By: Alex Madden, Vice President, Kay Properties and Investments, LLC
Many 1031 exchange investors have never heard of a DST Sponsor, what they are, or what they do. It is important for investors considering DST properties to understand what a DST sponsor is and how they work. After reading this article, a 1031 exchange investor should have a better understanding of what a DST sponsor company is and does.
What is a DST Sponsor?
A DST Sponsor is a professional real estate company that purchases real estate and structures that real estate as a DST, making it available to accredited investors. A DST sponsor is often also referred to as the asset manager of a DST investment.
What does a DST Sponsor Do?
A DST Sponsor company will often evaluate hundreds of properties for purchase, they will typically make offers on several properties and eventually purchase one property, and they will structure it as a DST which is then made available for accredited investors to purchase either via a 1031 exchange or as a direct cash investment.
Sponsor companies will often use a combination of their own capital to purchase a property and a bridge loan, and when the DST is leveraged, they will get the loan in place prior to investor’s purchase of interest in the DST so that investor’s needing to replace debt in their 1031 exchange will be able to upon purchasing the DST.
After a property is purchased and structured as a DST, the Sponsor will manage the property on a day-to-day basis and will retain all management responsibility.
What to know about a DST Sponsor:
- DST Sponsors will be the Asset Manager of the DST after an investor purchases an interest in a DST.
- DST Sponsor companies often have specific strengths, and weaknesses, which are important to evaluate prior to investing.
- DST Sponsors often have a core competency, or a target asset class they focus on. For example they may be a specialist in self-storage, medical facilities, multifamily apartments or even in providing debt free DST offerings.
- We believe it is important to diversify* across DST Sponsors, as well as asset class, geography, etc.
- Some DST Sponsors have more profitable past performance than others.
On the www.kpi1031.com marketplace, 1031 exchange investors are able to view over 25 different DST sponsors, specific track records of DST sponsor companies and typically between 20-40+ DST offerings. To register for free please visit www.kpi1031.com.*Diversification does not guarantee profits or protect against losses.