What Qualified Intermediaries/Exchange Accommodators Should Know About Kay Properties and Investments

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By: Jason Salmon, Senior Vice President- Kay Properties and Investments, LLC

With hope, readers of this article have a working knowledge of Delaware Statutory Trusts (DSTs); and further, by the end of this piece, a deeper understanding of their place in 1031 exchanges. It’s important to know who’s who, what’s what and certainly where, when, why and how.

Our firm, Kay Properties and Investments, works independently with investors interested in participating in DST real estate for 1031 exchange as well as for direct cash investments. We work with real estate asset managers (sponsors) that are buying relatively large properties and offering fractional ownership. This is made possible via IRC Revenue Ruling 2004-86. This edict enables investors to 1031 exchange into DSTs as well as the potential to 1031 exchange out once the DST real estate is sold.

DSTs are securities and are considered private equity real estate, so there are many regulatory and compliance standards that go into putting a DST together and moreover to determine which offerings make sense for an investor’s 1031 exchange.

That’s where our company comes in—most sponsors in our space would never consider dealing (or even communicating) with investors directly—only through licensed Registered Representatives. The reason for this is the dictum of “suitability,” and again, it’s our job to work with investors to gain an understanding of their specific situation, place in life, investment goals and objectives, etc. One should always be dubious of any unlicensed person that would purport to give such advice without the proper platform on which to operate. It’s logical that any sponsor would pledge that their offerings are the best…but it’s our goal to assist with the most appropriate offering(s) for the client and their situation.

When a DST hits the market, our company conducts thorough due-diligence to determine if the deal is deemed worthy to be offered to our clients. It should be noted that just because a DST can be offered to investors, they’re not all the same, and it’s not necessarily a foregone conclusion that any given investor should participate in any given deal. We work closely with potential investors to tailor their wants, needs and concerns with the business plan and risk factors for each DST.

A major factor in the way we approach each investor’s 1031 exchange is whether their transaction has a debt requirement or not. Until recently, a vast majority of the DST marketplace consisted of offerings with the use of leverage. At times there may have been one to three all cash/debt free DSTs, and quite often none without the use of debt. We listened to our clients’ concerns about participating in offerings with mortgages when their 1031 exchange required no debt replacement. For the past several years, Kay Properties has been able to impact the market through the creation of exclusive debt free offerings with a handful of asset managers.

We maintain a full suite of options for our investors. Offerings with no debt, those with moderate debt (roughly 50% to 60% loan-to-value), and in some cases high loan-to-value (zero coupons used in special circumstances for high debt replacement situations). One of the conveniences of DSTs is the ability to mix and match several offerings to purchase equal or greater value with the equity and be able to gain diversification along the way. Another advantage of DSTs is that minimums for 1031 exchange investors are typically $100,000, so they’re quite accessible for most people conducting 1031 exchanges. And we’re proud to have deep relationships with over twenty sponsor companies. This enables Kay Properties to provide 1031 exchange solutions with diversification—often by asset class, geography as well as by sponsor.

We’re proud of our relationships with Qualified Intermediaries throughout the country and it’s our goal for each exchange accommodator to know our platform and our process.

* Diversification is not a guarantee for the safety of the investment or against the risk of loss.

About Kay Properties and Investments, LLC:

Kay Properties and Investments, LLC is a national Delaware Statutory Trust (DST) investment firm with offices in Los Angeles, San Diego, San Francisco, Seattle, New York City and Washington DC. Kay Properties team members collectively have over 114 years of real estate experience, are licensed in all 50 states, and have participated in over $9 Billion of DST real estate. Our clients have the ability to participate in private, exclusively available, DST properties as well as those presented to the wider DST marketplace; with the exception of those that fail our due-diligence process.

To learn more about Kay Properties please visit: www.kpi1031.com.

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 read the entire Memorandum paying special attention to the risk section prior investing. This email 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. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not intended as tax or legal advice.

There are material risks associated with investing in real estate, Delaware Statutory Trust (DST) properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances.

Securities offered through WealthForge Securities, LLC, Member FINRA/SIPC. Kay Properties and Investments, LLC and WealthForge Securities, LLC are separate entities. There are material risks associated with investing in DST properties and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to see any securities. Please read the Private Placement Memorandum (PPM) in its entirety, paying careful attention to the risk section prior to investing.

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