February 2025 Landscape Review DST Equity Raise Records Impressive Start

Is the first month equity raised for Delaware Statutory Trust (DST) a trend or a blip in 2025? 2024 achieve a 12 percent increase when compared to 2023 and with over $600 Million in January this is a positive sign.

By Al DiNicola, AIF®
January 16, 2024
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

According to Mountain Dell Consulting, who engages and tracks activities from sponsors of Delaware Statutory Trust (DST) and TIC Market Equity investment, the January 2025 equity raised was $630,816,989. Using simple math and multiplying by 12 that would be over $7.5 Billion in equity for the entire year. It is too early to project the 2025 results.

2025 Early Indication.

As stated, it is too early to predict what the final equity number will be at the end of 2025. What we may be able to use are demographic and economic drivers that may increase demand for certain product offerings. The above monthly average of equity raised in January of 2025 (when compared to 2024) may have been as a result of an end of the year sale of investment properties. If investors sold their investment property utilizing a 1031 tax deferred exchange the move into a DST is relatively easy. Easy from the standpoint of the DST offerings being prepackages with non-recourse debt to facilitate the exchange. Life events may become more important than economic drivers. Certain life events such as moving from one location to another downsizing going off the college or utilizing self-storage facilities may happen more than economic situations.

Market Metrics.

When comparing available equity at the end of 2024 and the available equity overall at the end of 2025 there are just some small variations. There is approximately $75 million more in equity that is now available at the end of January 2025. There are also 5 fewer programs offering currently and you can see the other metrics in the chart below.

	End of 2024	End of Jan 2025
Available Equity	$2,342,198,682	$2,415,974,183
Number of Programs	93	88
Days on Market	317	323
Number of active Sponsors	50	50
Average 1^st Yr. Return	4.94%	4.93%

One item that was not included in the overall summary of the Mountain Dell Report is the number of all cash DST. 38 of the 88 current offerings are all cash. That is almost 40%.

Current Asset Class Metrics

Sponsors have entered a more conservative underwriting, reduced the LTV and increased the equity needed for each DST.

Asset Class	#’s of Programs	Available Equity	LTV	Dollar as % of offerings	#’s as % of offerings
Energy	2	$5,850,000	0.00%	0.24%	2.27%
Hospitality	2	$37,072,659	0.00%	1.53%	2.27%
Industrial	14	$464,825,271	28.28%	19.24%	15.91%
Multi-Family	29	$1,025,305,365	38.83%	42.44%	32.95%
Student Housing	4	$75,813,369	38.32%	3.14%	4.55%
Office	4	$159,083,980	36%	6.58%	4.55%
Office/medical	4	$172,722,200	25.65%	7.15%	4.55%
Retail	18	$144,456,558	16.73%	5.98%	20.45%
Self-Storage	6	$117,209,197	8%	4.85%	6.82%
Senior Housing	3	$126,305,584	16%	5.23%	3.41%
Manufactured Housing	0			0.00%	0.00%
Other	2	$87,330,000	0%	3.61%	2.27%
Total	88	$2,415,974,183		100.00%	100.00%

Noted in the chart above is the average LTV for each asset class. There are no asset classes with an average LTV of over 40%. Understanding that when displaying an average there may be (depending on the asset class) an LTV over 40%. Thus, for investors with a higher LTV need we have a few alternatives. When we assist an investor with a larger §1031 exchange ($1M and above) especially when debt needs to be replaced, we typically blend multiple DSTs with leverage to diversify the replacement portfolio for the investor. Please consult with us about that strategy

There are a few interesting takeaways from this chart as displayed. In looking at the number of programs offered by a single asset class multifamily with 29 surely is outpacing the rest of the offerings. Over the period last year there were almost as many industrial offerings as there were multifamily. Actually, while there was almost the same number of industrial multifamily offerings, and the volume of multifamily offerings was actually less than industrial offerings. There has been an increased absorption of industrial assets over the past few months. A note for retail which needs to be explained is that many of the offerings may be considered ‘necessary retail” such as f grocery stores and needed facilities as compared to your department store retail offerings. Noticeably absent from this is manufactured housing. Very few offerings came on the market last year based on the void of acquisition of manufactured housing. An item which we don’t report on too frequently is the inclusion of a §721 UPREIT at some point in time after the Delaware statutory trust is acquired. Some of the offerings will have optional §721 UPREITS, others will have mandatory upgrades. We will create an article on the advantages and disadvantages of the §721 UPREIT program.

Final DST Market Overview Comments

If we reflect on the past seven (7) years, the average annual equity raise was $5.37 Billion. Some analysts will use a rolling 5-year average, and that number would be $6.658 with the potential outlier year of 2022 with over $9.2 Billion raised. Drilling down even further, eliminating the high and low over the past 7 years, the average year would be $5.1 Billion. The underlying demographics for investors wanting to sell actively managed real estate and move into passive ownership could be at an all-time high. We will see if the other market dynamics provide momentum for investors to see their existing properties.

We continue to research, review, and monitor all the major DST sponsors. We speak weekly with our sponsor contacts and conduct due diligence on DST offerings. Our continued research enables us to provide a quick response to investor questions regarding their cash investing needs as well as their §1031 tax deferred exchange. We are especially skilled at balancing the exchange debt equity requirements. We also specialize in the §1033 exchange in the case of natural disaster or eminent domain cases. The timeline for investors to decide on their utilization of a §1033 may extend beyond the benchmark 2 years as identified in the §1033 Code and potentially extend to 4 years. With the 2023 hurricanes in Florida and North Carolina as well as the 2024 fires in California, it may be too early to make any prediction on how many investors will take advantage of the §1033 tax advantages. Over the years we have assisted investors in dealing with their emotions as well as their replacement strategy. We are so fortunate in our specific location in Florida dealing with three hurricanes in 2024. Even though the eye of hurricane Milton came over us we were spared damage to our property. Our thoughts and prayers are with the people in southern California at this time.

What to Look for in 2025 and 2026

DSTs have been gaining broader institutional exposure and acceptance. The inclusion of the 721 UPREIT (after a safe harbor period). Large institutional investors have been stepping into the space. Not only on the sponsor level but also the large institutional player and advisors prospective. Schwab and Fidelity have entered the participation via platforming DSTs. Large wire houses are stepping into the 1031 space on the wealth management side of the business. On a different topic, but potentially of vast interest may be the extension of the tax cuts with the new administration as well as a potential modification and extension to the Opportunity Zone (OZ) investment opportunity.

NAMCOA® is a SEC registered investment advisory firm that provides comprehensive portfolio management, financial planning, and fiduciary decision-making services on behalf of retirement plan sponsors. Our Difference is summarized by our fiduciary approach which enables us to better meet portfolio and retirement plan objectives, resulting in stronger risk adjusted returns for investors and peace of mind for Clients. We also focus on alternative real estate investment. Many real estate investors are seeking tax deferred solutions utilizing §1031 exchanges or Opportunity Zones.

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 1031Tax 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@namcoa.com.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

Alternative Investments/CRE 2025 Outlook Part 2

We looked at Alternative Investments/ Commercial Real Estate 2025 Outlook Part 1 in our last post. We will review self-storage, student housing, multifamily, and senior housing in that post. We will continue is Office, Medical Office, Industrial in this writing.

February 13, 2025

By Al DiNicola, AIF®
DST 1031 Specialist & Alternative Real Estate Advisor
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Retail, Life Science, Data Center and technology will be future featured articles. To access the previous post, click here. Alternative Investments/CRE 2025 Outlook Part 1 – DST Education and Market News

Office

There is a move in many sectors to increase office attendance. We have recently seen this on a federal level for a number of philosophical, financial and potential political reasons. The private sector companies have also begun to require in-person employees. These are in the form of mandates. Stay tuned to see if this strategy will work and create increased productivity.

Underperforming assets is the focus of discussion. Property owners may consider conversion into other uses (if local ordinances approve). Conversion into alternative uses may solve other demand for assets in some areas. Older buildings with high vacancy rates may simply not have the required demands of certain tenants. Recently an insurance company in Chicago vacated a much larger building and moved into a 40% smaller building. While there was a loss of rental space the rents were higher in the newer building, that provided better functionality and use for the employee. Better use may translate to more productivity. Tenants are demanding top tier properties.

There is also limited new construction created by a combination of higher interest rates and increased construction cost. Properties that can be delivered quickly (with tenant improvements) and quicker occupancy should be very appealing in many markets.

Many of the Delaware Statutory Trust (DST) offerings have been large credit tenants repositioning their real estate owned as a sale lease back. The sale enables the company access to cash for upgrading facilities, equipment or expansion. The long lease terms and triple net feature of the DST offering are advantageous to investors.

Typically, all real estate is local. On a national level the office vacancy rate hit a record high of 17.7% in 2024 and is projected to rise another 100 basis points, to near 19% by the end of 2025 (according to CBRE).

Some of the other points are:

Lease Rates: Asking rents have risen steadily post-COVID, their rate of growth is expected to remain below 1% with isolated new development.
Limited tenant demand for older buildings with fewer amenities is forcing owners to begin dropping rates to draw interest.
Net absorption is anticipated to stay flat over the near term as the nation’s uneven recovery unfolds. Demand will likely stagnate in the first half of the year as companies cautiously evaluate economic conditions and federal policy shifts under the new administration.
New construction starts will remain on hold, hindered by elevated labor and material costs and subdued demand.

Medical Office Building is much different than Office.

CBRE forecasts that MOB asking rents will rise by up to 1.8% in each of 2025 and 2026 and vacancies will decline slightly to 9.46% by the end of 2025 from 9.57% in this year’s third quarter. There is a growing demand for healthcare services including outpatient surgery centers. This market is also being fueled by the demographic indicators of baby boomers. There will be more and more demand, which is good news for investors.

The are many types of facilities including doctors’ offices, clinics, urgent care centers as well as buildings associated with hospitals. Some of the centers being offered as DST are smaller in size and may be all cash offerings rather than having any debt.

One of the other interesting factors is the rise in employment in the healthcare sector. This sector outpaced the overall growth rate. Healthcare job growth continued to be an economic driver in 2024, creating 686,600 jobs over the 12-month span and accounting for 31% of the 2.2 million jobs created in the overall economy last year. (Healthcare Powered U.S. Job Growth in 2024 | Health Leaders Media)

Additionally, MOB sales volume increased to $2.51 billion in 2024’s third quarter, up 48% from a year earlier. That marked the second consecutive year-over-year increase following nearly two years of declines. DST offerings were limited in scope and tended to be all cash offerings. This may create a challenge for investors executing a 1031 tax deferred exchange with a debt replacement requirement.

There continues to be interest in the Industrial Asset class

Large fulfillment centers and last mile destination centers are still in demand. Not only is amazon still building but there are also other large distribution centers being developed for automakers. There are also smaller warehouses (such as flex spaces) that may be bigger opportunities. Developers are delivering additional small offerings to satisfy the demand. The construction starts are expected by late 2025. This will be only in markets where the supply and demand balance has returned. Construction costs, interest rates and potential regulatory issues may delay some projects.

A few years ago, the Supply Chain issue surrounded many aspects of the economy. Much has ease since COVID. However, it is projected there will be pressures and risks, disruptions, delays, and high costs will continue. In 2025, last-mile delivery solutions will be crucial to boosting agility by ensuring more reliable deliveries. More companies will adopt route optimization strategies and crowdsourced delivery networks to improve the last mile and adapt to unexpected delays, making the supply chain more resilient and flexible.

There is a continued effort to ease supply chain issues with near shoring & re-shoring. This is an attempt to get more product “On Shore” meaning in the USA. This also is a good indicator for the industrial sector. The new administration has a mission to bring more manufacturing back to the USA. Another good long-term sign for industrial. The DST industrial offerings over the past two years have nearly outpaced the multifamily offerings in numbers of offerings as well as volume of offerings. Some industrial offerings may be small bay flex spaces to one million square feet of auto parts distribution warehouses. However, as of February 2025 the available industrial DST offerings have decreased, indicating active investor interest as well as directing investment dollars to this asset class.

We want to thank many of the sponsors who have provided 2024 and 2025 analysis including Inland-Investments, Capital Square, Cantor Fitzgerald, Brookfield, Starwood, CBRE, and others.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

Alternative Investments/CRE 2025 Outlook Part 1

Our last post mentioned “Real Estate Groundhog Day” and potential repetitive cycle often experienced in the real estate industry. We mentioned market cycles, buyer and seller behavior, agent routines, and seasonal trends. Understanding the trends in asset classes help advisors and investors focus on the right due diligence elements.

February 10, 2025

By Al DiNicola, AIF®
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Understanding the trends in asset classes help advisors and investors focus on the right due diligence elements. You can access the last article here. Alternative Investments and CRE 2025 Ground Hog Day – DST Education and Market News

The overall concerns may last for more than 2025 and include:

the wall of debt maturities in commercial loans
Affordability of real estate
Migration Patterns
Supply and Demand Dynamics Across High-Conviction Sectors

We will review self-storage, student housing, multifamily, and senior housing in this writing.

Self-Storage

The pandemic created a list of dynamics that created an enormous impedance prompting people to shift where they wanted to live and ultimately work. The shift in housing demand created an increased demand for storage. Rents for storage for both individual units and facilities increased drastically from 2020 to 2022. The trend did slow down and reversed itself. Some analysist pointed to the interest rates spiking. Storage rents declined significantly in certain areas. This resulted in underperformance in the sector. There were pandemic era gains but much of the gain has now been given back. The good news is that the self-storage asset class may benefit from the stable demographic demand going forward. Here are some of those demographics.

• There are life events that will prompt relocating or downsizing your living accommodations. These include job change, divorce, marriage (or moving in together and yes even death of one of the partners or spouses.

• The millennials are reaching peak home ownership time period (if they can afford it) and there are still many baby boomers entering retirement.

• New supply of facilities is slowly declining after a large increase. This increase started before the pandemic from 2018 to 2020. Immediately after the pandemic the migrations prompted additional supply to come on the market that now is slowly being absorbed.

• If (and when) interest rates and inflation come down this may prompt an increase in housing transactions. There is the forecast for an increase household formation by millennials which may see additional demand for self-storage.

• The potential for rent growth in 2025 may be realized by a demographic shift in housing needs. Some experts state we are 4 million housing units short. An additional factor will be the supply of self-storage stabilizing.

Student Housing

The big question may be is there still enough college age population. There was an old saying about making too many mouse traps if you did not count the mice. Most residential asset classes will have challenges including demographic (millennials getting older), overall interest and cost for higher educations. However, top tier colleges and universities still have an appeal. Schools in Power 5 conferences and others with robust athletic programs, facilities, and educational reputations have continued to see stable growth.

• Year over year certain schools have stable or application increases. This is despite the overall enrollment shrinking.

• according to Axiometrics Approximately 31,000 students per year through 2027 expected to enroll at top-tier universities.

According the Yardi “New supply of student housing has been dropping, with 35,703 off-campus, dedicated student housing beds completed in 2024, down from 44,746 beds delivered in 2023. Over the next several years, Yardi Matrix projects supply will continue to fall to 32,100 beds in 2025 and 33,995 beds in 2026. Recent updates brought down new bed counts in 2024 and 2025 as completion dates were updated”.

• International students still consider the U.S. schools to be the number one destination. • What does not get a lot of attention is the number of school closings. In 2024 it is estimated that one school a week has closed. Granted many of these schools may be offering degrees that have limited appeal or potential students do not find the overall education experience as positive. In the past ten years it is estimated that 726 degree granting post-secondary institutions have closed. Many of these closing was due to declining enrollment resulting in financial struggles.

Multifamily

The drivers and outlook for many of the residential offerings may be the lack of new construction starts. After COVID there was an aggressive construction effort to build many multifamily units. By mid-2025 much of that supply should be absorbed. The multifamily sectors as well as the build for rents and manufacture homes will benefit from the supply pipeline slowing down,

• Traditional homeownership is challenging today with the high interest rates as ewll as the high housing process. For many renting will be the option either by necessity or desire.

• COVID prompted many to seek working from home. There appears to be a move from the downtown markets that provide ample room to work from home and potentially afford space to start a family (in the case of millennials).

• Analyst will look at the construction pipeline, meaning how many units are under construction and be delivered in the next six quarters. Meaning units in the pipeline at the start of 2024 will be delivered mid-2025. There will be a sharp decline in deliveries. This is good news for investors.

• Rent growth has been flat over the past 18 months. This is caused in part by the the delivery of new units coming on the market. In a proforma typical developers will estimate expenses growing by 3% and rents by 5%. This has not happened. Rents have been flat and expenses even staying the same (some have increases) put a strain on the NOI. Limited construction starts.

• There are multiple generations who prefer “just a little more space”. The build-to-rent properties are poised to benefit.

Senior Housing

Senior housing demand is strengthened by the aging U.S. population and a considerable shortage in senior housing communities.

• As baby boomers reach their mid-70s, an increasing need for housing options that better suit them will emerge.

Construction costs continue to rise and building code requirements create challenges. The big question will be, can enough supply be delivered. Based on the need and the tremendous growth after the pandemic rent growth should do well. There are estimates there will be a need for 600,000 units by 2030.

• The baby boomer generations (by most accounts) hold more than 50 percent of the nation’s wealth. There is a focus on developing high-quality senior housing options that may attract baby boomers. There would be a need to have with high-end amenities and a sense of community to attract baby boomers as they age.

• The challenge may be with the lack of construction starts. There is a severe shortage of senior housing units and when supply is limited the demand for units will create strong fundamentals going forward. There is a comparison to limited supply experienced after The Great Financial Crisis reoccurring.

Effects on DST Offerings

All of the same analysis of asset classes with traditional CRE apply to Delaware Statutory Trust (DST). By structure individual investors secure DST investments with non-recourse debt (if the DST has leverage). Recently with the increase in interest rates DST has been structured with less leverage or all cash offerings. This may create a challenge for investors utilizing a 1031 with require debt replacement to fully comply with the exchange requirements.

We will continue in Part Two with office, medical office (MOB), industrial, and Life Science.

We want to thank many of the sponsors who have provided 2024 and 2025 analysis including Inland-Investments, Capital Square, Cantor Fitzgerald, Brookfield, Starwood and others.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

Alternative Investments and CRE 2025 Ground Hog Day

The traditional holiday known as Ground Hog Day (celebrated Feb 2 annually) is more of a folk lore event rather than an actual weather prediction. As a side note, in case you missed Punxsutawney Phil this year the groundhog (actually a woodchuck) saw his shadow and predicted 6 more weeks of winter.

February 7, 2025

By Al DiNicola, AIF®
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Phil, over the years, is right 40% of the time. Commercial Real Estate forecasting may have a better percentage in predictions.

During the month of January and spilling into February commercial real estate practitioners, financial advisors and real estate investors attend multiple Webinars reviewing 2024 and looking toward predictions for 2025. Is there a real estate ground hog day?

You may remember the 1993 movie called Groundhog Day. In this comical movie a man (played by actor Bill Murray) relives the same day over and over again. Because of the movie, the phrase “Groundhog Day” is now often used to describe repetitive, monotonous situations.

“Real Estate Groundhog Day” is not a widely recognized term, but it could refer to the repetitive cycle often experienced in the real estate industry. This could include:

Market Cycles – The recurring patterns of boom and bust in real estate markets, where property values rise and fall in predictable cycles.
Buyer’s and Seller’s Behavior – The repetitive nature of buyer hesitations, seller expectations, and negotiation tactics that agents deal with regularly.
Agent Routine – Real estate professionals often feel like they are reliving the same tasks daily, such as prospecting, showing homes, negotiating deals, and handling paperwork.
Seasonal Trends – The real estate market tends to follow seasonal patterns, with increased activity in spring and summer and slowdowns in fall and winter.

2025 Commercial Real Estate and Alternative Real Estate Outlook

For investment advisors and representatives we do experience cycles and compare and contracts past trends to establish some type of predicative future. Many look to cause and effect in the markets.

Many of the same takeaways in the commercial real estate analysis can transfer to the Delaware Statutory Trust (DST) investment opportunities, Opportunity Zones as well as the direction of private equity into real estate development. Private equity as well as individual investors are moving into the alternative real estate space for a variety of reason.

Many of the sessions we have attended provide the same key takeaways:

With the second largest drawdown of CRE valuations on record, a compelling entry point is on full display.
Looming debt maturities and stressed capital structures will support significant opportunity for well-capitalized buyers.
Slower economic growth will drive more focus on the intersection between real estate and demographic trends.
Housing affordability, migration patterns, and immigration policy will be critical trends to consider when making investment decisions.
Construction starts are down significantly across commercial real estate, setting up for strong fundamentals.

Wall of Debt Maturities

The massive transaction volume from 2021 to 2023 created a great deal of debt to go with it. Much of the debt originated between 2019 and 2022 will be coming due in the next 12 to 24 months.

Affordability

Housing affordability will drive residential rental demand. Despite an increase in mortgage rates, the Case-Shiller Home Price Index is at an all-time high. This is driven by the continued demographic demand for housing, coupled with an extremely low supply of existing homes for sale.

Migration Patterns

Both domestic population migration between states and immigration from abroad will have an outsized impact on commercial real estate demand going forward, especially as organic growth from births continues to wane. It is estimated that 75 percent of population growth in the next decade will come from immigration. The profile of potential renters will also vary significantly depending on the migration timing a market experiences. International migration is concentrated on a few key states, with Florida, California, and Texas receiving the largest share.

Supply and Demand Dynamics Across High-Conviction Sectors.

The demographic backdrop will drive supply/demand dynamics for commercial real estate throughout the next decade. Given the slow-growth macroeconomic environment, the strongest real estate sectors will be those whose demand is tethered to life events rather than economic growth. Those same real estate sectors also benefited from the low interest rates of 2020 to 2022, seeing a boom in construction starts during that time period.

Interest rates seem to be a topic of discussion by many and look towards a trend lower. However the market with make a move with or without significant changes. Seller of actively managed real estate will seek to move into passive management. Investors with capital gains will continue to seek tax deferral through 1031 tax deferred exchanges (some utilizing DST for passive income and tax deferral). Other investors with capital gains may seek to invest into Opportunity Zones for long term compounding potential returns.

Over the next few weeks, we will provide a review into specific asset classes and the projection. Will we repeat the same results as 2024, or will this year see appreciable improvements in the markets?

We want to thank many of the sponsors who have provided 2024 and 2025 analysis including Inland-Investments, Capital Square, Cantor Fitzgerald, Brookfield, Starwood and others.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

CRE Market Update 2025 and 1031 Exchange Trends ~ Part 2

There was much anticipation, during the previous administration, that the long-standing Section 1031 tax deferred exchange provision would see changes. There were several proposals, from elimination (of what some referenced §1031 a loophole), to limiting the exchange dollar limits, to other strategies, none of which came to fruition.

January 27, 2024

By Al DiNicola, AIF®
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

We have previously written about the reasons why. Advisors, CPAs, real estate professionals and most importantly the individual investors feel comfortable the program will stay intact, at least we are hopeful.

In Part 1 we commented on real estate prediction, interest rate changes, financing, inventory supply, asset classes and short-term rental in certain areas. (See Part 1 – 2025 CRE Trends). We will address a few other areas and amplify.

Can you Refinance? There continues to be concerns regarding the ability of investors (especially large investors) to refinance maturing lower rate loans to higher interest rates. We have heard of the projected number of loans maturing over the next two years. The estimates range from $700M to $2 Trillion depending on the source and interpretation of the data. No matter what the dollar amount will be, the individual investor will be focused on how to reposition their asset either through refinancing or reselling.

A lot of that will be determined by the banks that are holding the loans. Some analysts have often used the phrase “extend and pretend” but some banks may potentially use some of the same strategies. In banking, the term “extend and pretend” refers to a practice where banks or lenders extend the terms of a loan (i.e., by lengthening the repayment period or restructuring it) instead of addressing underlying issues, such as the borrower’s inability to repay. This is often done to avoid recognizing a loan as non-performing or impaired on the bank’s balance sheet, which could require the bank to set aside additional reserves or take a loss.

There may be an increase in the volume of activity simply based on the fact that there are maturing loans, and some investors want to get out from under the loans. The challenge many investors will face when doing a §1031 exchange is that the loans that are being paid off need to be replaced in order to have a valid §1031 exchange unless the investor can provide fresh cash in place of a mortgage. Delaware Statutory Trusts (DSTs) may assist certain investors with debt being replaced with non-recourse loans.

Interest Rates and Transaction Volume

A reduction in a few basis points in interest rates is expected to boost 1031 transaction volume. This may push an upward trend in residential and commercial exchanges. Investors evaluating making moves may focus on tax deferral as well as NOI or distributions being paid.

Seller Financing

Traditional financing challenges will lead to more seller-financed transactions. This may become problematic with sellers leveraging §1031 Exchanges. We will follow up with another article on the benefits and drawbacks of seller financing.

Shifts in Asset Classes

Multifamily, industrial, self-storage, and certain necessary retail properties are expected to see robust activity as investors use §1031 Exchanges to defer taxes. Certain investors may move from one asset class to another. Investors utilizing DST may have an advantage in selecting several asset types and geographic locations as replacement properties. This diversification spreads the risk of real estate over a greater number of properties. For example, an investor selling a residential rental property for $500,000 may acquire 3-5 different DSTs (typically $100,000 minimum in a DST) and assemble a portfolio of real estate rather than one property. If the relinquished $500,000 property has debt, the DSTs provide non-recourse debt which may be viewed by investors as favorable.

Shift to Passive Investments

Investor demographics continue to suggest a move away from active management. An increase in management-intensive properties being exchanged for passive investment types like NNN (Triple Net Lease) and DSTs is expected.

Geographical Shifts

Local regulations may restrict the rental of certain real estate. New policies and zoning regulation may change the number of rentals per year or per month (as in the case of Airbnb investors) that will prompt investors to move their investments to more landlord-friendly areas.

The need for more housing

In many locations there is a movement for permitting Additional Dwelling Units (ADU). The need for residential units in many locations has prompted municipalities to seek alternatives such as permitting ADU to be added to existing properties. A single-family home may have enough room to build a smaller home or garage/carriage home on the same property. Hence the name additional dwelling unit (on the same property). The increase in unit counts may prompt investors to look at §1031 opportunities. There may also be a combination of mixing commercial with residential offerings known as Mixed-use. This diversification may appeal to a variety of investors, especially those seeking §1031 Exchanges.

Location, Location

The migration of people and to certain extent investment dollars are moving to the southern smile states (as they are known). These are known as retirement-friendly areas. Rumors of warmer weather (although maybe not in the southeast in January 2025), lower cost of living, favorable tax conditions, and areas friendly to retirees, continue to be in demand for investors.

2025 may be a fluid year with opportunities for investors. Potential legislative changes, market dynamics, interest rates, net operating income and other strategies are trends we will continue to monitor. The DST strategy as well as Opportunity Zones should continue to be of interest to advisors as well as investors. Another trend to watch is the IRA to ROTH conversion strategy.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

CRE Market Update 2025 and 1031 Exchange Trends ~ Part 1

The beginning of 2025 has quickly moved into and almost out of January. The commercial real estate market, or CRE as it is known, appears to be set for another dynamic year.

January 24, 2024

By Al DiNicola, AIF®
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

First Days of New Administration. The initial days of the new administration have been filled with executive orders, anticipation, and speculation of clarity in policy for the investing world. For a number of years, we have written articles on the advantages of Delaware Statutory Trust (DST) being used in conjunction with 1031 exchange replacement properties. We have also opined on the different strategies for investors using alternative real estate positions to enhance non-correlated returns and potentially defer capital gains taxes. This included investments into opportunity zones which may be under review for potential extension this year.

Real Estate Predictions. There are many predictions for what we can expect for the commercial real estate market this coming year and beyond. There will be evolving market conditions as well as fluctuations in many financial and political arenas that may affect the commercial real estate market. This will require property owners and investors contemplating selling their property to take positive action. This will require advisors, real estate brokers, CPA’s, and other professionals to work as a team to help guide the investor to stay informed about the latest opportunities and trends in 2025.

The past few years CRE as well as 1031 exchange transactions have faced many hurdles to produce the volume of transactions that has happened. These hurdles included rising interest rates, reduced inventory, uncertain political situations, natural disasters, and a host of other localized issues.

Interest Rates Up & Down & Up Over the past 40 years interest rates have risen and fallen. Creativity in the marketplace seems to have adapted to the interest rate changes. Buyers and sellers will come to grips with the reality of the interest rates and each will adapt to affect the sale (disposition) or acquisition of real estate. This may be good news for transaction volume that is expected in the tax deferred IRS code known as section 1031.

Financing (new investments or refinancing current investments) faces challenges especially in light of the strict underwriting guidelines or as some would put it more conservative guidelines. These guidelines are being used when approving loans for new buyers as well as for investors attempting to refinance their current ownership. Sellers who are motivated may decide to seek more creative solutions by offering seller financing. This all hinges on how motivated the sellers are to move from their current investment property either selling outright or utilizing a §1031 exchange. A §1031 exchange may optimize their potential replacement property or repositioned asset.

Inventory Supply. In certain locations the amount of available inventory may have restricted sellers from even listing their properties because of the limited supply that would qualify as a replacement property. Sellers who utilize DSTs typically do not face many inventory limitations. However, sellers looking at a traditional 1031 replacement property may move and adopt the reverse exchange as an option. Reverse exchange enables an investor to acquire a property prior to selling their current investment property. In a competitive market this flexibility may provide for a viable strategy. Other investors may seek to buy properties that are considered value add and that would be perfect for improvement exchange. Both of these strategies may become complicated if properties are not sold when in a reverse exchange is entered into, as well as an improvement exchange where all the improvements cannot be completed by the 180th day of the exchange.

Multi-Family & Industrial in demand. Traditional real estate markets as well as the DST markets expect to see large multifamily properties and industrial spaces still to be sought after. Even with the online shopping known as the Amazon effect, there are necessary retail centers that have become popular and will remain in time demand in traditional acquisitions as well as DST acquisitions. Traditional office space has become challenging for investors to sell. Large office spaces have been packaged in DST that include government buildings such as Social Security Administration, and others, with extremely long leases that may be viable for certain investors. Medical office is still popular among investors, and we have seen increased activity of the limited numbers for medical office offerings in the DST marketplace. Investors moving out of traditional office properties may want to reinvest into more resilient asset classes with the potential for growth.

Short Term Rental Challenges. Many municipalities are currently struggling with property rights with regards to the restrictions on short term rentals. The growth of AirBNB has surely created opportunities, obstacles, an outcry depending on what side of the issue you fall on. Residential investors that face growing restrictions may seek to sell, replace, or in some cases shift their investments to other locations. Certain investors may also seek to change asset classes, so they do not have to deal with the short-term rental situation.

We don’t believe that anyone has a crystal ball as to the velocity of transactions that will happen in 2025. Given the demographics of certain investors and the real estate that they own, many will be seeking to execute a §1031 tax deferred exchange. The demographics also suggest that many investors will seek moving from active involvement or management into passive involvement and seek passive income. There are §1031 strategic insights via DSTs that we may be able to provide to accredited investors.

The higher interest rates we are facing today with limited acceptable replacement properties may be the biggest issue facing investors.

Look for Part Two Soon. We will cover future of §1031, Refinancing and interest rate concerns, shifts in asset classes and geographic shifts, seller financing and a few other topics.

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. NAMCOA, 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. 8215 SW Tualatin- Sherwood Rd, Suite 200, Tualatin, OR 97062. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.