A Delaware statutory trust, or DST, is an investment vehicle that offers an accredited investor the opportunity to own a fractional interest in institutional-grade commercial real estate. Beneficial interests in DSTs are considered “like-kind” property for purposes of 1031 exchanges. DSTs may own a single property, properties within a single geographic region, a combination of properties in a focused geography or multiple properties in various geographic locations. In the context of a 1031 exchange, investors can allocate assets to one or more DSTs, providing a more diversified real estate portfolio.
DST sponsors are professional real estate companies that identify properties and structure DST investment programs owning those properties. A primary role of an experienced sponsor is, directly or through affiliates, to manage each property owned by the DST including asset management duties, quarterly reporting, annual tax and reporting packages, performance reviews and budgets. In addition, many sponsors have an investor relations team to handle investor requests and inquiries.
With the interest in DSTs growing and the number of DST sponsors increasing each year, it’s important to conduct thorough sponsor due diligence to ensure investors aren’t exposed to unnecessary risk.
Industry Expertise: DSTs are sophisticated investment structures and every DST sponsor should have extensive experience in DSTs. Review the sponsor’s executive management team and their backgrounds – how long they’ve worked in the real estate industry and familiarity with acquiring and managing DST investments. An experienced DST sponsor should be able to diversify among multiple asset classes, fully understand each asset class offered by the DST, and be ingrained in the activity of the markets in which the properties are located.
Track Record: A sponsor’s track record provides useful information on all of its previous investment programs, including how the properties performed, including distributions investors received and capital appreciation. This data gives insight into how well the sponsor manages their properties. Look at the length of the track record and the various economic cycles the sponsor has experienced. A track record that covers 10, 15, or 20-plus years offers more insight into the sponsor’s management and investment expertise. However, always be aware that past performance does not guarantee future results.
Every DST sponsor differs in experience, strategy, and overall capability. Additional topics to consider when evaluating a DST sponsor is the sponsor’s strengths and weaknesses, any potential conflicts of interest, the sponsored program’s intended exit strategy, how the sponsor performs due diligence on the property, and any third-party reporting that may be available. We recommend that every potential DST investor review due diligence information with a financial professional before investing.