By: Jason Salmon, Senior Vice President – Kay Properties and Investments, LLC
What’s a DST?
A DST is a Delaware Statutory Trust. Further, the DST structure has been adopted as a form of ownership used to allow private investors to own fractional interests in institutional real estate.
Further still, this form of passive real estate ownership affords investors the opportunity to diversify their real estate holdings by geography, property sector and asset manager. Moreover, DSTs qualify as “like-kind” 1031 exchange property, providing investors the opportunity to utilize this tax-deferred exchange upon both the entry into the property as well as the eventual exit upon sale of the DST.
Who can participate and who’s who in DSTs?
In order to invest in DST real estate, an individual or entity must be an accredited investor. If so, an investor can work with Kay Properties and Investments to review offerings from multiple real estate asset managers–or sponsor firms. These sponsors generally have between one and five DSTs out in the market at any given time. Kay Properties is a DST brokerage firm whereby we work with many different real estate sponsor companies which gives our clients an opportunity to invest in a diversified DST portfolio that is right for the client’s situation, goals and objectives.
Sponsor companies are firms that find institutional real estate opportunities, conduct underwriting and due-diligence, acquire the real estate, place it into the DST structure and then make fractional DST ownership available to investors.
The founder of Kay Properties, Dwight Kay, has been involved in over $7 Billion dollars of DST properties throughout his career and one of his main pieces of advice to investors is to never invest based on who the sponsor company alone is but to always invest based on the merits of the real estate. The real estate should always come first, and then from there, an evaluation of the sponsor company.
Where are DST properties?
DST properties are located all over the country. Kay Properties and Investments often has between 20 and 30 separate DST offerings in which our client may participate—so there are plenty of location options.
When should a DST investment be considered?
DSTs can be a great way to make direct cash investments anytime there is interest in buying real estate, but with passive ownership. DSTs are especially useful when an investor is in or could have an upcoming 1031 exchange. Closing on DST real estate is much different than having to find replacement properties, conducting due-diligence and negotiating with sellers, and the sellers actually following through if the property even passes muster. DSTs properties can usually be closed on in 3-5 business days.
For those that require debt for their 1031 exchange…DSTs either do, or do not come with financing in place. If there is the use of leverage, the debt is not recourse to the investor. Varying levels of financing can be blended through diversification in order to achieve the loan-to-value requirement for each investor that we work with. For investors not wanting the risks associated with using debt in real estate investing they would be wise to consider all-cash/debt-free DST properties. Kay Properties often has access to debt free properties available through multiple real estate sponsor companies.
Buying real estate is a way of investing that is non-correlated to the stock market; and DSTs can be a viable alternative to putting all your eggs in one basket. Each DST can be comprised of a single asset or it can contain multiple properties. Notwithstanding, the flexibility for an investor to be able to create their own portfolio of real estate, focusing on asset classes that they understand and believe in, or diversifying across multiple property types, or utilizing varying degrees of leverage to achieve a targeted, blended end-result—all are a possibility with DSTs.
It’s a passive investment. With DSTs, investors do not have to deal with day-to-day real estate management responsibilities. Certain forms of real estate ownership – such as Triple Net Leased Properties aka NNN, can have passive qualities, but what about being an asset manager? Equally important and perhaps more important to buying right and getting a good deal, is the ability and wherewithal to be able to sell appropriately and/or renegotiate with tenants when needed.
Many of the Delaware Statutory Trust sponsor firms that we work with have real estate assets under management ranging from $500 million to billions of dollars. They have acquisitions teams that source, negotiate and underwrite institutional real estate deals in which our clients have the opportunity to invest. Their investor relations departments correspond with clients and deliver end-of-year tax reporting. Additionally, they relay news of property-related events, including notice of an upcoming sale whereby the investors have the option to do another 1031 exchange into more DST properties with Kay Properties’ guidance or purchase any other type of investment real estate on their own.
Continue to work with Kay Properties and Investments to determine if DSTs make sense for you as well as stay posted on recent updates, articles, new DST inventory, etc. at the Kay Properties website and blog: www.kpi1031.com
Diversification does not guarantee returns and does not protect against loss. 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”). 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 material 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.
Past performance is not a guarantee of future results: potential cash flow, potential returns, and potential appreciation are not guaranteed in any way and adverse tax consequences can take effect. 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. All photos are representative of the types of properties that Kay Properties has worked with in the past. Investors will not be purchasing an interest in any of the properties depicted unless otherwise noted.
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 one 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 five 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.