Delaware Statutory Trust Properties – Illiquidity and Exit Strategies

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Two of the questions that often come up from our clients considering a DST 1031 exchange property are 1) How liquid are DST 1031 properties? and 2) What are the exit strategies?
First off, it is important to note first and foremost that DST 1031 properties are real estate, and like all other types of real estate they are inherently illiquid. You are not buying shares of stock listed on a public exchange that you can sell in 10 seconds by logging into your online brokerage account. This is a fractional beneficial interest in a trust that owns a large piece of illiquid real estate. Investors should be able and willing to hold their investment in a DST 1031 property for the full life of the program, which could last for seven to ten years or even longer.

That being said, we have heard of investors selling their DST 1031 interest in a property before. One of the main issues is finding another buyer and agreeing on a price. Typically, if an investor wants to sell their interest in a DST 1031 property, the sponsor will send a letter to all of the other DST investors in the property notifying them that a fellow investor wants to exit their interest in the property.

There is no guarantee that an investor will be able to find another investor that wants to buy his or her DST interest and that they will be able to agree to a price. Therefore, DST 1031 properties again are to be considered illiquid investments and should only be purchased if an investor is able and willing to hold the investment for the full life of the DST offering.
The second question is “What is the exit strategy?” This answer is always unknown until a particular DST actually goes “full cycle.” Full cycle is a term used to describe a DST property that is purchased on behalf of investors and then after a period of time is sold on behalf of investors. The following are various exit strategies that could potentially take place; please note that this is not an exhaustive list of potential exit strategies but merely a list of examples for illustration purposes only:

  • A Real Estate Investment Trust (REIT) purchases the DST property.
  • A large institution, such as a pension fund or foreign investor, purchases the DST property.
  • Another real estate company on behalf of their investors purchases the DST property.
  • An ultra-high net worth buyer will purchase the DST property via a 1031 exchange or as an outright purchase.
  • The investors in a DST property are potentially given an option to utilize the Section 721 exchange to exchange into a larger portfolio of properties (such as a REIT) on a tax-deferred basis.

Risks & Disclosures

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). All offerings are subject to availability. There can be no assurance that any offering shown will be available for investment. All offerings are subject to availability. There can be no assurance that any offering shown will be available for investment. All offerings are subject to availability. There can be no assurance that any offering shown will be available for investment. Please be aware that this material cannot and does not replace the Memorandum and is qualified in its entirety by the Memorandum. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. This website contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, WealthForge Securities, LLC and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) and 1031 Exchange properties. These include, but are not limited to, tenant vacancies; declining market values; potential loss of entire investment principal; that past performance is not a guarantee of future results; that potential cash flow, potential returns, and potential appreciation are not guaranteed in any way; adverse tax consequences and that real estate is typically an illiquid investment. Please read carefully the Memorandum and/or investment prospectus in its entirety before making an investment decision. Please pay careful attention to the “Risk” section of the PPM/Prospectus. This material is not intended as tax or legal advice so please do speak with your attorney and CPA prior to considering an investment. IRC Section 1031, IRC Section 1033, and IRC Section 721 are complex tax codes, therefore, you should consult your tax and legal professional for details regarding your situation. Securities offered through registered representatives of WealthForge Securities, LLC, Member FINRA / SIPC. Kay Properties and Investments, LLC and WealthForge Securities, LLC are separate entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only (generally described as an entity owned entirely by accredited individuals and/or an entity with gross assets of greater than $5 million dollars). If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney prior to considering an investment. You may be required to verify your status as an accredited investor.

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