DST Portfolios—What? Who? Where? When? Why? …And How?

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.

Why DSTs?

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.

How?

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

About Kay Properties and www.kpi1031.com 

Kay Properties is a national Delaware Statutory Trust (DST) investment firm. The www.kpi1031.com 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 115 years of real estate experience, are licensed in all 50 states, and have participated in over 15 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. If you are not the intended recipient of this message, any use, dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately notify the sender and permanently delete all copies that you may have. Securities offered through Growth Capital Services, member FINRASIPC, Office of Supervisory Jurisdiction located at 582 Market Street, Suite 300, San Francisco, CA 94104.

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