May Landscape Summary “Fast, Fluid, and Forward Thinking”

BY Al DiNicola June 10, 2021

As the weather warmed up in most of the country (our weather in Naples, Florida is stunning) cash investors as well as the dramatic increase of sellers utilizing the 1031 tax deferred exchange program continued to fuel the DST market. On our weekly calls to Sponsors many are scratching their heads as daily reservation agreement come across their desk.  At NAMCOA we have always proposed to assess the client’s needs and then prescribe a balance portfolio of DST acquisitions.  For example, a seller selling a real estate holding (commercial brick and mortar) for $500,000 and utilizing the services of a real estate broker would typically purchase another $500,000 property.  We assess the client needs and may recommend splitting the sales proceeds into at least two DST acquisitions. The feedback from the sponsors during May has been investors are adopting this strategy and breaking their proceeds into manageable asset acquisitions of about $500,000. Oddly enough that number. under President Biden’s tax plan, has been tossed around as one of the benchmarks for a new 1031 tax deferred exchange (not a loophole) limit for certain taxpayers.  We do not know the exact criteria for 1031 exchanges going forward.  Suffice to say that advisors and investors are seeking to protect their assets.  Another interesting focus of President Biden’s Tax Plan may be elimination of the step up in basis on the transfer of the property.  Under current rules if a property owner who acquired the property for $250,000 years ago (with a current market value of $1,500,000) passes away, the heirs will acquire the property at a value of $1,500,000. There would be no tax on the transfer. If the basis is eliminated, the heirs would need to pay tax on the difference between the acquisition price and the transfer price.  Meaning the heirs would come out of pocket and pay capital gains if the heirs are to retain the property. The gain of $1,250,000 would be taxed let’s say at current 21% up to proposed 43%. That amount may vary between $225,000 to over $500,000 in cash on the transfer.   If the heirs don’t have the cash, then the property will need to be sold.

So, what happen in May in the DST equity landscape?  It has become fast, fluid, and forward thinking.  As you may be aware we track most of the major sponsors on a weekly basis either by email and more often phone calls for the weekly updates and in some cases with smaller offerings twice a week.  We do that so when we receive a call from an investor, we already have guidance on what assets may still be available. We are well prepared so we may be responsive to the investor call. Especially when we receive a call from an investor who is already well within their 45-day identification period.  In many cases we are able to suggest alternatives either as a first options or at least a backup.  Preferrable we would like to have more than 48 hours remaining in the 45-day identification period and preferable not receive the request on 5 PM Friday. Yes, that happened on one occasion.  Even with 4 days remaining we have been successful in creating an alternative.

During May we continuously updated the Landscape summary of offerings.  In one stretch of 10 days the Landscape was very fluid. From the posted numbers it may not have seen to be a big movement.  However, during that stretch of 10 days there was $400,000,000+ of equity secured.  The overall available equity was reduced from $850,000,000 down to $425,000,000.  However, within a three-day period Sponsors were able to make available additional equity in the forms of new offerings.  When looking at the Landscape Summary you may see 28-34 available DST offerings.  However, what you don’t see is the 90 funded offerings over the past 12-15 months.

The big question may be how to stay ahead of the curve on what may potentially become available?  We have  very good communications with the sponsors on what the Sponsors have in the pipeline.  Through our weekly conversations we understand the geographic locations and asset classes the Sponsors are preparing to close on which will become DST opportunities.   We are able to understand the Sponsor strategies for future acquisitions and align that with the investors who are in the process of selling their real estate and look to doing a 1031 exchange.  When we are engages a few weeks prior to investors closing on their property we have a much better opportunity to suggest a tailored designed strategy. Once a property owner close on their property being sold and the qualified intermediary is holding the sales proceeds then we quickly can offer several solid recommendations. Naturally, the cash investors who utilize DST are at an advantage in as much as they are ready to acquire the asset.

May was also a great month for education of potential investors.  We have engaged in many discussions with potential clients i.  These were investors who have long standing relationship with their current advisor who simply wanted another opinion for planning.  We welcome all discussion with investors.  DST acquisition by investors will continue and we are extremely happy with the trust our investors place in us when we have the opportunity to assist them.  Last month we predicted the 2021 total DST equity investment to be $4.25B.  We are raising that mount to $4.5B.  Check back next month for the DST Landscape Summary Update.

Please contact us for forward thinking strategies involving your real estate, 1031 tax deferral potentials or any other discussion regarding securitized real estate offerings.

Please refer us to any others you may know that may need advice on their 1031 Exchange!

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 Click here to view our 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.

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.

Landscape Summary March 2021 “In Like a Lion” DST Investments

Al DiNicola
April 9, 2021

The Farmers’ Almanac notably referenced the weather in March as “In Like a Lion, Out like a Lamb”. Anther statement in the Almanac include “ideas that there should be a balance in weather and life”.  The investments in DSTs continued into the beginning of March. However, there is no indication that the equity investments came out of March like a lamb.  It appears that the search for quality DST investments is roaring.  While the multifamily assets continue to maintain the lion’s share of the equity investments there are other assets making their presence known.  The equity came from 1031 tax deferred exchanges as well as cash investor seeking the same advantages of a passive, tax advantaged return. However, as investors seek to balance their portfolios other asset classes are in high demand.  Simply put for every 10 multifamily offerings there may be one student housings, one self-storage, one necessary retail, one industrial. The limited supply of other assets (other than Multifamily) creates the rapid subscription and sellout of other assets.

Even though there is a surge in DST investment there is a need for Sponsor Due Diligence as well as Asset Due Diligence. We receive regular questions on how to evaluate a DST sponsor?  For those doing their initial investigation on DST here is a quick recap. A DST (Delaware Statutory Trust), is an investment vehicle only for accredited investors and provides the opportunity to own a fractional interest in institutional-grade commercial real estate. Cash investors and 1031 invesotrs both seek DSTs. 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. Other DSTs may be a collection 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. Cash investors are driving additional shortages in certain assets.

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. DST Sponsors work with representatives of Broker Dealer Firms or Registered Investment Advisors. Interest in DSTs continue to grow each year as well as number of DST sponsors. We do research on each of the sponsors (due diligence) to minimize unnecessary risk to the investors.

Here are a few key areas we evaluate: Industry Expertise, Track Record, Acquisition Process, Underwriting Standards, Transparency, Sponsor Fees  and Ongoing Support & Guidance. Many of these areas are required elements to be reported or listed within the Private Placement Memorandum (PPM).  We take to extra steps to communicate on an ongoing basis with the sponsors as well as reviewing the new offerings that are brought to the market.  The sponsor’s executive management team is only one component. We review how past program offerings have performed. The cash flow and total returns are only part of the underwriting standards. We want to understand why a certain property was identified for acquisition. Obtaining clear insight into every aspect of the business is part of the transparency aspect. Sponsor fee structure must be identified in the PPM. During and after the purchase sponsor communication is vital especially over the past year with the COVID interruption. This includes timely reporting for tax matters. Sponsors also need to protect the integrity of the 1031 tax deferred exchange.

We recommend that every DST investor review the due diligence materials that should be provided by their financial representative. DST, Investments, LLC can assist in your search for quality assets offered by Sponsors whom we have a relationship with and understand their background and past performance.

The current Landscape Summary on DST News.Org https://dstnews.org/  identifies over $600,000,000 of potential DST properties from the major sponsors. There also continues to be a constant movement of what is available on a daily basis. The challenge for both the investors as well as financial advisors assisting the investors may be securing the assets prior to another investor executing the subscription agreement.

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

The Positive Impact of ESG Investing

ESG type investments have become popular because investors want to know the property they own will have a positive impact on the local community and the broader environment. This allows real estate investments to align with what matters most to investors and their families.

One example, is what McLemore is doing in northern Georgia.  Adhering to a strong ESG program, McLemore and its management team strivhttps://namcoa.com/wp-content/uploads/2020/11/McLemore-Overview.mp4es to provide a profitable return by balancing the Company’s economic goals with good corporate citizenship:

  • Economic Development Incentives: The Company has worked with local and state officials to secure millions of financial incentives.
  • Employment: The Company is targeting over 1,000 new full-time employment opportunities within Walker County, Georgia.
  • Good Stewardship: The Company has remodeled and rebuilt an existing golf course, which now includes the “Best Finishing Hole in America since 2000” by Golf Digest magazine.
  • Visitors: The Company is attracting many more visitors into Walker County, Georgia, where they can enjoy existing parks and protected wilderness areas, including Cloudland Canyon State Park, the Crockford/Pigeon, Mountain Wilderness Area, and many others.
  • The Company is the owner and operator of the McLemore Community, which is an upscale residential golf community that is in the process of developing a Hilton Curio Collection hotel, resort and conference center as well as other amenities. The McLemore Community sits on approximately 825 acres of real property, is located on Lookout Mountain, Georgia and currently consists of the
    many planned components, click here to view the McLemore Executive Summary Overview Deck 10.28.20.

This blog post nor any links above are a solicitation of securities, that may only be performed by a private placement memorandum.  To view McLemore Due Diligence files, including their Private Placement Memorandum and learn more “How to Invest” type information, click here.  This is for accredited investors only. 

SEC Defines Accredited Investor

The Securities and Exchange Commission Wednesday amended its “accredited investor” definition to allow investors to qualify based on defined measures of professional knowledge, experience or certifications — including holding certain Financial Industry Regulatory Authority licenses — in addition to the existing tests for income or net worth.

The 166-page amendments adopted Wednesday also expand the list of entities that may qualify, including by allowing any entity that meets an “investments test.”

“For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication,” said SEC Chairman Jay Clayton, in a statement. “I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations that may qualify to participate in certain private offerings.”

The commission stated that the amendments to the final rule are part of its “ongoing effort to simplify, harmonize, and improve the exempt offering framework, thereby expanding investment opportunities while maintaining appropriate investor protections and promoting capital formation.”

SEC Commissioner Hester Peirce tweeted Wednesday “Americans shouldn’t have to ask the SEC for permission to invest, but today’s accredited investor rule at least offers people a path to ask permission based on their education, rather than simply telling them ‘no, unless you’re rich.’”

In the case of individuals, “the previous rule used wealth — in the form of a certain level of income or net worth — as a proxy for financial sophistication,” the SEC states. However, “we do not believe wealth should be the sole means of establishing financial sophistication of an individual for purposes of the accredited investor definition. Rather, the characteristics of an investor contemplated by the definition can be demonstrated in a variety of ways.”

The thresholds stand at a net worth of at least $1 million excluding the value of primary residence, or income at least $200,000 each year for the last two years (or $300,000 combined income if married).

According to the SEC, the amendments to the accredited investor definition in Rule 501(a):

  • add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials, including the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. (The Commission will reevaluate or add certifications, designations or credentials in the future);
  • include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
  • clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers and rural business investment companies (RBICs);
  • add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries;
  • add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
  • add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

The amendments also expand the definition of “qualified institutional buyer” in Rule 144A to include LLCs and RIBC programs if they meet the $100 million in securities owned and invested threshold in the definition.

The amendments also add to the list any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” the SEC said, provided they satisfy the $100 million threshold.

DST Provides Direction and Course of Action for Family Legacy

By Al DiNicola

DST.Investments, LLC- Registered Investment Advisor

July 15, 2020

Financial advisers, CPAs and Attorneys interface with investors and provide valuable insight into planning for generational wealth transfer, occasionally referenced as a family legacy. This trust bond may have taken years to develop or may develop quickly with sound financial advice.  Professionals deal with situations which may have recurring themes. However, the professional must understand each and every situation prior to suggesting the alternatives.

Recently, we had the pleasure of working with a family and we were able to suggest alternatives for their specific needs.  The patriarch of the family had recently passed away in his late 80’s. The matriarch was in an assisted living facility, in her mid-80’s and in failing health.  Over the years, the patriarch and matriarch had assembled a real estate holding portfolio in a coastal Florida town.  The commercial and residential rental properties served the family well for over twenty years. Some of the properties were free and clear of any debt but there were a few with mortgages on the properties. One of the three siblings (now all in their 60’s) was charged with the responsibility of managing the real estate. After 10 years of active management of the assets, the managing sibling was searching for an alternative.   The first alternative was to simply sell all the real estate (on an accelerated plan) and pay the capital gains tax as well as recapturing all the depreciation and paying the tax at a rate of 25%. The second was to attempt to do a 1031 Exchange and defer the taxes.  The 1031 posed a few obstacles with the replacement of debt. The main obstacle was the matriarch signing on the loan for the debt replacement.

The family was looking for a source of monthly income, without the stress of management or even dealing with a management company in the case of an individual commercial building with a Triple New Lease (NNN).  The family also understood that outright selling the real estate while the mother was still living may forfeit the step up in basis to current value.  For those not familiar with this provision this is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. This would mean the property owner would pass ownership upon their death. This minimizes the capital gain taxes that may be due.  In the case of this family, the taxes that would have been due were just under $1.6MM if the property was sold outright and not pass to the heirs.

There still is a need for the mother to receive some sort of monthly income. The other fact would be the three siblings will eventually inherit the asset (property). The solution was to execute a 1031 tax deferred exchange and purchase a variety of DST assets which all included removing management concern as well as the debt replacement. We analyzed the proposed closing statement from the sale of the investment properties. There were four total investment properties that were to be exchanged.  We analyzed the payoff of the loans on the properties since one of the requirements of a 1031 is the debt needs to be replaced.  The DST also provide non-recourse debt. This means there is no requirement to sign for the loan that is in place for the DST. We also evaluated the amount of equity that would be available for acquisition of the DSTs. We counseled the siblings on the selection of a Qualified Intermediary (QI) to hold the funds. All transactions must be through a QI.

The result was a diversified portfolio of multiple DSTs in a variety of assets and geographic locations. While the DST are operating the mother receives monthly income directly into her account. Since there are multiple DST and more than likely different periods of eventual sales of the DST the family can evaluate what the next steps would be at that time. If the mother is still living the family can do successive 1031 exchanges into other DST or even out of the DST back into regular real estate. These additional alternatives provide additional flexibility. The family can now enjoy the best of both worlds the disclosures of a security and the tax advantages of real estate.

When the mother passes away, the assets transfer to the siblings with a step up in basis for tax purposes.  Each sibling can be assigned a different DST for their own accounts. The siblings would receive the monthly income from the DST during the life of the DST. Once the DST reaches full term and is sold the siblings would be in line to receive the proceeds from the DST. The siblings would have a variety of options on the disposition of the asset once the DST would be sold.  The individual sibling would receive the proceeds from the DST. The individual siblings would be free to take the proceeds with the added factor of a step up in basis.

As always consult your CPA or financial adviser.  We specialize in DST structure and function.

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.

Happy 4th of July Holiday!

We know the past couple of months have been challenging for us all, but hopefully this independence day weekend will help bring some joy into the lives of you and your loved ones. Stay safe and have a great weekend!

As always, we’re here to answer any portfolio questions or discuss your planning needs. Click here to contact us or simply call us at (800) 378-0515 to set up an appointment with one of our investment advisor representatives or financial planners.

Happy Fourth Of July from the DST Investments Team!