“Beyond the Classroom: Why Investors Are Studying DSTs This Fall”

Recently we published a three-part educational series called “Sharpening Your Portfolio IQ: The New Semester of Alternative Investment Strategies”. At a recent real estate and CPA conference there were continued concerns and interest about the sequence of events to properly position assets for a Section 1031 tax deferred exchange.

September 27, 2025

By Al DiNicola, AIF®
1031 Tax Deferred Exchange Specialists & DST Advisor
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Investors are also taking a deeper dive into Delaware Statutory Trust (DSTs). There was a transition from confusion, concern, caution and then confidence in utilizing a §1031 tax deferred exchange with a DST.

It is appropriate to re-engage and review as we enter an energized time of the year. As we enter the fourth quarter of 2025, investors may be repositioning their real estate and investment holdings to make a move prior to year end or getting ready for 2026 (already).

The confusion was shared as to how Delaware Statutory Trusts (DSTs) qualify as replacement property for §1031 tax-deferred exchanges. As a refresher, this is permitted due to IRS Revenue Ruling 2004-86. The ruling in 2004 established permitting fractional ownership in a DST being considered direct ownership of real estate. Partnership interest would not qualify.

Why DSTs Qualify

IRS Guidance
- Revenue Ruling 2004-86 confirms that a beneficial interest in a properly structured DST represents direct ownership of real estate.
- Unlike partnerships or LLCs, DST investors are treated as owning an undivided interest in the underlying real property.
Like-Kind Property Requirement
- §1031 exchanges require the relinquished property and replacement property to be of “like-kind.”
- DST interests meet this definition since they are tied to actual real estate assets.
Compliance with IRS Restrictions (noncompliance is referenced as the Seven Deadly Sins)
DST trustees and sponsors must adhere to strict limitations to maintain compliance:
- No new capital contributions after the offering is closed.
- No refinancing after the initial loan is placed.
- No reinvestment of sale proceeds from disposed property.
- Limited ability to make structural changes, renegotiate leases, or enter new business ventures.
- Only normal repair, maintenance, and minor non-structural improvements are permitted.

§1031 Exchange Process Using a DST

Sell the relinquished property – proceeds are held by a Qualified Intermediary (QI) to avoid constructive receipt.
Identify replacement property (DSTs) – within 45 days of the sale of the relinquished property.
Close on the DST investment – within a total of 180 days of the sale of the relinquished property.
Ownership via beneficial interest – investor receives pro-rata share of income and appreciation, but no active management responsibilities.

Advantages of Using DSTs in §1031 Exchanges

Fast closing, useful for meeting tight IRS deadlines. DSTs are prepackaged and ready to close in a short period of time.
Access to institutional-quality real estate (multifamily, industrial, retail, medical office, self-storage, student housing, life science, and even land).
Passive income with professional management.
Ability to diversify by investing in multiple DSTs with smaller minimums. A $500,000 exchange may be reallocated into several DSTs. There would be added due diligence as well as additional paperwork. This may provide a level of diversification. Diversification does not eliminate risk but seeks to minimize risk.

What to Look for in a Good DST Professor (AKA Advisor)

When searching for an advisor you may approach the selection process by selecting an educational partner. Investors will go through an educational process and should seek an advisor who has specific DST / §1031 exchange experience. They should know the lifecycle, risks, and legal paperwork, sponsor reputations, fees, etc. Advisors who have interfaced with CPAs may also be able to assist since many CPAs may not deal with §1031 exchanges and DSTs on a regular basis.

A real estate broker typically is not licensed appropriately. Look for Registered Investment Advisors (RIAs), broker‐dealers, or financial professionals who can legally sell DST offerings. DST sponsors typically distribute their offerings through these channels.

An advisor should be selected who has a track record for a number of transactions completed or deals done, who is engaged in the selection process and who understands DSTs needed to balance debt requirements as well as potential diversification. Just as important is being transparent regarding fees and risks. Advisors who operate in a Fiduciary capacity or with aligned incentives is an advantage. Make sure there are no conflicts of interest (e.g. the advisor is also sponsoring the DST or gets paid extra for promoting certain ones).

Communication actually is a two-way situation. The advisor needs to be responsive, communicative, and educational. Advisors should take time to understand your goals, walk you through the pros/cons, help with due diligence. The investor needs to understand time constraints, especially with the 45-day identification period and returning documentation. This is especially important when investors contact us well within their 45-day identification period.

Advisors who adopt an educational attitude first and foremost may provide the most effective and efficient solution for the investor. Investors who begin their educational process with the right advisors will be in the best financial position as well as meeting timing constraints if utilizing a 1031 exchange.

As always contact us for more information and a complimentary consultation.

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.

Alternative investments and DSTs are not for all investors. The acquisition of a certain alternative investments including DSTs 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. 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

DST Equity Raise $1.38B Higher Year Over Year ~ August 2025 Landscape Review

There is a consistent steady absorption of Equity through August 2025. 2025 continues at a very smooth pace and producing sustained results 40% higher than 2024. Now that we have reached September, back to school, back to year end focus, the pace of equity absorption may increase. August recorded about $680 Million in equity absorbed. Delaware Statutory Trust (DSTs) capital raise rebounded from July with the over $680 Million. The total equity raised stands at $4.864 Billion. This is about $1.38 Billion higher than 2024 results during the same period.

By Al DiNicola, AIF®

September 5,2025
1031 Tax Deferred Exchange Specialists & DST Advisor
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC, Member of FINRA/SIPC

Our industry colleagues at Mountain Dell Consulting monitor activity from Sponsors of Delaware Statutory Trust (DST) and TIC Market Equity investment. This provides the metric for the 40% increase year-over-year. There have been many comments, webinars, articles and podcasts on the potential benefits of the OBBB Act. We did publish a series of articles dedicated to that on our website. There will be many opinions as to how to best position alternative investments for tax advantaged returns.

The ebb and flow of available equity is very dynamic and may seem calm on the surface. However, under the surface there are dynamic changes in all asset classes. With over $680M in equity subscribed to in August and new equity (aka new offerings) being brought onto the market there are a lot of moving parts. We will cover available equity later. The trend in the number of industrial offerings (in equity amount) continues to be constant, but the spread has been reduced. We have been following this trend for over two years. There are still more actual multifamily offerings than industrial. However, the size of the industrial offerings is larger. Details are below in the chart Mountain dell does provide an overall report on the equity raised. We started tracking DST equity raised in 2019 and continue to provide analysis on results, trends and projections. This enables us to align investors’ interest in alternative real estate investments for cash investors as well as §1031 tax deferred exchange investors. There is increased interest in Opportunity zones, IRA to ROTH Conversions (using alternatives) and Oil & Gas strategies. Top of mind is accredited investor suitability.

Yes, it all starts with the end in mind for the investors. Our complimentary consultation with investors seeking initial advice or last-minute advice as in the case of a §1031 exchange deadline is always available. The continued absorption of equity may be attributed to investors and buyers adjusting to the interest rate positions. However, it may be the underlying investor and consumer confidence. There are several important factors when reviewing the landscape. We analyze the overall equity that is available, the distribution among asset classes, the leverage factor and the investor suitability. Most of the equity being absorbed appears to be coming from the §1031 exchange investor sales. The consistent equity raised (averaging $600 Million per month) continues to support a revised projection of topping over $7.4 Billion- $7.5 Billion by year end. If that level is achieved, it would be the second largest equity raised in one year since the record shattering amount of $9.4 Billion in 2022.

2025 Post Mid-Year Trends

There has been a trend in the structure of the DST offerings. Industrial and Multifamily asset class dominate the offerings. Over the past few years, industrial asset class offerings have chipped away at the dominance multifamily asset class (50% of offerings in past years) has experienced. Industrial and Multifamily consistently represent 55% of all offerings combined in number of offerings. The other impressive statistics is that combining these two asset classes account for over 66% of all offerings in dollar amount. The number of offerings is nearly the same with industrial at 22 and multifamily at 25. The big takeaway for this specific reporting period is the dollar amount of current offerings for industrial and multifamily. The large separation in the dollar amount of available equity between industrial and multifamily has decreased. Last month there were $370M more industrial offerings than multifamily. That number has narrowed to $93M. Necessary retail still holds third place in all offerings at 16.28% (up slightly). There appears to be a trend to have more industrial offerings (including a variety of industrial) than in previous years. We have commented on demographic and economic drivers that may increase demand for certain product offerings.

Market Metrics.

We monitor the remaining inventory in each specific offering weekly. There is about the same amount of overall available equity now as compared to this time last year. The quick takeaways: small decrease in overall equity available, stable number of programs, average projected year 1 distribution ticked down a fraction. The number of all cash offerings continues to increase and currently is over 60% of all offerings. This means less leverage as a response to increased interest rates and potentially more conservative approach. This may create challenges for advisors attempting to balance the debt replacement needs for certain investors.

	End August 2025	Comments
Available Equity	$2,387,784,598	Decrease in overall but increase in multifamily and student housing
Number Programs	87	A net increase of 3 offerings
Days on Market	258	down 35 days
# Current Sponsors	46	increase of 12
Avg Yr 1 Return	4.88	slight decrease
All Cash	53	62%% of all offerings All Cash

Current Asset Class Metrics

Sponsors have entered a more conservative underwriting, reduced the LTV and increased the equity needed for each DST. We reported a blip of over 60% mid-month, and the trend is continuing.

Asset Class	# Programs	Available Equity	LTV	All Cash	$ as % of offerings	# as % of offerings
Energy	2	$ 13,384,990	0.00%	2	0.56%	2.33%
Hospitality	3	$ 32,032,616	25.93%	2	1.34%	3.49%
Industrial	22	$ 810,863,861	12.91%	16	34.01%	25.58%
Multifamily	25	$ 717,168,301	31.91%	8	30.08%	29.07%
Multi-Manufactured	0	$ –			0.00%	0.00%
Multi Student Housing	3	$ 69,491,877	46.76%	0	2.91%	3.49%
Office	2	$104,685,339	39.42%	0	4.39%	2.33%
Office-Medical	3	$ 201,233,901	18.87%	2	8.44%	3.49%
Other	7	$ 149,843,707	0.00%	7	6.28%	8.14%
Retail	14	$ 121,041,651	6.47%	11	5.08%	16.28%
Self-Storage	3	$ 64,579,494	0.00%	3	2.71%	3.49%
Senior Housing	2	$ 100,062,972	0.00%	2	4.20%	2.33%
Total	86	$2,384,388,709		53	100.00%	100.00%

We want to amplify the difference in the amount of equity available in the industrial asset classes compared to multifamily is shrinking on available equity. The $93 million difference is down considerably from the last report of $350M spread. This may be due to the full subscription of a few offerings in the industrial class. The size of the offering of industrial is also larger on average than multifamily. Industrial offering on average is over $110M offerings with a current average leverage of 12.91% that includes 22 offerings and 16 all cash. However, 45% of the total equity in the industrial asset class is comprised of two large offerings. When compared to multifamily the current average offering size is $58 million with an average leverage of 31.91%. This includes 25 offerings and only 8 all cash. The industrial offering size average has increased, and the Multifamily offering size has decreased. Noted in the chart above is the average LTV for each asset class. Investors who need debt replacement to satisfy 1031 exchange requirements are challenged. This challenge may funnel a certain amount of dollars into highly leveraged offerings to create balance. Understanding that when displaying an average there may be (depending on the asset class) an LTV of over 36%. 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. For investors with debt replacement requirements, we urge you to engage as soon as possible. Fewer DST with higher LTV offerings has become more in demand. The alternative for replacing debt is to bring more cash to the exchange. Many investors want to avoid this option. Please consult with us about our debt balancing 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 25 is slightly outpacing the rest of the offerings. The Industrial Asset class continues to be attractive with 22 current offerings. Over the period last year there were as many industrial offerings as there were multifamily. The top three asset classes of Multifamily, Industrial and necessary Retail represent about 70% of all offerings. The limited supply of the other asset classes may increase demand, especially for all cash investors. 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 grocery stores and needed facilities as compared to your department store retail offerings. Noticeably absent from this is manufactured housing. There are also many asset classes with single digit offerings. In addition, 7 offerings (of the 86) have less than $1M remaining. What is noticeable is an increase in the “Other” asset class category. These are specialty offerings and have unique positions. These include land offerings for vertically integrated sponsors with potentially shorter investment requirements.

An item which we do not 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. Look for more information on the advantages and disadvantages of the §721 UPREIT program. We previously reported two large institutional real estate REITs who have introduced DSTs as a path to the extremely large REIT. The interest of certain investors continues. Migration to the REIT (via 721 UPREIT) would happen after a two-year safe harbor holding period of the DST being acquired as in the case of a 1031 exchange. We have noticed more requests from our investors to fully understand this option.

Final DST Market Overview Comments

Recently attending several industry retreats and conferences there is optimism that the overall real estate markets will continue to improve in many areas of the country. 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.

One Big Beautiful Future

We started to post articles on our website regarding the use of alternative investments in conjunction with the OBBB Act. Check under Recent Post on this link. DST News | DST Education and Market News. Currently, based on feedback from our involvement in the industry, it appears that the future of the §1031 exchange is safe to continue. This provides comfort for investors seeking to sell appreciated real estate and deferring capital gains. We have been plugged into the changes and modification of the Opportunity Zone legislation. There are investors requesting how to combine OZ with other tax strategies. Many have referenced the new Opportunity Zone legislation as OZ 2.0.

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.

Thank you.

Understanding Ground Lease Interests and Their Role in §1031 Exchanges

March 14, 2025

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

In the world of real estate investment, leveraging the benefits of a §1031 exchange can provide investors with a powerful tool to defer taxes and reinvest in properties. One unique opportunity within this strategy involves the use of ground lease interests. While ground leases are typically considered long-term rental agreements, they can also play a significant role in tax-deferred exchanges under specific conditions. But how exactly do ground leases fit into the framework of a §1031 exchange, and what are the benefits, challenges, and considerations investors should be aware of when using this strategy?

What is a Ground Lease?

A ground lease is a long-term lease arrangement where the tenant holds exclusive rights to the land for a specified period, typically 30 years or more. In these leases, the tenant is responsible for developing and maintaining the property, but the ownership of the land remains with the landlord. Ground leases are often used in commercial real estate, allowing tenants to build and operate properties without the upfront costs associated with owning the land.

Can a Ground Lease Be Used in a §1031 Exchange?

Yes, a ground lease can qualify for a §1031 exchange under the right conditions. The Internal Revenue Service (IRS) treats long-term leasehold interests (those lasting at least 30 years) as similar to fee simple ownership, which makes them eligible for §1031 exchange tax deferral. For investors looking to defer capital gains taxes on the sale of a relinquished property, the leasehold interest in a ground lease presents an effective and flexible option.

How Does a Ground Lease §1031 Exchange Work?

In a typical §1031 exchange, an investor sells a property and reinvests the proceeds into another like-kind property, thus deferring capital gains taxes. A ground lease §1031 exchange follows a similar process but involves acquiring a long-term leasehold interest in a property along with the right to develop or improve the land.

In this case, an investor sells a property and uses the proceeds to acquire a leasehold interest in a ground lease. The investor can then develop or improve the land according to their specifications, allowing for significant customization of the property. This type of exchange is particularly advantageous for investors seeking strategic locations for development or those who wish to avoid the high costs of purchasing land outright.

Benefits of a Ground Lease §1031 Exchange

A ground lease §1031 exchange offers several compelling advantages for real estate investors:

Tax Deferral: As with traditional §1031 exchanges, the most significant benefit is the ability to defer capital gains taxes on the sale of the relinquished property. This allows investors to preserve more capital for reinvestment and grow their portfolios without the immediate tax burden.

Cost Efficiency: Ground leases can often be more affordable than purchasing land, allowing investors to focus their capital on property development rather than land acquisition. This strategy allows for greater financial flexibility and efficiency.

Flexibility in Development: A ground lease provides the flexibility to develop or enhance the property. Investors can create customized improvements, which are particularly useful for those seeking to tailor properties to specific market needs or operational goals.

Prime Location Opportunities: Ground leases often involve securing prime real estate locations that may be unavailable for direct purchase. Investors can gain access to valuable properties in key areas without the substantial upfront costs associated with land acquisition.

Risk Mitigation: Since ground leases are long-term contracts, they offer stability for investors who benefit from fixed lease terms and reliable landowners. This can reduce the uncertainty and risk associated with shorter-term investments.

Practical Considerations and Challenges

While ground lease §1031 exchanges present significant opportunities, they also come with specific considerations that investors must navigate.

Eligibility and Lease Term Requirements: The IRS requires the lease term to be at least 30 years for the exchange to qualify. If the lease term is shorter than this, it will not be considered “like-kind” and will not qualify for tax deferral.

Improvement Requirements: In some cases, investors may choose to improve or develop the property as part of the exchange. The IRS requires that the improvements meet or exceed the value of the relinquished property to qualify for tax deferral benefits. These improvements must also be completed within 180 days of the sale of the relinquished property, adding a layer of complexity to the process.

Delaware Statutory Trust (DST) offerings. There have been and potentially, may continue to be a select number of offerings of structures built on a ground lease. These ground leases are very long in the number of years. One of the potential benefits, maybe the depreciation schedules on the asset may be on the building only. In addition, there may also be accelerated depreciation schedules and cost segregation providing additional pass-through benefits to the investors.

Involvement of a Qualified Intermediary (QI): As with any §1031 exchange, the use of a Qualified Intermediary (QI) is required to facilitate the transaction. The QI helps ensure that the taxpayer does not have direct control over the proceeds of the relinquished property sale, which is crucial for maintaining the tax-deferred status of the exchange.

Legal and Documentation Requirements: The IRS requires detailed documentation of the intended improvements and their legal description, as well as strict timelines. It is essential to have clear planning and the necessary legal and financial resources to ensure the exchange is executed correctly.

State-Specific Regulations: State laws may vary on what constitutes real property, so it’s crucial to be aware of the specific regulations in the state where the property is located. Working with an experienced legal team can help mitigate potential risks associated with state-specific rules.

Key Steps in a Ground Lease §1031 Exchange

Sale of the Relinquished Property: The process starts with the sale of the relinquished property. The proceeds are then transferred to a Qualified Intermediary.

Identification of the Replacement Property: Within 45 days of the sale, the investor must identify the replacement property (in this case, a leasehold interest in a ground lease) and any intended improvements.

Involvement of the Accommodation Titleholder (AT): During the construction period, a special purpose entity (SPE) or Accommodation Titleholder holds the leasehold interest while the investor manages the development process.

Completion of Improvements: The investor must ensure that the improvements are completed within the IRS’s 180-day window. If any issues arise during construction, contingency plans should be in place to avoid jeopardizing the exchange.

Transfer of Leasehold Interest: Upon completion, the leasehold interest, along with the improvements, is transferred to the investor, finalizing the 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@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. 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035. MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

1031 Exchange Education- What is Boot?

The market is starting to loosen up for investors seeking to sell their properties via §1031 tax deferred exchange. Once under contract investors need to understand a few specific items that may cause either a unintended tax issue or an issue with an expense taken at closing that is not permitted in a §1031 exchange.

March 4, 2025

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

Recently we have received calls from investors seeking information on what cash they can retain, what happens when the loan is paid off, and how rental and security deposits are handle at closing. We do not provide tax advice.

Let’s handle one item at a time. There is an item referenced as boot in an exchange. “Boot” refers to any portion of a §1031 exchange that does not meet the like-kind replacement property criteria. Most commonly this is in the form of “cash boot” and “mortgage/debt boot.”

Cash boot occurs when an investor has uninvested proceeds from the sale of a replacement property. If they intend to do a §1031 exchange but do not replace all of the cash received from the sale, they will owe tax on the uninvested portion.

Example:

If an investor sells an investment property for $2,000,000 and they purchase a replacement property for $1,500,000, they will have a $500,000 cash boot that will be subject to tax. The investor would be subject to federal and state taxes depending on where they live.

It has been brought to our attention in a few investment seminars that certain investors will over paid for their replacement property. This occurs when calculating the potential taxes that may be due on not using all the cash, when compared to simply paying more for the property (aka the asking price or even higher). If you are paying capital gains taxes, have a high income that may subject you to NIIT (net investment income tax), and live in a high income tax state you may face up to 40% taxes on the boot. Other investors (accredited) may determine they would rather negotiate a better price on the replacement property (meaning not using all the cash proceeds in the exchange) and then utilize a Delaware Statutory Trust (DST) for any remaining cash boot. DSTs are scalable and can handle left over cash from the exchange.

Mortgage/debt boot occurs when the mortgage value on the replacement property is less than the mortgage on the relinquished property. It is important to consider this when doing a §1031 exchange as both the cash received AND the debt need to be replaced in the acquired property.

Example:

An investor sells an investment property with a $500,000 mortgage and purchases a replacement property utilizing a $400,000 mortgage. This investor will be subject to tax on a mortgage boot in the amount of $100,000. It is important to note that this boot can be offset by adding $100,000 of cash to the exchange.

The easiest way to avoid a “boot” issue is to remember that you are replacing the total real estate value in a §1031 exchange. Both the equity and debt from the relinquished property need to be equal or greater in the replacement property.

There are reasons why an investor may have troubles with the replacement loan. In the short 45-day identification window the investor may need to qualify for a loan. Granted, there is a total of 180 days to close but most investors may wish to guarantee there is loan approval prior to identifying the replacement property. Accredited investors may seek to utilize Delaware Statutory Trust (DSTs) as a replacement property. DSTs provide non-recourse debt pre package for investors without application or effects on individual credit reports.

When we work with an accredited investor we take into consideration suitability of replacement assets as well as balancing the utilization of cash and the inclusion of replacement debt if necessary.

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. 5 Centerpointe Drive, Ste. 400 Lake Oswego, OR, 97035 MSC-BD, LLC and NAMCOA are independently owned and are not affiliated.

Thank you.

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.

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.

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.

January 2025 Landscape Review 2024 DST Equity Raise Increased 12% over 2023

During 2024 we monitored the equity raised in the Delaware Statutory Trust (DST) market. With much anticipation the overall market did achieve a 12 percent increase when compared to 2023.

January 16, 2024

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

There was an equity raise (from investors) of $5.67 Billion during 2024. This was reported by Mountain Dell Consulting who engages and tracks activities from sponsors of Delaware Statutory Trust (DST) and TIC Market Equity investment.

2024 Reversed the Contraction

Macroeconomic headwinds impacted the equity raise in 2023. The 12% increase in equity raise (2024 year over year) is an encouraging sign for investors. 2023 may have been the “Valley” in transaction volume. This 2024 increase may be evaluated as a mild rebound, or a thawing of the transaction volume and more transactions were flowing again. In looking back in 2023 there were many escrows that were delayed and fell out due to many issues facing investors. The increase in 2024 may be due to people getting used to higher rates. (Although I remember my first mortgage in Florida was at 14%). Investors are accepting the reality of higher rates (and maybe rates will come back down). There are other macroeconomic headwinds affecting many classes of real estate (multifamily, student housing, etc.). The drastic rise in insurance premiums and other operating costs effects the bottom line. Contraction of the DST market was anticipated given a variety of market dynamics, the least of which was the rising interest rates. The rise in interest rates caused an overall slowdown in the real estate market. Investors holding traditional real estate may have seen fewer buyers. These buyers may have needed access to capital at an acceptable borrowing rate. However, there is much expectation that conditions will improve in 2024.

Market Metrics.

When comparing year over year market metrics (aside from equity volume) there are a few items to compare.

	2023	2024
Available Equity	$2,500,412	$2,342,198,682
Number of Programs	93	93
Days on Market	264	317
Number of active Sponsors	51	50
Average 1^st Yr. Return	4.70%	4.94%

There is less equity currently available compared to the end of 2023. The number of overall programs remains the same. Having a variety of asset classes helps investors who seek a replacement property for a 1031 tax deferred exchange. The days on the market have increased which means longer time to sell out a DST asset. The longer time may provide investors with additional options. There has also been an increase in the projected average first year distribution. One item that was not included in the overall summary of the Mountain Dell Report is the number of all cash DST. There continues to be a consistent number of all cash DST (an increase on previous years) as well as reduced LTV (Loan to value) or reduced leverage in the DST offerings. This may not be all good news for investors who need to balance their exchanges with debt. Investors with higher than 60% LTV replacement are most affected.

2024 Equity Invested by Asset Class

Asset Class	Amount Raised	% of Total
Multi Family	$2,133,917,044	37.71
Industrial	$1,668,220,377	29.48%
Retail	$642,299,534	11.35%
Student Housing	$318,215,226	5.62%
Senior Housing	$258,169,846	4.56%
Self-Storage	$173,515,723	3.07%
Hospitality	$121,691,948	2.15%
Office	$193,802,764	1.83%
Office Medical	$89,953,140	1.59%
Other	$72,448,563	1.20%
Manufactured Housing	$8,891,737	0.16%
Total	$5,658,752,034	100%

There is a relationship between the above chart of equity raised and the below chart equity available. It should be clear that because there is more equity available in the Multifamily and Industrial asset class there would be more equity raised. Multifamily and Industrial are still in much demand.

Current Asset Class Metrics

Sponsors have entered a more conservative underwriting reducing the LTV and increasing the equity needed for each DST. Noted in the chart below is average LTV for each asset class. There are no asset classes with an average LTV of over 50%. Understanding that when displaying an average there may be (depending on the asset class) an LTV over 50%. 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 for that strategy.

Asset Class	Number of Programs	Available Equity	LTV	Projected Returns
Multi Family	24	$687,265,113	39.34%	4.57%
Industrial	21	$835,839,369	24.24%	4.63%
Retail	20	$293,412,900	16.82%	5.23%
Office	5	$194,839,980	28.68%	5.64%
Senior Housing	3	$161,187,315	16.17%	5.52%
Hospitality	1	$10,975,354	0%	6.01%
Student Housing	4	$132,647,258	38.32%	4.69%
Office/Medical	6	$194,839,261	26.45%	5.01%
Self-Storage	5	$ 37,421,430	0%	4.65%
Energy	1	$6,213,678	0%	9%
Manufactured Housing	0	$0		4%
Other	1	$4,331,000	0%	5%

Final DST Market Overview Comments

If we reflect on the six (6) year average of equity raised prior to 2024 that number was $5.1532 Billion. (See Chart below). In reviewing the numbers 2024 is higher than the 6-year average for equity raised. If you use a 5-year moving average, it was just slightly above. It may take a few years to get close to the record high reach of $9.2 billion in equity raised in 2022 or the $7.2 billion of equity raised in 2021. 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.

Year	Equity Raised
2018	$2.80B
2019	$3.486B
2020	$3.192B
2021	$7.2B
2022	$9.2B
2023	$5.04B
Six Year Average	$5.153B

What to Look for in 2025 and 2026

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.

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Understanding §1031 Tax Deferred Exchange Identification Rules

Occasionally we receive a frantic call from an investor who is in the middle (sometimes at the end) of their 45-day identification period. Understanding the identification rules prior to entering a potential exchange may be the preferred path.

By Al DiNicola, AIF®, CEPA ™
adinicola@namcoa.com
June 9, 2023
DST 1031 Specialist
NAMCOA® – Naples Asset Management Company®, LLC
Securities offered through MSC-BD, LLC

The 1031 clock starts ticking upon the closing of the relinquished property. The 45 days are calendar days and no matter what day of the week the 45^th day falls the identification period ends. Even if the 45^th day is a weekend or holiday.

The investor (along with a financial advisor, real estate broker or other parties) will start evaluating potential replacement properties during the 45 days. One point to make clear is that during the 45 days the investor may change the properties on the 45-day list. Changes may be necessary especially if the intended replacement property is no longer suitable for the investor, is acquired by other investors or under other circumstances.

Without a QI, nothing else matters.

The qualified intermediary (QI) is a critical player in the exchange process. We cannot stress enough the importance of engaging a QI as soon as the investor has decided to sell the property referenced as the relinquished property. If the investor has sold the property without a QI being part of the transaction the exchange cannot be executed. Even if the title company is holding the sales proceeds in their escrow account. We would also strongly encourage language in the sales contract (of the relinquished property) to reflect the seller intends on executing a 1031 tax deferred exchange and the buyer shall not object to the process. Once the property is sold and the QI has received the proceeds of the sale the QI typically will send a form to the investor to fill out and send back to the QI. The IRS requires this form to be submitted to ensure that properties ultimately acquired were reflected on the form.

Identify by putting it in writing.

There are specific requirements set out in section 1031 regarding the acknowledgment or commitment to a certain list of potential replacement properties. The investor is referred to as the Exchanger and is required to submit a signed document to the QI. The QI is handling the details of the exchange sale. There are different acceptable methods of submitting the list to the QI. Some Exchangers may hand deliver the list. Other Exchangers will use email or fax to send the list. A text message is not a preferred method of communication. This list must be received by the QI by the end of the 45^th day. We have worked with Exchangers who engaged with a QI on the west coast and have pushed the envelope so to speak with submissions. Best practices would encourage the Exchanger to have the final 45-day list submitted so that the QI may acknowledge receipt of the document.

If there is a change in the makeup of the list, we strongly encourage the Exchanger to send the new list with a notation that this current list supersedes or voids any previous list submitted on a previous date and list the previous document date. If there are a number of changes during the 45-days, the exchanger may want to title the list with a version number (v.1. v.2) and when the ultimate list is submitted mark the list FINAL.

ID Details matter.

Depending on the property the identification may be very easy or complicated. In the case of a single property there may be only one address and a tax identification number supplied by the property appraiser office. When purchasing land as a replacement property the legal descriptions may be more involved and have meets and bounds description. Clarity is the key for the identification. In the case of fractional ownership such as Tenants in Common (TIC) or a Delaware Statutory Trust (DST) many QIs (and the IRS) would prefer to have a percentage of ownership especially if not purchasing the entire property. Even in a partnership interest a full description and percentage of ownership is required to eliminate any confusion or challenge if there is an IRS audit on the exchange.

Reviewing the financial requirements

As a brief review of the financial requirements the Exchanger needs to :

Replace the relinquished property with equal or greater value
Replace any debt that was paid off on the relinquished property.
Use all the cash the QI is holding.

Let’s review the rules for identifying properties.

The first rule (and potentially most often used) is the Three Property Rule.

This may be the simplest of the rules for filling out the list. You may identify three properties no matter what the fair market value may be. For example, if your relinquished property was sold for $500,000 you may identify three properties with a total value of $1,500,000.

If you have identified three properties that were less than the replacement price you may acquire more than one property. If buying only one property, the other identified property will be back-ups if for some reason the first property falls through.

Potential greater flexibility with the 200% Rule

The 200% rule can be confusing at times when attempting to calculate the values. In simple terms you may identify as many properties as you want, as long as the total value does not exceed 200% of the fair market value of your relinquished property. What complicates this to a certain degree would be that the identified properties will include the total acquisition price including any debt that is being replaced. If we use the same $500,000 in the example above and if it is an all-cash transaction you may list as many properties as you want up to a total of $1 M. If you are financing part of the replacement properties, you will need to evaluate the specific LTVs on each property and then identify as a total price.

Seldom used 95% Identification Rule

In all our years of dealing with 1031 exchanges (including DST replacement) we have not seen any investor utilize the 95% Rule. This enables an investor to identify as many properties as they wish regardless of value, as long as they purchase 95% of all properties identified. Anything less would jeopardize the exchange.

Next steps

The first step to a successful exchange may start with hiring the right Qualified intermediary (or accommodator). While the cost may vary a few hundred dollars, you want an experienced QI. Understanding your replacement options prior to entering into an exchange is an important step. Each of the rules has positives and drawbacks.

DST Flexibility.

Delaware Statutory Trust (DST) has provided a solution for many investors who become exchangers. The DST options provide for diversification of replacement properties and can satisfy debt replacement with non-recourse debt. There is also flexibility in balancing the debt with certain DST properties enabling the exchanger to potentially spread risk out over a diversified portfolio of properties. The same $500,000 property example from above may enable an investor to invest in a DST portfolio of three to four properties with different asset classes as well as geographic diversification.

Final thought.

We opened this article with a frantic call from investors who were in the middle or end of their 45-day identification period. We have successfully assisted investor/exchanger who had only two days remaining in their identification period. While this is not the preferred timing, we have access to a wide variety of DST replacement properties. Investor who have spent time reviewing the DST alternative can make a decision on moving forward.

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.

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NAMCOA® – Naples Asset Management Company®, LLC