strate­gies such as val­ue-add mul­ti­fam­i­ly, indus­tri­al devel­op­ment, self-stor­age, hos­pi­tal­i­ty, or oppor­tunis­tic acqui­si­tions. There are a vari­ety of water­fall struc­tures (return of cap­i­tal, pre­ferred return, dis­tri­b­u­tions, etc.). There are also pri­vate real estate funds that may pro­vide tax ben­e­fits espe­cial­ly with 100% bonus depre­ci­a­tion.

Pri­vate funds may offer:

• Poten­tial­ly high­er returns
• Access to spe­cial­ized invest­ment oppor­tu­ni­ties
• Active man­age­ment strate­gies
• Expo­sure to devel­op­ment or repo­si­tion­ing projects
• Insti­tu­tion­al-qual­i­ty invest­ment plat­forms

While pri­vate funds gen­er­al­ly involve longer hold­ing peri­ods and reduced liq­uid­i­ty, they may pro­vide growth-ori­ent­ed oppor­tu­ni­ties that com­ple­ment the income-focused char­ac­ter­is­tics of DSTs and REITs.

Why a Blend­ed Approach Works

Each real estate invest­ment vehi­cle offers unique strengths and lim­i­ta­tions. By com­bin­ing them strate­gi­cal­ly, investors can ben­e­fit from the advan­tages of each while reduc­ing over­all port­fo­lio con­cen­tra­tion risk.

Bal­anc­ing Liq­uid­i­ty and Sta­bil­i­ty

One chal­lenge many investors face is bal­anc­ing the desire for sta­ble income with the need for liq­uid­i­ty.

DST invest­ments typ­i­cal­ly pro­vide pas­sive income and tax advan­tages but are rel­a­tive­ly illiq­uid. Pri­vate real estate funds may offer attrac­tive long-term growth oppor­tu­ni­ties but often require mul­ti-year com­mit­ments. REITs, on the oth­er hand, pro­vide dai­ly liq­uid­i­ty and can be sold quick­ly if cash needs arise.

A blend­ed port­fo­lio allows investors to main­tain access to liq­uid assets through REITs while ben­e­fit­ing from the sta­bil­i­ty and income char­ac­ter­is­tics of DSTs and pri­vate funds.

Diver­si­fi­ca­tion Across Invest­ment Struc­tures

Dif­fer­ent real estate vehi­cles respond dif­fer­ent­ly to mar­ket con­di­tions.

Pub­lic REITs are influ­enced by stock mar­ket sen­ti­ment and inter­est rate move­ments. DSTs are tied more direct­ly to prop­er­ty-lev­el per­for­mance and ten­ant oper­a­tions. Pri­vate funds may focus on val­ue cre­ation through devel­op­ment, repo­si­tion­ing, or oper­a­tional improve­ments.

Com­bin­ing these struc­tures can help reduce depen­dence on a sin­gle mar­ket fac­tor while improv­ing port­fo­lio diver­si­fi­ca­tion.

Enhanc­ing Income and Growth Poten­tial

Many investors seek a bal­ance between cur­rent income and future appre­ci­a­tion.

DSTs often focus on sta­bi­lized, income-pro­duc­ing assets that gen­er­ate pre­dictable cash flow. REITs may pro­vide a com­bi­na­tion of income and appre­ci­a­tion through pub­lic mar­ket expo­sure. Pri­vate funds often pur­sue val­ue-add or oppor­tunis­tic strate­gies that tar­get cap­i­tal appre­ci­a­tion.

Togeth­er, these invest­ments can cre­ate a port­fo­lio that address­es both income needs and long-term growth objec­tives.

The Role of DSTs in a Blend­ed Port­fo­lio

DSTs often serve as the foun­da­tion of a diver­si­fied real estate strat­e­gy for investors tran­si­tion­ing from direct prop­er­ty own­er­ship.

Many investors arrive at a point where man­ag­ing rental prop­er­ties becomes bur­den­some. Main­te­nance issues, ten­ant con­cerns, leas­ing respon­si­bil­i­ties, and mar­ket volatil­i­ty can cre­ate chal­lenges, par­tic­u­lar­ly dur­ing retire­ment.

DSTs offer a solu­tion by allow­ing investors to exchange appre­ci­at­ed real estate into pro­fes­sion­al­ly man­aged insti­tu­tion­al assets while pre­serv­ing tax defer­ral through a 1031 exchange.

With­in a blend­ed port­fo­lio, DSTs can pro­vide:

• Sta­ble cash flow
• Pas­sive own­er­ship
• Poten­tial tax defer­ral
• Access to insti­tu­tion­al real estate
• Diver­si­fi­ca­tion across prop­er­ty sec­tors

This sta­bil­i­ty often com­ple­ments the liq­uid­i­ty of REITs and the growth poten­tial of pri­vate real estate funds.

Port­fo­lio Con­struc­tion Tips

Cre­at­ing an effec­tive blend­ed port­fo­lio requires care­ful plan­ning and align­ment with over­all finan­cial goals.

Align Asset Allo­ca­tion with Risk Tol­er­ance

Every investor has a unique risk pro­file. Some investors pri­or­i­tize income preser­va­tion, while oth­ers seek high­er growth oppor­tu­ni­ties.

Con­ser­v­a­tive investors may allo­cate a larg­er per­cent­age of their port­fo­lio to sta­bi­lized DST invest­ments and estab­lished REITs. More aggres­sive investors may increase expo­sure to val­ue-add pri­vate funds or devel­op­ment-focused oppor­tu­ni­ties.

The appro­pri­ate allo­ca­tion should reflect:

• Invest­ment objec­tives
• Time hori­zon
• Income needs
• Liq­uid­i­ty require­ments
• Risk tol­er­ance

A well-designed port­fo­lio should sup­port both finan­cial goals and per­son­al com­fort with invest­ment risk.

Use DSTs to Replace High­ly Appre­ci­at­ed Prop­er­ty

For many investors, DSTs serve as a strate­gic solu­tion fol­low­ing the sale of appre­ci­at­ed real estate.

Instead of pay­ing imme­di­ate cap­i­tal gains tax­es and depre­ci­a­tion recap­ture, investors can uti­lize a 1031 exchange and rein­vest pro­ceeds into one or more DST offer­ings.

This strat­e­gy may pro­vide sev­er­al ben­e­fits:

• Con­tin­ued tax defer­ral
• Elim­i­na­tion of active man­age­ment
• Diver­si­fi­ca­tion across mul­ti­ple prop­er­ties
• Poten­tial income gen­er­a­tion

DSTs can there­fore become a cor­ner­stone of a broad­er real estate port­fo­lio while pre­serv­ing valu­able tax advan­tages.

Mon­i­tor Income, Growth, and Tax Impli­ca­tions

Suc­cess­ful port­fo­lio man­age­ment requires ongo­ing mon­i­tor­ing and eval­u­a­tion.

Investors should reg­u­lar­ly review:

• Dis­tri­b­u­tion lev­els
• Prop­er­ty per­for­mance
• Spon­sor updates
• Tax report­ing
• Port­fo­lio allo­ca­tions
• Mar­ket con­di­tions

Because each invest­ment vehi­cle has dif­fer­ent tax char­ac­ter­is­tics, under­stand­ing after-tax returns is espe­cial­ly impor­tant.

DSTs may pro­vide depre­ci­a­tion ben­e­fits and tax-deferred exchange oppor­tu­ni­ties. REIT dis­tri­b­u­tions may be taxed dif­fer­ent­ly than oth­er forms of invest­ment income. Pri­vate funds may gen­er­ate a com­bi­na­tion of ordi­nary income, cap­i­tal gains, and depre­ci­a­tion-relat­ed tax ben­e­fits.

Work­ing close­ly with tax advi­sors and finan­cial pro­fes­sion­als can help investors opti­mize over­all port­fo­lio effi­cien­cy.

Diver­si­fy Across Prop­er­ty Sec­tors

In addi­tion to diver­si­fy­ing by invest­ment vehi­cle, investors should con­sid­er diver­si­fi­ca­tion across real estate sec­tors.

Exam­ples include:

• Mul­ti­fam­i­ly hous­ing
• Indus­tri­al and logis­tics facil­i­ties
• Med­ical office prop­er­ties
• Self-stor­age facil­i­ties
• Net-leased retail
• Senior hous­ing
• Hos­pi­tal­i­ty assets

Dif­fer­ent sec­tors respond dif­fer­ent­ly to eco­nom­ic con­di­tions, demo­graph­ic trends, and inter­est rate envi­ron­ments.

A diver­si­fied sec­tor allo­ca­tion can help improve port­fo­lio resilience dur­ing chang­ing mar­ket cycles.

Poten­tial Risks to Con­sid­er

While a blend­ed real estate port­fo­lio offers numer­ous advan­tages, investors should rec­og­nize that all invest­ments involve risk.

Poten­tial risks include:

• Mar­ket fluc­tu­a­tions
• Inter­est rate changes
• Ten­ant defaults
• Spon­sor per­for­mance risk
• Illiq­uid­i­ty
• Eco­nom­ic down­turns
• Reg­u­la­to­ry changes

DSTs and pri­vate funds gen­er­al­ly involve lim­it­ed liq­uid­i­ty and may require long-term invest­ment com­mit­ments. Pub­lic REITs can expe­ri­ence sig­nif­i­cant short-term price volatil­i­ty due to broad­er mar­ket con­di­tions. Pri­vate REITs may also be sub­ject­ed to con­trolled liq­uid­i­ty struc­tures.

Prop­er due dili­gence and diver­si­fi­ca­tion remain essen­tial com­po­nents of risk man­age­ment.

Con­clu­sion

A blend­ed port­fo­lio that com­bines Delaware Statu­to­ry Trusts, REITs, and pri­vate real estate funds can pro­vide investors with a pow­er­ful frame­work for achiev­ing income, diver­si­fi­ca­tion, growth poten­tial, and tax effi­cien­cy. Each invest­ment vehi­cle offers dis­tinct advan­tages that address dif­fer­ent port­fo­lio objec­tives.

DSTs pro­vide pas­sive own­er­ship and tax-deferred exchange oppor­tu­ni­ties, REITs offer liq­uid­i­ty and broad diver­si­fi­ca­tion, and pri­vate real estate funds cre­ate oppor­tu­ni­ties for enhanced returns through spe­cial­ized strate­gies. When com­bined thought­ful­ly, these invest­ments can com­ple­ment one anoth­er and help investors nav­i­gate chang­ing mar­ket con­di­tions while pur­su­ing long-term wealth preser­va­tion.

For sophis­ti­cat­ed investors seek­ing a com­pre­hen­sive real estate strat­e­gy, a blend­ed port­fo­lio approach may offer the flex­i­bil­i­ty, diver­si­fi­ca­tion, and bal­ance nec­es­sary to sup­port both cur­rent income needs and future finan­cial goals.

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@Fiduciarycm.com.

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