Delaware Statutory Trust Properties – Illiquidity and Exit Strategies

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.

About Kay Properties and

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The platform provides access to the marketplace of DSTs from over 25 different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor companies, full due diligence and vetting on each DST (typically 20-40 DSTs) and a DST secondary market.  Kay Properties team members collectively have over 150 years of real estate experience, are licensed in all 50 states, and have participated in over $30 Billion of DST 1031 investments.

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.  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.  There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and 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.

Nothing contained on this website constitutes tax, legal, insurance or investment advice, nor does it constitute a solicitation or an offer to buy or sell any security or other financial instrument. Securities offered through FNEX Capital, member FINRASIPC.

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