By Alex Madden, Vice President at Kay Properties and Investments
For many years Kay Properties has taken the position that we will not offer three asset classes to Investors because they carry too high of risk to investors equity: Hospitality, Senior Care, and Oil & Gas. While other groups have gleefully entered into some of these sectors searching for higher potential returns, Kay Properties has maintained the position that they are much too volatile, and much too risky for our client’s hard-earned investment dollars.
Instead, Kay Properties has always advocated for investors to take a potentially more defensive position by often investing in a diversified portfolio of multifamily, net lease, industrial and other offerings as well as placing an emphasis on staying in debt-free DSTs (where there is no long-term mortgage on the property) whenever possible. There are a number of DST Sponsors within the 1031 DST industry that specialize in providing debt-free DST 1031 vehicles. Many of Kay Properties clients over the years when walked through the potential pros and cons of the higher risk asset classes, feel they may be better off being potentially more defensive than entering potentially more volatile sectors like Hospitality, Senior Care, and Oil & Gas.
When the COVID-19 virus began to sweep the US many sectors of the economy were hit, and chief among them were Hospitality, and Senior Care. Few could have predicted the economic impact the virus would have on the country, but as business, personal travel, and quarantines took effect the entire Hospitality sector began to be experience significant negative effects with certain hospitality offerings suspending distributions.
Another potentially high-risk asset class affected by the COVID-19 virus was Senior Living and Senior Care. With the potential for disease, increased government regulations, and potential litigation risks associated with this asset class – it was particularly affected when COVID-19 swept the country.
No one has a crystal ball, and none of us know what the future holds – however Kay Properties is grateful to have rejected these asset classes and the DST investments that sponsors brought out in them for many years and will continue to in the future. This position has not always been popular, but we have seen through multiple downturns the decisions to be defensive, go debt-free if possible, and avoid the higher-risk asset classes available in the 1031 DST industry such as hospitality, senior care and oil and gas to be a prudent decision that we are glad we made.