Al DiNicola
January 15, 2021
Over the past year we have provided an overview of the types of DST that are being offered. This 30,000-foot view for accredited investors is called the Landscape Summary. We interact monthly with many of the major sponsors of DSTs and provide updates on the availability of offerings in numbers of programs, equity as well as other components which many potential accredited investors (through their feedback) state is important.
When looking at the numbers month over month there may be some changes on the dollar amount of availability with some of the most notable months have $100,000,000 changes in the equity when viewing the results. The December numbers have a notable change from November in the amount of $150,000,000 less equity. However, that is only part of the results. Within the activity from sponsors and investors there was a tremendous change.
Sponsors often will grant financial advisors and representatives the ability to reserve a position for an investor for a limited period of time. The sponsors wanted to complete as many subscription agreements (typically step one) and then close on the transaction (step two). Many investors seeking to close before year end reaffirmed their reservation positions and closed on their cash positions. In the case of 1031 exchanges investors executed (closed) well ahead of the 180-day required closing. As a practice we assist 1031 exchange investors with identifying their potential replacement properties ahead of their actual closing on their current property. (Occasionally the sale of the current property is called the “down-leg”). Upon the actual closing of the down-leg a good strategy is to have the 45-day identification list ready for submission to the Qualified Intermediary (QI) or Accommodator. The other part of rationale for this strategy is since the DST availability changes on a weekly basis. New issues that come out may be quickly subscribed. The other rationale comes from the investor who may want his down-leg proceeds reinvested sooner rather than later. Almost all our clients identify as soon as possible and most close on the replacement property (occasionally referenced as the “up-leg”) prior to the 45-day period and in some cases with 10 days of their down-leg closing.
The back story would be investors wanting to close as soon as possible to put their funds to work rather than sitting in the QIs account, as well as the sponsors wanting to close as many positions by year end. During the month of December, in the offerings we review, there was over $350,000,000 in closed offering positions reported. In the beginning of December there were 32 available DST offerings and 18 were reported either fully subscribed or over reserved. When looking at the current available DST Equity (and this changes weekly) there is about $420,000,000. The sponsors were also very busy with filling the pipeline with replacement offerings.
Creating the DST pipeline takes a lot of work upfront. We have good working relationships with many of the sponsors. Financial advisors who specialize in the DST space will receive advanced notice of potential DST offering that may be available in the near future. This provides us (as well as other advisors) the ability to properly align our investor needs with the best potential cash investment or 1031 replacement property. The multifamily options (including the manufactured housing offerings) dominate the list of properties with a consistent 50%+ of the available equity. The industrial space is often sought after especially if there is an Amazon involvement. Necessary Retail has also been very popular and becomes fully subscribed quickly. Senor housings has not seen an uptick in offerings. However, the 55 Plus offerings seems to be popular. There is a difference between the assisted living (senior housings) and the active 55 Plus. Student housing has seen limited offerings because of the campus situation still lingering with the COVID situation. Colleges are attempting to figure out the dormitory and campus housing solutions. There may be a few exceptions where there are population shifts into states. Student housing is similar to multifamily in design and structure in some regions. For example, there is a migration of companies from California to Nevada. Many of the younger workers are moving into the student housing properties that offer internet connectivity and other lifestyle components. These new student housing offerings are different housing options then when many of us went to college. Florida is also benefiting from the general population shift from the northeast (NY, NJ, CT) to the sunshine state.
What is the forecast for 2021? Sponsors will still be looking at bringing online multifamily opportunities. The industrial space and distribution should remain strong as well as the necessary retail. Select manufactured housing offerings as well as the 55 Plus will be offerings to watch. Assisted living and student housing may be very limited. Medical offerings which have been limited may have an uptick.
We are awaiting the new administration’s plans for the country. There has been speculation that Mr. Biden’s plans include some changes to the 1031 tax deferred exchange. Please look for our next blog article on the unintended outcomes if the 1031 exchange in altered or eliminated. Currently the cash investors are seeking tax preferred returns and the 1031 Exchangers are seeking to utilize the benefits provided.
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