DSTs

Delaware Statutory Trust “DST”
A 1031 Exchange Replacement Property Alternative

What is a “DST”?

A Delaware Statutory Trust “DST” is a potential solution to individuals looking to complete an IRS § 1031 exchange who may not have the time, energy, desire or real estate experience to find and or manage replacement property.

A “DST” is a professionally managed real estate portfolio in the form of a business trust that qualifies as a “Like Kind Exchange” which allows someone selling investment real estate to complete an IRS § 1031 Exchange into an existing real estate portfolio.

Investors in a DST own an undivided interest in the assets held by the trust. The trustee holds title to the assets for the benefit of the trust interest owners. Investors in DST’s must qualify as Accredited Investors.

Situations where “DST’s” can be an optimal solution:

  • An exchanger wants to sell property and no longer actively manage their real estate. An exchanger can exchange into a DST and receive distributions from the portfolio of real estate without the burden of actively managing the assets.

  • An exchanger is nearing the end of their 45-day identification period and has not identified a replacement property or properties in the amount needed. The Exchanger can identify 1 or several DST’s and exchange into them in a relatively short period of time after identification to complete the 1031 exchange within the time constraints. An exchanger also can exchange a portion of proceeds into another property and a portion of proceeds into a DST or DST’s. Note that some DSTs have restrictions on investments based upon certain requirements of their exemption from registration.

  • When a client has sold a property, and would like to diversify geographically and or by property type. DST’s can hold assets that are geographically diverse. Buying different DST’s with different property types allows for additional diversification.

Examples of DST’s

  • A portfolio of geographically diverse NNN single tenant retail buildings with 10 to 20-year lease with a credit tenant. Tenants may include Walgreens, Advanced Auto Parts, Family Dollar
  • A large Class A apartment community in a strategic city
  • A portfolio of regionally diversified self-storage facilities
  • A portfolio of medical office buildings
  • A portfolio of large industrial warehouses

DST Advantages

  • Access to institutional quality real estate
  • Institutional management
  • Passive ownership
  • Institutional financing
  • Tax reporting (Grantor letter)
  • Lower minimum investment
  • Non-recourse financing to investor

DST Disadvantages

  • Loss of control
  • Long-term holding periods
  • Higher fees
  • No control or involvement in property management
  • No public market exists for DST interest, and it’s highly unlikely that such a market will develop