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The intimate dinner events will provide attendees with a comprehensive review of Delaware Statutory Trust (DST) investment offerings, sponsor firm evaluations, and critical due diligence considerations every investor should understand before committing capital.

BISWIRE/May 20, 2026 — Kay Properties & Investments, a leading national real estate investment firm specializing in Delaware Statutory Trust (DST) and 1031 exchange investments, today announced it will be holding a series of exclusive client dinner seminars to be held the key markets of Orange County, CA, Northern California’s Bay Area, and Washington, DC.

The invitation-only events, titled "1031 Exchange Symposium: DST and 721 UPREIT Strategies," are designed for accredited investors seeking to transition from active property management to a curated, truly passive investment approach.

"These dinners provide a unique opportunity for investors to learn directly from our team about the current DST and 721 UPREIT landscape in an intimate, educational setting. Attendance is intentionally limited to ensure meaningful discussion, and advance RSVP is required,” said Dwight Kay, Founder and CEO of Kay Properties & Investments.

Featured Discussion Topics Include:

• 1031 Exchange Strategies: Transitioning from active management to a passive, diversified investment approach tailored to individual financial objectives.
• DST Sponsor Access: An overview of the Kay Properties online marketplace at www.kpi1031.com, which features 20–40 DST offerings from more than 25 different DST sponsor firms.
• DST Due Diligence: A deep dive into Kay Properties' proprietary due diligence process applied to each DST investment.
• 721 UPREIT Essential Due Diligence: Critical insights into what investors need to know before investing in a 721 Exchange UPREIT.
• DST Portfolio Diversification* Strategies: Including The Anchor & The Buoy approach, asset class diversification, geographic diversification, tenant diversification, and more.
• The Kay Properties Advantage: Why over 4,000 investors nationwide have chosen Kay Properties to advise them on their 1031 exchange, DST, and 721 UPREIT investments.

Attendance & RSVP Information

Attendance is limited, and advance RSVP is required. Seats must be confirmed by a member of the Kay Properties team in order to attend. Interested investors are encouraged to contact Kay Properties directly by either calling 1.855.899.4597, emailing info@kpi1031.com, or visiting www.kpi1031.com to reserve their seat and receive event location details.

Real estate investment industry leader Dwight Kay introduces the very first published comprehensive book dedicated to the increasingly popular 721 Exchange UPREIT, providing an essential roadmap for navigating this powerful and complex tax strategy.

LOS ANGELES, Dec. 11, 2025 /PRNewswire/ -- Kay Properties and Investments, a leading national real estate wealth management firm that specializes in Delaware Statutory Trust investments for 1031 exchange investors, announced today that Founder and CEO, Dwight Kay, has authored a new book, "721 Exchange UPREITs: What Investors Need to Know Before Investing."

The book which is available on Amazon serves as a critical resource for 1031 exchange investors, real estate owners/operators, attorneys, and CPAs seeking to understand the advantages, complexities, and potential dangers of the 721 Exchange UPREIT.

Drawing on decades of direct experience facilitating nearly 10,000 1031 Exchange, DST and 721 UPREIT transactions, Kay's new book provides a clear, authoritative breakdown of how the Delaware Statutory Trust into a 721 Exchange UPREIT (Umbrella Partnership Real Estate Investment Trust) works.

Why Knowing the Pitfalls of the 721 Exchange UPREIT is So Important

Understanding the 721 Exchange UPREIT process is also incredibly relevant to millions of investors as the DST market saw historic growth over the past five years, expanding from $2 billion in 2015 to more than $10 billion in 2023. As a result, a wave of DSTs are nearing full-cycle maturity, creating an unprecedented number of investors for whom the 721 exchange may not only potentially be an option as they seek an exit strategy to their DST property, but also a critical strategy they must understand.

Kay's latest book on 721 Exchange UPREITs clearly walks readers through the process of using a 721 Exchange UPREIT as an exit strategy from a Delaware Statutory Trust (DST), allowing them to defer capital gains taxes by converting their DST interests into REIT Operating Partnership Units. Most importantly, the book helps investors better understand the importance of due diligence and what pitfalls and risk factors should be considered prior to investing in a DST with a 721 UPREIT exit strategy.

Blending detailed observations from real world experience with practical investment strategy, "721 Exchange UPREITs - What Investors Need to Know Before Investing" chronicles a critical overview of the 721 Exchange process from start to finish. Through compelling, actual case studies, Kay showcases what investors that are transitioning out of a Delaware Statutory Trust into a 721 exchange UPREIT vehicle should consider prior to investing.

Dwight Kay founded Kay Properties nearly two decades ago and has helped build the firm into a nationally recognized leader in the 1031 Exchange and Delaware Statutory Trust (DST) space. Kay is also the author of the groundbreaking first book on Delaware Statutory Trusts, titled, "Delaware Statutory Trust Properties - An Introduction to DST Properties for 1031 Exchange Investors", a work that has been read by over 100,000 investors nationwide.

IMPORTANT MEMORANDUM

TO: All 1031 exchange, 721 exchange UPREIT and Delaware statutory trust investors
FROM: Dwight Kay, founder and CEO of Kay Properties & Investments
SUBJECT: Risks of forced DST-UPREIT conversions

EXECUTIVE SUMMARY

In recent Delaware statutory trust (DST) offerings, some sponsors include forced Section 721 UPREIT conversions into perpetual-life REITs (non-traded REITs) at the end of the DST's hold period.

Under this structure, investors receive potentially illiquid REIT (real estate investment trust) operating partnership (OP) units instead of cash.

This memo outlines the key risks of forced UPREITs (umbrella partnership REITs) and explains why investors should prioritize traditional DSTs or DSTs with fully optional 721 UPREIT elections.

Here are four key risks of forced DST 721 UPREIT conversions:

In a forced DST 721 UPREIT scenario, investors have no choice in the exit strategy — you must exchange your DST interests for REIT operating partnership units on the sponsor's terms.

The timing and terms might not align with your personal financial strategy, and you effectively lose flexibility to choose whether or when to cash out or continue deferring taxes.

Investors are essentially locked in to the UPREIT without the ability to change course or pursue a different 1031 exchange at sale​.

Investors who participate in a forced 721 UPREIT put themselves into a situation in which they won't be able to evaluate the health of the final-destination REIT at the time of the 721 transaction.

This is problematic because the final-destination REIT might appear healthy at the time of the DST transaction, but when the DST is called into the 721 exchange transaction in a few years, the final-destination REIT could potentially have a completely different financial picture and risk profile.

2. Limited liquidity and redemption risks
Non-traded, perpetual-life REITs resulting from a 721 UPREIT conversion offer very limited liquidity compared with a straightforward property sale. The partnership units you receive are illiquid — they're not publicly traded and can't be quickly converted into cash.

While many non-traded REITs offer periodic redemption programs, those programs are typically restricted and not guaranteed as per the REIT's offering documents. Such share redemption plans can be capped, oversubscribed, even suspended, especially in times of market stress​.

Regulators often caution investors that non-traded REITs often involve a lack of liquidity and sometimes include uncertain early redemption provisions for investors.

In a forced UPREIT, this means you could be unable to liquidate your investment on your own timetable. Even worse, if many investors seek to redeem, the REIT might simply halt redemptions, as has occurred with some large perpetual-life REITs.

You give up the assured liquidity of a sale, and your ability to cash out depends on the REIT's limited redemption policies (which the REIT can alter or pause at its discretion).

Many of the largest non-traded perpetual-life REITs have gated their liquidity provisions. Investors who might have been told they would have access to liquidity by their financial adviser can be stuck with an illiquid real estate offering. It could take them months or years to access liquidity.

3. Valuation opacity
A perpetual-life DST-sponsored REIT often uses internally assessed net asset values (NAVs) for its shares, which introduces valuation opacity.

Since there is no active market setting a transparent price, investors must rely on sponsor-provided and commissioned appraisals or NAV calculations, which can lack the transparency of open market pricing​.

In a forced conversion, you surrender a straightforward payout (sale proceeds at market value) for an opaque stake in a larger portfolio.

Determining what your new REIT units are truly worth can be difficult, and the valuation can be subject to conflicts of interest, as the sponsor is on both sides of the DST-to-REIT transaction. This opacity can obscure whether you're getting fair value for your DST property.

In contrast, a direct property sale to an unaffiliated third party establishes a clear market value for your investment.

4. Tax deferral risks
While a 721 UPREIT conversion itself is generally not a taxable event, it can introduce complex tax risks down the line.

Once you hold REIT operating partnership (OP) units, you can no longer do a 1031 exchange on that investment, as OP units don't qualify as like-kind property for 1031 purposes.

This means a forced UPREIT effectively cuts off your ability to continue deferring capital gains tax via future 1031 exchanges.

As a result, your tax deferral will end when you eventually liquidate your REIT units. Any conversion of your OP units into REIT shares or cash redemption is a taxable event that will trigger the capital gains you had deferred​.

In other words, the tax bill is delayed but not eliminated, and you'll encounter it again when exiting the REIT. You'll also lose control of the timing of that taxable event.

If the REIT later forces a merger or compels conversion of your OP units to common shares, you could be hit with a poorly timed taxable capital gain.

There is also the risk that the REIT's operating partnership might sell the underlying property you contributed, and without careful structuring or tax protection agreements, such a sale could unexpectedly trigger taxable gains to you as an OP unit holder​.

In summary, a forced UPREIT can create an inevitable tax liability and take away the 1031 exit ramp that DST investors often rely on to continually defer taxes.

Many DST 721 UPREIT sponsors clearly state in their offering documents that they won't provide a tax protection agreement to their investors.

This would leave the investors exposed. If the REIT were to sell its DST property that the DST investors contributed via a 721 exchange to the REIT, it would be forced to pay capital gains taxes on that contributed property.

In part two of this series, I will discuss the flip side of these forced conversions and describe why I firmly believe fully optional UPREIT conversions are far superior and what investors should be aware of before investing in any 721 UPREIT exchange.

Over the years, the use of the 721 exchange as a Delaware statutory trust exit strategy has become increasingly popular among investors for a number of reasons, including the ability to provide tax-deferral benefits, the potential for portfolio diversification, the potential for portfolio income and appreciation and enhanced liquidity.

However, real estate professionals will often cite the words caveat emptor, a Latin phrase meaning buyer beware. This concept, originating from Roman law, emphasizes the buyer's responsibility to thoroughly assess the quality and suitability of a purchase.

This article provides valuable information for investors in order to adopt the caveat emptor mindset when considering 721 exchange UPREITs as part of a 1031 exchange strategy. What does UPREIT stand for? An umbrella partnership real estate investment trust.

Specifically, we will address two important themes regarding the 721 exchange UPREIT:

• First, an overview for how investors can use the 721 exchange UPREIT as an exit strategy for Delaware statutory trust (DST) investments.
• Second, a detailed review of some of the most important items to consider when evaluating various DST offerings and their 721 exchange UPREIT counterparts. These items are often overlooked by investors and the financial firms pitching these products, however they are of utmost importance.

When considering a 721 exchange UPREIT, understanding the DST investment is crucial. However, it is equally, if not more important, to thoroughly understand the REIT in which an investor will ultimately be invested through the 721 exchange.

First, what is a Section 721 exchange?

Section 721 of the Internal Revenue Code states that no gain or loss will be recognized when property is contributed to a partnership in exchange for an interest in the partnership. Specifically, the 721 exchange allows real estate investors to defer capital gains taxes by exchanging their property for operating partnership units (OP units) in the operating partnership of a real estate investment trust (REIT).

So, basically, this provision facilitates a tax-deferred exchange of real estate assets for OP units without triggering immediate tax consequences, providing a potentially strategic exit path for DST investors.

What are the steps to complete a 721 exchange?

• Step 1: Relinquished property sale. The investor sells their investment property with the intention of executing a 1031 exchange.
• Step 2: Property exchange for DST interest. Funds from the 1031 exchange are used to purchase interests in a DST and are held for a period of time.
• Step 3: The 721 exchange transaction. Operating partnership (OP) units are issued in exchange for DST interests. Interests in the DST are contributed, on a tax-deferred basis, to the 721 vehicle’s operating partnership in exchange for operating partnership units.

Why are investors selling and entering a 1031 exchange DST with a 721 exchange exit option?

Tax advantages. Investors are able to 1031 exchange on a tax-deferred basis into the DST and then are able to 721 exchange on a tax-deferred basis into the operating partnership of the 721 exchange program. Investors also will potentially enjoy tax advantages via depreciation and write-offs to help shelter potential distributions.

Diversification. Many investors incur concentration risk by owning one property in a single market. On the other hand, 721 vehicles tend to own many assets diversified through different markets. The 721 exchange transaction can help diversify an individual’s portfolio, which may reduce concentration risk. As always, diversification does not guarantee profits or guarantee protection against losses. However, it is considered a prudent strategy for investors to consider.

Income potential. Investors can potentially receive income generated through distributions to the holders of the OP units. The 721 exchange vehicle has the goal of increasing income potential to investors over time through new acquisitions and portfolio optimization.

Appreciation potential. Investors can participate in potential appreciation that is realized both at the individual asset level as well as at the enterprise value level. The 721 exchange vehicle can be positioned to take advantage of market opportunities via new acquisitions designed to potentially enhance shareholder value.

Liquidity potential. The 721 exchange vehicle can provide investors with the option of liquidity on a partial or full basis. Investors potentially have the option to liquidate a portion of their shares in combination with their tax-planning strategies. Liquidity may not be a necessity or even a priority for all investors, but having it available offers investors peace of mind. It is important to note that liquidity is not guaranteed and may be limited or discontinued in certain circumstances. Investors are encouraged to read the offering material in full for a complete discussion on the 721 vehicle’s liquidity program.

No further 1031 exchange decisions. Many investors are at a point in their lives where they do not want to have to make another 1031 exchange decision in three to five years, as you would typically have to if you invested in DST offerings without a 721 exchange exit strategy. By participating in a DST with the 721 exchange as a planned exit strategy, investors have peace of mind that as they get further along in years, they and their family members will not be required to make further investment decisions, as they can be in the 721 exchange vehicle indefinitely.

On the flip side, many investors want to have options as to whether they will participate in the 721 exchange or if they will want to do a 1031 exchange at exit. Certain 721 UPREIT DSTs provide this option, while others do not. This is another factor that my firm, Kay Properties, encourages investors to consider as things do change for investors over time — therefore having the option can be vitally important.

Estate planning. Upon death, OP units can be equally split and either held or liquidated by the beneficiaries of the trust. Beneficiaries receive a step-up in basis and can avoid capital gains taxes and depreciation recapture tax. This strategy helps investors plan for the future with the opportunity to transfer wealth to heirs in a tax-efficient manner and allows for individual flexibility when liquidating.

Again, liquidity is not guaranteed and may be limited or discontinued in certain circumstances. Investors must read the offering material in full for a detailed discussion on the 721 vehicle’s liquidity program.

New York, NY Kay Properties & Investments, a national leader in Delaware Statutory Trust equity placements and 1031 exchange investor education, has published its exclusive 1031 DST Digest magazine. This specialized publication is crafted to offer in-depth education on 1031 exchange and DST investment strategies, addressing current investment themes and answering some of the most asked questions from investors. According to Dwight Kay, founder/CEO of Kay Properties and editor of the magazine, the 1031 DST Digest provides investors valuable educational resources to help them navigate the DST 1031 exchange marketplace and provide an in- depth review of both the benefits and risks of Delaware Statutory Trust investments. Kay Properties leads the 1031 exchange industry in providing educational resources to investors, and many people believe that no other firm in the country does more to educate 1031 exchange investors on DST investments. Kay’s comprehensive platform of educational options puts Kay Properties directly in the spotlight as the preeminent authority and expert in DST 1031 exchanges and investment strategies.

“We knew our investor community would embrace a publication focused solely on detailed and informative Delaware Statutory Trust articles directly written for 1031 exchange investors. This assumption was correct as we have already had more than 1,200 investors request a copy of the Kay Properties 1031 DST Digest magazine,” said Kay.

According to Kay, inside the new magazine, readers will discover articles covering subjects such as:

• Why the 721 Exchange Could be a Good Exit Strategy for 1031 Exchange Investors.
• What is Anchor and Buoy 1031 Exchange DST Investing?
• Case Study of How Kay Properties helped one investor close on 15 DSTs in 30 days.
• Why Investors Love Our Online Marketplace for 1031 Exchange and DST Opportunities.
• A Comprehensive Guide to Debt-Free DSTs.
• Why Now Might be a Good Time to Sell Your Investment Real Estate. And much more.

The 1031 DST Digest magazine joins an entire suite of Delaware Statutory Trust educational assets that also include:

Weekly Webinars: Each week, Kay Properties founder and CEO, Dwight Kay and the Kay Properties team of DST experts, regularly host educational webinars and special events to help investors understand the 1031 exchange process and the many nuances of Delaware Statutory Trust properties.

DST 1031 Conference Calls: Every Friday at 11 a.m. PST/2 p.m. EST Kay Properties also hosts an interactive live conference call where one of our DST 1031 exchange experts discusses a variety of pertinent topics related to DST. 1031 properties.

1031 Exchange Delaware Statutory Trust Educational Dinner Events: Each month, Kay Properties & Investments holds dinner events ranging from Pasadena, CA to West Palm Beach, FL where accredited 1031 exchange investors are invited to learn more about the Delaware Statutory Trust investment strategy and the www.kpi1031.com marketplace. These invitation-only events provide accredited investors the opportunity to meet some of the most knowledgeable DST 1031 exchange experts in the entire country.

Expanding Library of Podcast Episodes Hosted by Dwight Kay and the Kay Properties Team: Kay Properties has created an ever-growing library of informative podcast episodes that can be streamed directly from any computer or smartphone with just a click of a button. These podcasts are unique in that they allow investors to listen to an in-depth conversation of the many recurring themes and nuances of the DST investment process. Investors are able to share, download, fast forward, and pause the recording for easy listening convenience. Interested in learning more about Delaware Statutory Trusts? Make sure to go to https://www.kpi1031.com/dst-1031-essentials-podcasts/ to hear the very latest podcast episodes on Delaware Statutory Trust investing.

The Kay Properties Blog Page: A great resource for learning more about DST trends, recent DST 1031 transactions, and insights from DST 1031 Exchange experts. Kay Properties prides itself on the extensive and original library of relevant articles that are both searchable and chock-full of exclusive, valuable information. Visit www.kpi1031.com/blog to learn more about the very latest trends in the 1031 exchange, Delaware Statutory Trust and 721 exchange investment world.

“There is no question, the new Kay Properties 1031 DST Digest will emerge as an invaluable resource for investors eager to deepen their understanding of the Delaware Statutory Trust investment vehicle, 1031 exchange strategies as well as 721 exchange UPREIT investment options. By offering comprehensive insights, expert advice, and real-world examples, the magazine caters to both novice and seasoned investors alike. The magazine was designed to be engaging and accessible so that readers can grasp complex concepts with ease, making the pursuit of knowledge both enjoyable and rewarding. Whether you’re looking to step away from active property management or simply interested in learning more about 1031 and 721 exchange strategies, this publication stands out as an essential guide in the dynamic world of Delaware Statutory Trusts,” said Kay.

Investors are encouraged to sign up for a free subscription to the 1031 DST Digest by visiting https://www.1031dstdigest.com.

TORRANCE, Calif., Sept. 4, 2024 /PRNewswire/ -- Dwight Kay, Founder and CEO of Kay Properties & Investments, considered by many to be the largest real estate investment firms specializing in Delaware Statutory Trust investments for 1031 exchange investors, recently presented to a group of rental property owners and real estate investors on "The 721 Exchange UPREIT Exit Strategy for Delaware Statutory Trust (DST) 1031 Exchange Investors."

According to Kay, the opportunity to present the 721 Exchange UPREIT strategy to rental property owners and real estate investors was important to him because of the numerous challenges owners are facing in today's environment as well as that his firm is hyper specialized in DST, 1031 exchange and 721 exchange investments as they have completed nearly 10,000 of these investments since Kay Properties was formed.

"Independent real estate investors seem to be taking it from all sides these days. Not only are interest rates, property taxes, and repair/construction costs up significantly from just a few years ago, but also more and more landlord negative legislation in many areas of the country continues to be introduced, making the management of real estate (especially single-family rentals and apartment buildings) more difficult, expensive, and heavily regulated," explained Kay.

Kay explained that as a result, many property owners are wanting to exit the headaches of active property management, and 1031 Exchange their equity into a better situation for themselves and their families. This often takes the place in the form of a 1031 exchange into a DST investment which then potentially has a 721 exchange UPREIT exit strategy. Thousands of investors nationwide have utilized the www.kpi1031.com marketplace to evaluate and participate in 1031 exchange, DST and 721 exchange UPREIT investments.

Kay, who has authored numerous articles for national financial publications and real estate journals on the 721 Exchange UPREIT theme over the past nearly two decades, explained how his firm has truly specialized in the Delaware Statutory Trust, 1031 exchange and 721 exchange strategies for investors that are ready to transition from an active hands on management role of their properties to a more passive managed solution for their holdings. Investors nationwide continue to look to Kay Properties for help to compare and contrast DST and 721 exchange investments as they evaluate their exit strategy options.

"The 721 Exchange has been around for many years, but very few investors know about it because it's typically relegated to those investors who have very large real estate holdings that attract large Real Estate Investment Trusts (REITs) and institutional investor buyers. But the Delaware Statutory Trust basically solves this dilemma for smaller investors who can use the 721 Exchange UPREIT as an exit strategy for their DST investments by following a relatively straight-forward two-step process which I explained in the webinar presentation, and can be viewed by others on our website," explained Kay.

According to Kay, the potential benefits to investors using the 721 Exchange UPREIT strategy are significant and include such items as:

• Deferred Capital Gains Tax Advantages
• Greater Diversification through the ability to own many different asset classes in different markets. Diversification does not guarantee profits or protect against losses. *
• Income Potential - Investors potentially will receive income generated through distributions to the holders of the OP Units.
• Liquidity - The ability to convert OP Units of the REIT to shares can provide potential liquidity benefits that are not standard with DST or property ownership. Partial or full liquidity may be achieved, potentially depending on availability determined by the company, by converting the OP Units to shares of the REIT. *Liquidity is not guaranteed and each investor should review the liquidity feature and its limitations in the offerings documents prior to considering an investment.
• Estate Planning - Upon death, shares can be equally split and either held or liquidated by the beneficiaries of the trust. Because these shares are passed through a trust, the beneficiaries receive a step-up basis and can avoid capital gains taxes and depreciation recapture. * Again, liquidity is never guaranteed and investors are encouraged to review offering documents prior to investing.

Kay, who authored what is considered by many to be the first book on Delaware Statutory Trust Properties for 1031 Exchange investors, presented the 721 Exchange UPREIT strategy to a group of rental property owners and real estate investors from across the country in this presentation that was widely appreciated and considered to be highly informative by many of the attendees.

Betty Friant, CCIM, Executive Vice President and Managing Director of Kay Properties & Investments.

The Delaware Statutory Trust and its innovative “beneficial ownership” in the trust component are powerful tools used by investors across a range of investment vehicles. In fact, look closely, and you will see DSTs and beneficial interest ownership in the trust are used in many financial instruments, ranging from mutual funds and corporate bonds to real estate investment trusts and 1031 exchanges. Beneficial ownership allows investors to own a piece of a larger asset or investment.

Many financial holdings listed above as well as others use DSTs as the linchpin to hold and manage assets for investment purposes and provide beneficial interest positions for investors.

Of course, one of the most popular uses of a DST and its beneficial ownership mechanism is to allow real estate investors to access large real estate assets without purchasing the whole property alone. By allowing investors to pool their resources via the beneficial or fractional ownership structure, a DST allows investors to potentially achieve various investment goals, which I will discuss later in this article.

A Little History Of The Delaware Statutory Trust
In 1988, the State of Delaware decided it wanted to create a new statutory trust entity designed to improve the functionality of trusts in structured financial transactions. While several states had adopted statutes recognizing trusts for business purposes, the Delaware Business Trust Act of 1988 was the first to completely rewrite outdated common law trust principles and introduce new provisions that greatly expanded how investors could use a trust entity in modern structured financial transactions. In 2002, the State of Delaware officially changed the name to the Delaware Statutory Trust Act.

Since then, the DST has emerged as one of the preferred vehicles for organizing and managing assets across a plethora of structured financial transactions for various reasons.

One of these reasons involves investors’ ability to use a concept known as “beneficial ownership,” a fundamental feature of DSTs. This DST feature has the potential to open a range of investment opportunities and strategies, especially for 1031 exchange real estate investors who are looking to diversify into larger real estate assets.

Understanding How Delaware Statutory Trusts Create Beneficial Owners
The concept of beneficial ownership in a DST refers to the right or interest that a beneficiary holds in a trust’s assets and potential income. It stipulates that each beneficial owner of the trust property receives 100% of their pro-rata benefits, whether its distributions, potential appreciation or equity created through principal pay-down of any loans.

For real estate investors looking for 1031 exchange-eligible like-kind properties, a DST and its beneficial ownership clause present a unique avenue to accomplish various investment objectives. Notably, IRS Revenue Ruling 2004-86 approved DSTs for 1031 exchanges.

Additional Advantages Of The DST Beneficial Ownership Structure
Ability To Create Greater Diversification And Access To Larger Assets
DSTs are widely viewed as a preferred vehicle for 1031 exchange real estate investors, and by embracing the fractional ownership provision in DSTs, investors can potentially diversify their portfolios by gaining access to large real estate assets they might not otherwise be able to afford. These assets can be in multiple geographic locations, across a variety of real estate asset classes, different tenants and through multiple real estate and DST sponsor firms.

In the DST real estate model, multiple investors co-invest to collectively own a portion of a property(ies), ranging from multifamily buildings to large industrial distribution facilities. With typical minimum investments of $100,000, investors can purchase an ownership interest in large $20 million apartment communities, $15 million grocery stores or $5 million pharmacies.

Limited Liability For Investors
Typically, beneficial owners of a DST are not personally liable for the trust’s debts and obligations. Specifically, the Delaware Statutory Trust Act of 2002 empowers DSTs to “indemnify and hold harmless any trustee or beneficial owner or other person from and against any and all claims and demands whatsoever.”

This is particularly attractive when debt is used in purchasing DST properties because the financing arrangements used on DST 1031 properties are typically nonrecourse to the investor. This means that usually, the lender’s only recourse in the event of a loan default is the actual property itself, preventing the lender from pursuing the investor’s other assets beyond the subject property.

Greater Flexibility
Beneficial owners of DST properties can take advantage of the inherent flexibility of investment options and strategies within the trust. This flexibility allows investors to tailor their DST investment portfolios to meet their specific financial goals, risk tolerances and investment preferences.

One example of an investment approach that I sometimes advise my clients to pursue is what is what I call “The Anchor and The Buoy” strategy. In the investment arena, an anchor investment would have a potentially lower degree of variability in cash flow performance, such as a long-term net leased distribution facility leased to a single corporate-backed Fortune 500 company. On the other hand, a buoy investment has the potential for more variability regarding the ability to grow net operating income through rental increases such as a multifamily apartment building or multi-tenant industrial facility.

Estate Planning Benefits
DSTs can offer valuable estate planning benefits to beneficial owners as they allow an owner to easily divide their interest in the trust in any way they like. For example, they give an apartment DST to one heir and an industrial DST to another heir. In comparison, carving up ownership for heirs in a wholly owned, self-managed property can be difficult and even contentious.

Make Sure To Review The Risks
Of course, investors need to recognize that because DSTs are comprised of real estate, they contain the same risks as all other real estate investments.

All real estate forms, whether investing in a duplex, apartment building or commercial net lease property, entail speculation since there are no guarantees for appreciation.

Anyone involved in real estate as long as I have has personally seen when an unexpected vacancy hurts net operating income, an economic downturn challenges a disposition strategy or unexpected repairs impact monthly distribution.

That’s why I encourage investors to review the risk section of each potential DST offering material (the private placement memorandum) with their CPA or tax attorney before investing.

Potential returns/appreciation not guaranteed & loss of principal is possible. Speak with your CPA/attorney for tax/legal advice.

Historically, the practice of tax-smart investing has been a powerful strategy for real estate investors. Very simply, tax-smart investing targets leveraging various investment strategies and vehicles in order to potentially optimize returns while also minimizing tax liabilities.

When it comes to real estate investing, three of the most powerful tax-smart options include:

• Qualified opportunity zones (QOZs)
• Delaware statutory trusts (DSTs)
• Real estate funds

Why is tax-smart investing so important for today’s investing landscape? Smart investors understand that by minimizing potential taxable events, they can capture significant financial advantages that range from enhancing returns to facilitating intergenerational wealth transfer.

How qualified opportunity zone funds work
One of the most overlooked tax-savvy investing vehicles is the qualified opportunity zone fund. QOZ funds were born out of the Tax Cuts and Jobs Act of 2017 and were designed to encourage long-term investments into low-income communities across the United States. QOZ funds invest in real property or operating businesses within an opportunity zone, typically a geographic region that has been designated as underserved or blighted. In some ways, QOZ funds can be considered a social investment designed to entice private capital to underserved communities.

Here are a couple of examples of how QOZ funds work:

• Example No. 1: Investors who receive capital gain income from the sale of any appreciated asset can reinvest this income within 180 days of the sale of the investment asset into a QOZ fund until the end of 2026 to successfully defer their capital gains taxes. That means investors don’t owe the IRS a penny on that income until April 2027.
• Example No. 2: Investors can potentially receive an even bigger benefit with QOZs by holding their investment for at least 10 years and a day. After this hold period, they don’t have to pay even a single penny in taxes on the profits they made over that 10-year span — no matter how large these profits are. As always, there are never any guarantees that a QOZ fund or any investment vehicle will appreciate in value.

What to beware of with QOZ funds
As great as QOZ funds sound, investors need to evaluate a project’s true investment potential before considering the tax benefits, especially since investors are typically required to keep their money locked up for at least 10 years in order to enjoy the full tax benefit. Like any real estate investment, there is no guarantee for cash flow, distributions or appreciation, and such an investment can result in the full loss of invested principal.

On the other hand, plenty of QOZ development projects are available, and because many of these locations were determined to be economically challenged areas based on the 2010 Census, it is very possible that some could be in economically improving neighborhoods.

How Delaware statutory trusts work
Delaware statutory trusts (DSTs) stand out as a tax-savvy choice for many investors. First, DSTs qualify as "like-kind" real estate for the purposes of a 1031 exchange. This alignment grants investors the opportunity to defer capital gains taxes upon selling an investment property. To realize the benefits, investors direct the proceeds from the sale of their property toward purchasing a DST to receive a beneficial interest in professionally managed, high-quality institutional real estate assets. For instance, think of a 300-unit multifamily building located in attractive, secondary markets such as Nashville, Raleigh-Durham, Charlotte or Denver.

Furthermore, DSTs may own properties leased by single tenants operating under long-term net leases, such as prominent companies like FedEx, Amazon or Walgreens.

Second, DSTs enable investors to potentially diversify their real estate holdings without triggering immediate tax liabilities. Because DSTs can include an entire portfolio of properties, investors can spread their investment across various assets, locations and industries to help reduce the risk associated with investing in a single property or market.

Third, DSTs can offer investors significant estate planning advantages by allowing investors to transfer ownership interests to heirs. One of the key tax advantages of passing real estate property to heirs is that those recipients benefit from a step-up in basis. This step-up in basis is much like hitting the reset button on a property's current market value. Furthermore, this step-up in value can represent a significant benefit for anyone who inherits a property that has seen even modest appreciation.

Risks associated with DSTs
DSTs contain the same risks that all real estate investing entails, such as ongoing vacancy, tenant bankruptcies, problematic tenants, economic downturns, physical damage and unexpected repairs. Bottom line: There are no guarantees in real estate.

Also, unlike stock shares and other liquid investments, which can be bought and sold relatively easily, real estate investments like DSTs typically cannot be sold in a day, week or even a month.

How real estate funds work
In general terms, any “fund” is simply a pool of capital that has been assembled on behalf of a group of investors to purchase assets. A real estate income fund is a specific subset of funds that is focused exclusively on investing in potentially income-generating real estate. They are particularly appealing to accredited investors who want to own institutional-quality real estate that may normally be out of reach. A real estate income fund’s sponsor oversees all the fund’s activities, including performing real estate review and analysis, underwriting and property management.

Real estate income funds also provide investors the potential for depreciation. This non-cash expense lowers the taxable income earned in the fund. This may hold significant benefits for investors in high-tax states such as California and New York.

In addition, investors can potentially receive interest deductions in real estate income funds by deducting interest expenses associated with a variety of components within the fund. These can include:

• Mortgage interest. Interest paid on loans or mortgages used to purchase, improve or refinance real estate properties within the fund.
• Operating expenses. Interest on loans used for operational expenses related to real estate, such as repairs, maintenance or renovations.
• Development loans. Interest incurred on loans for property development, construction or significant renovations within the fund.

In navigating the intricate landscape of real estate investing, embracing the nuances of tax-smart strategies is not just a choice, but a pivotal advantage. QOZs, DSTs and real estate funds are the trifecta of tax-savvy investment options.

Regardless of what vehicle real estate investors decide to pursue, it is important to always consult with their CPA or tax attorney prior to investing in any of these options, as well as to read each offering’s private placement memorandum (PPM) for a full discussion of the business plan and risk factors.