Cash and 1031 Proceeds Seeking Placement

April Landscape Summary “Cash and 1031 Proceeds Seeking Placement”

BY Al DiNicola May 10, 2021

After an outstanding beginning of 2021 with a reported $1.5B of equity placed with DST sponsors, some advisors felt as though the velocity was left over from 2020.  2020 is so far in the rear-view mirror and now investors may wonder how to position their real estate assets for the future.  There are a few concerns for investors with regards to selling their property especially when the task of locating a replacement property seems overwhelming.  The DST sponsors are securing additional properties to facilitate what may be the biggest year in DST equity investment.  Based on an outstanding first quarter and continued investment in April the industry may well move over the $4.25B equity investment mark. Considering that most DST have a debt component by design (average of 50%) that would indicate $8.5B in DST purchases.  Mountain Dell Consulting reports the outstanding success in a variety of asset classes.

  • The top three equity raised for Q1 2021 are: Multifamily $600M (51.24%); Industrial $178 M (15.23%); Retail $166M (14.21%). Multi family tends to lead the pack for a variety of reasons. MF has been the preferred asset class and also has the largest supply of properties.  The Industrial sector with the distribution centers is much sought after but there is limited supply.  The retail asset class consists of necessary retails grocery, neighborhood drug stores and larger properties including kidney centers and neighborhoods discount stores.
  • Multi-manufactured housings asset class is a new separate asset class (was split out from Multifamily) and raised $60M. Look for more institutional money purchasing manufactured home parks in southern states as long-term ‘mom and pop’ owners sell.  Self-storage continued with a limited number of offerings and raising $54M. Surprisingly, Office raised nearly $50M.
  • Office medical is starting to rebound with $31M. The Multi Senior Housing $17M and Multi Student Housing $9M. All of these asset classes were affected more than other with COVID.  Accessibility to due diligence as well as limited new supply on the market may be corrected in the near future. One note on Student Housing would be to monitor the increase in enrollment in colleges as a return to normal may boost enrollment.
  • These are all first quarter results. 2021 is shaping up to be a “fast and fluid” year form the standpoint of equity or cash being available.  Cash from sponsors to acquire properties and proceeds from 1031 investors and straight-out cash investors.

However, there is an investment elephant (or donkey) in the room.  As many investors understand there are discussions on what President Biden may or may not due with regards to raising the necessary capital to pay for his programs.  Over the past years the 1031 tax deferred exchange (not a loophole) has been the subject of modification and even thoughts of elimination. President Biden has also floated and proposed the idea of doubling the capital gains tax, eliminating the step up in basis upon transfer upon death to the heirs as well as a few other potential eliminations including raising the top tax bracket. Many of these programs have a dollar amount of either gains, profits or other exclusions for certain income earners.  Family businesses and farmers may also have special exemptions. We will continue to write about these items in future articles.  DSTs may provide diversification and restructuring of investor assets to fall under the projected dollar amounts. The good news are these unknows as well as how the red-hot real estate markets in many parts of the country are leading property owners to become sellers.  The rationale is to sell now, lock in profits, seek replacement properties and hopefully be grandfathered in on the current tax situation.  DSTs are becoming the new alternatives because of the tax favored returns as well as the turnkey solution the provide. Commercial real estate brokers are recommending the DST as the replacement solution for their sellers.  Commercial Real Estate brokers are not able to offer a DST unless they have the necessary qualification and security license. Property owners are becoming sellers and there is a buyer ready to close.  Investors should always consider their alternatives and DST are not for all investors and you must be an accredited investor to purchase a DST.

Once a property owner close on their property being sold and the qualified intermediary is holding the sales proceeds then the “fast and furious” 45 days starts to identify properties. A strategy may be to have a conversation with an investment adviser two to three weeks ahead of the closing on the real estate being sold.  This could line up a potential asset class and a few options to consider.  The DST are tracked similar to real estate as Days on Market (DOM).  In 2020 the median DOM was 164 days across all asset classes.  In 2021 the medium DO is 75 days.  Naturally certain assets with smaller offerings (under $20M) may only last a week or so.  While other larger offerings $150M may take longer to be subscribed. We, as advisors, track the DST offerings continuous can make recommendation on potential position, diversification, and geographic locations. We also balance the necessary cash reinvestment (being held by the QI) as well as securing the balance of debt (if applicable) as required by the 1031 deferred process.

April was an outstanding month for DST investment and as we move into May and the Summer the key will be available DST offerings to satisfy the surge in demand from cash investors and 1031 Exchanges.

DSTs are not for all investors.  The acquisition of a DST is for accredited investors only.  Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC 1031 Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@dst.investments.

Any information provided has been prepared from sources deemed to be reliable but is not guaranteed to be a complete summary or statement of all available data necessary for making an investment decision. Past performance is not a guarantee of future results. Price and yield are subject to daily change and as of the specified date. Any information provided is for informational purposes only and does not constitute a recommendation.  DST 1031 consulting advisory services may be offered through: NAMCOA® – Naples Asset Management Company®, LLC | 999 Vanderbilt Beach Rd, Suite 200 | Naples, FL 34108.  Direct:  239-691-8098

www.NAMCOA.com  Firm Brochure (ADV2)    Securities may be offered through MSC-BD, LLC, Member of FINRA/SIPC.  CRD #142927.  NAMCOA® and MSC-BD, LLC are Independently owned and operated.

2020 DST Year in Review ” Winners & Winners”

February 10th, 2021

Many financial advisers subscribe to a variety of industry newsletters, affiliations and webinars to take a deeper dive into the alternative real estate investment asset class.  There are plenty of analyst who spent a great deal of time identifying the effects of the COVID pandemic.  Recently Mountain Dell Consulting, LLC (an affiliate of Orchard Securities, LLC) shared their findings of 2020 equity raised for Delaware Statutory Trust (DST).

The comparison from 20219 to 2020 is interesting since there was still over $3B in equity raised.  2019 equity raised was $3.486 Billion compared to $3.192 Billion in 2020. An outstanding year when the market disruptor of COVID sidelined many of the activities to bring assets to the market.  End of first quarter and second quarter prohibited the availability, acquisition, inspections, and closing of assets to put in the pipeline. 2020.  Glancing back to 2018 equity raised results of $2.48 Billion the amount of equity in 2020 was outstanding.  Investors placed their equity into DST as an alternative to traditional brick and mortar real estate for a variety of reasons.  Basically, DST equity created a “win-win” when evaluating the results. Both cash investors as well as 1031 Tax deferred exchange investors all benefited.

The results by asset type are worth identifying with a few comments.  In some cases, the amount of equity may be as a result of assets not being available for investments.  Multifamily which continues to be the largest asset class and the equity raised was within $1 Million of the 2019 total represented 51.12% of all equity representing $1.631 Billion. In the future Manufactured housing (currently a subset of Multifamily) will become its own group.

Retail equity investment was up $20 Million year over year. The retail offerings were limited but when made available investors seek this asset class.  The necessary retail asset class should continue to do well. Retail represented 15.64% of all equity with $500 Million raided.

Self-storage continued to have limited new offerings coming on the market and the relative size of the individual asset are smaller than other asset type. Self-storage was down only $8 Million year over year. Storage raised $231 Million and represented 7.26% of all equity raised.

Industrial asset class (also in limited supply) was about even year over year.  This asset class also includes the distribution centers and with limited offerings are subscribed quickly. Equity raised was $207 Million and represented 6.50% of all equity raised.

It comes as no surprise that Office was going to be under a microscope with the COVID effect and the work from home requirement.  Office was down $40 Million but still raised $159 Million in 2020.  This represented 4.99% of all equity raised.  There continues to be a limited supply of Office asset type. There are many people still working from home because of COVID and the future of the asst type may be limited.

Senior Housing was very surprising to me as the asset class was up $50 Million year over year. This asset class is a small part of the over all results with 4.37% and $139 Million raised.  The Senior Housing sector continues to seek clarity on protecting the residents as well as the staff who work and operate these assets.

Medical Office may have seen the largest reduction year over year. This asset type was down $155 Million.  Representing 3.61% of all equity with $115 Million the asset type has limited offerings.  There will still be offerings brought to the market. Medical office will seek to identify the right combinations of location, services and solutions.  With an aging population medical office will continue to evolve.

Hospitality (hotels industry) suffered greatly under COVID with the entire travel industry being sidelined and has not totally bounced back. However, there as a limited amount of Hospitality DST offerings and year over year was down $20 Million.  This asst type raised $69 Million and represents 2.18% of all equity raised.

There are bright spots on the horizon for student housing in the right locations. Colleges and universities located in value location (where tuition is reasonable) will see continued interest in student housing offerings. The unit configuration will evolve to protect students. The final thought will be COVID bounce in college enrollment anticipated by many college administrators for the fall of 2021 and into the future. Student housing raised $69 Million in 2020 and represented 2.18% of equity raised.

2021 is off and running and has a tremendous back log of cash investors as well as 1031 exchange investors.  There may be a total of $4 Billion in equity invested in 2021.  Sponsors are adding to their pipeline of assets that will be offered to investors.  Cash Investors will benefit from being able to invest as soon as the asst is offered by the sponsor. 1031 exchangers are somewhat challenged with certain assets being in high demand. Financial adviser who properly position the 1031 exchangers/investors ahead of the closing on what many referenced as the “down-leg”. The down leg is the selling of the existing property.  Timing is key and 2021 will see outstanding results with DST equity investment.

DSTs are not for all investors.  The acquisition of a DST is for accredited investors only.  Contact your investment adviser for additional details on how a DST may be a solution to your 1031 Exchange and suited for your investment future. For more information on how to properly set up an IRC 1031 Tax Deferred Exchange or if you are an accredited investor and would like additional information on a DST contact Al DiNicola at 239-691-8098 or email adinicola@dst.investments.

This is not an offer to purchase or solicitation to purchase any security, as such be made only through an offering memorandum or prospectus.  Investing in securities, real estate or any investment, whether public or private, involves risk, including but not limited to the potential of losing some or all of your investment dollars when you invest in securities. You should review any planned financial transactions that may have tax or legal implications with your personal tax or legal advisor.   DST Investments, LLC is a Registered Investment Advisor, regulated by SEC (Securities and Exchange Commission). Our corporate office is located at 999 Vanderbilt Beach Road, Suite 200, Naples Florida 34108. Securities Offered through MSC-BD, LLC, Member of FINRA/SIPC. 410 Peachtree Parkway Suite 4245, Cumming, GA 30041