Structured to fit your unique situation
We work with leading institutions to offer professionally managed opportunities for passive real estate ownership.
Whether it is a 1031 exchange or new investment equity, we can provide a structure to fit your needs.
Experienced real estate teams handle every detail;
debt assumption, acquisition, management to final disposition
Based on volume of transactions, our institutional investors may obtain a market pricing advantage
Properties are professionally maintained while targeting stabilized occupancy rates
Investors have the ability to diversify by tenant, geography, and property type
Delaware Statutory Trust
One of the most popular forms of 1031 investment is a Delaware Statutory Trust.
A Delaware Statutory Trust (DST) is a legal entity that allows investors to pool their equity and obtain fractional ownership in properties.
A DST is sponsored by an experienced institutional management team that handles all aspects of the offering including debt financing, acquisition, management and ultimate disposition of the assets.
The Delaware Statutory Trust (DST) Structure
A Delaware Statutory Trust is a separate legal entity created as a trust under the laws of Delaware in which each owner has a “beneficial interest” in the DST for federal income tax purposes and is treated as owning an undivided fractional interest in the property. In 2004, the Internal Revenue Service issued Revenue Ruling 2004-86 which included ownership in a DST as qualified replacement property which can be used without recognition of gain or loss under section 1031 of the Code.
Some key aspects of the DST structure include:
DSTs prevent any potential creditors, lien holders/liens, or judgments of any of the co-investors from attaching to the investment property held in the Delaware Statutory Trust. A lender, therefore, has greater security in foreclosing on the promissory note and deed of trust or mortgage should it become necessary to do so. As a result, sponsors can more readily obtain debt financing.
Individual co-investors or beneficiaries in the DST do not have to individually qualify for the loan nor do they go through any of the lender's underwriting requirements.
Beneficial owners have a level of protection, as they are excluded from personal liability to third parties for acts, omissions or obligations of the DST.
Individual single member limited liability companies are not set-up as part of the DST investment property structure. The individual investors become beneficiaries and own individual beneficial interests in the DST. There is no need for the DST structure to set up single-purpose, single-member LLCs for each investor. This saves the co-investor substantial annual expense with respect to formation costs and annual fees.
Characteristics of Delaware Statutory Trust's
DST's are completely passive real estate investments.
A professional sponsor handles all the details; ascertainment of debt, property acquisition, management and ultimate disposition.
A DST can provide diversification of geography, property type, tenant and more.
While some DST's hold several properties in a single offering, others are property specific allowing investors to choose how they build a portfolio.
*A CoStar study had shown that 30% of all 1031 transactions have leftover taxable capital called "boot".
With minimum investment thresholds as low as $50,000, remainder equity from larger transactions can be invested to fully defer taxation.
*Source: Co-Sponsored Academic Study by ADISA and CoStar; The Tax and Economic Impacts of Section 1031 Like-Kind Exchanges in Real Estate - September 2020
DST's provide immediate identification.
For those fast approaching their 45-day identification deadline, and can save a 1031 transaction when time is running out.
Back Up Option
DST's provide a backup for 1031 transactions.
As there is no penalty for identifying a DST and ultimately not using it. Investors can use DST's in case a primary property falls through.
Delaware Statutory Trust Prohibitions or "Seven Deadly Sins"
Internal Revenue Ruling 2004-86; which forms the income tax authority for structuring a DST transaction for use with a 1031 Exchange; has prohibitions over the powers of the Trustee (offering sponsor) of the Delaware Statutory Trust, which are known as the "seven deadly sins". These regulations provide additional protection to investors and their beneficiaries from misuse of trust assets by trustees.
Once the trust offering is closed, there can be no additional capital contributions made by either existing or new beneficiaries.
Trustees cannot renegotiate existing loan terms unless a default exists as a result of tenant bankruptcy/insolvency.
Trustees cannot reinvest proceeds from the sale of the trust’s real estate.
Trustees can only make capital expenditures to the underlying real estate for purposes of normal maintenance/repair and/or non-structural capital improvements.
Cash reserves held by the trustee can only be invested in short-term debt.
All cash, other than necessary reserves and working capital, must be distributed to beneficiaries on a current basis.
The trust cannot enter into new leases or restructure leases unless due to tenant bankruptcy/insolvency.
DST Risk Factors
Delaware Statutory Trusts (DSTs) - DSTs are regulation D private placements that offer fractional ownership of real estate. Investors should understand the risk factors of participating in such investments as outlined below in addition to the private placement memorandum; in particular real estate risks, liquidity risk, change of tax status among others.