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.

December Year End Will Experience a Flurry of Activity

Al DiNicola

December 5, 2020

It has been stated so many times this year that 2020 is a year like no other with many factors. These factors include many effects from COVID issues, business uncertainty, shifts to working at home (rather than being in the office), parents assisting children with at home classroom, and the overall economic changes the country and the world is dealing with this year. In addition, there is a change in the political scene and climate in Washington.  At the same time there are sectors of the economy that has responded to the challenges and created opportunities.  The online economy and the delivery process of all the in-home shopping has energized certain businesses.  The end of the year traditionally creates a push or rush to settle certain tax and investment positioning continues to be a goal among investors, buyers and sellers.  The Delaware Statutory Trust (DST) environment will be no different.

Sponsors, working with financial advisors representing investors, have secured reservations and indication of interest in many assets

and properties.  These assets may represent single properties or may be portfolio of assets (from 2 properties to nearly 20 properties).  The assets that may be smaller offering, under $20MM may have a shorter “runway” for potential investors.  Runway meaning how long an investor may have to identify and ultimately close on an identified property. Larger offerings, over $50MM provide longer periods of time.  This longer period of time may assist investors who are engaged with a 1031 tax deferred exchange especially if the investor is anticipating on closing and not within their 45-day identification period.  Cash investors or 1031 investors who are already “in cash” do have an advantage with the ability to close.  In Cash references the 1031 funds are already being held by a Qualified Intermediary (QI).

The multifamily sector continues to have the largest availability for investors.  If we look at a total of twenty DST offerings 10-12 may be multifamily. The balance is comprised of industrial/distribution center, senior housing, student housing, medical, necessary retail and manufactured housing. The multifamily sector continues to have great appeal to many investors especially in the geographic regions that continue to see increased population such as Texas, Nevada, Tennessee and Florida. There are specific examples of infill locations that may be considered trophy locations. When multifamily dominates the offering selection there are the occasional high demands for other asset classes such as industrial/distribution. Many of these offerings are associated with the “Amazon Factor”. This factor represents the supply chain associated with the online shopping increase. The online increase not only was evident before the COVID with a shift away from the shopping center or mall experience, but also with the COVID restrictions.

The interaction between the sponsors and financial advisors is critical for obtaining the right asset for the inve

 

stors. Sponsors who are preparing to close on the initial acquisition of the property by year end will see continued interest not only by year end but moving into 2021. There will be a push to close as many cash positions as well as completing the 1031 exchanges.  Currently 1031 exchangers anticipating closing on their “down-leg” (property they are selling) in December, may seek to have a quick turnaround and close on their “up-leg” (replacement property) by year end. While this is possible it requires financial advisors identifying the best replacement solution that have available equity.  Especially with the ability for the spo

 

nsors’ closing department having the capacity to handle all the paperwork necessary for completing the transaction.

Sponsors have also been able to communicate to the financial advisors of upcoming releases.  Recently we were fortunate to position investors with specific requested assets prior to the actual release of the assets. This was done with indication of interest or reservations. This helps the cash investors but more importantly the 1031 exchangers with knowing the replacement property. Frequently investors contemplating selling their real estate holdings may resist not knowing what property will replace their current real estate.  The DST has provided an easy path to solving the replacement property dilemma

2020 will go down as an unusual year.  What will remain constant will be the success the sponsors and investors have experience.  Sponsors will report an outstanding year in volume of equity invested as well as the value of real estate that has been sold.  We have enjoyed prov

 

iding the monthly landscape update on the DST markets. We also appreciated all those who have engaged in conversation with us sharing your questions as well as encouragement.

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