Delaware Statutory Trusts (DSTs)

Delaware Statutory Trusts (DSTs)

Delaware Statutory Trusts (DSTs) are typically utilized with 1031 Exchanges and provide real estate investment owners with a unique and flexible solution to defer capital gains tax while eliminating active management.

What is a Delaware Statutory Trust?

A Delaware Statutory Trust, commonly known as a DST, is a legally recognized trust that is set up for the purpose of business. Created under Delaware law it is well-suited for real estate co-ownership. And while it is not a requirement to execute a 1031 exchange to participate in DST investment, most of them are structured to comply with the requirements of IRS Revenue Ruling 2004-86. In addition, it must also (if using financing) meet certain lender requirements. While not all encompassing, the key features of the DST include:

  • Special purpose entity (SPE). DST can only acquire, conserve, protect and dispose of the real estate assets.
  • Bankruptcy remote. The DST must be a distinct and stand-alone entity.
  • Passive holder of real estate. DST Trustees have limited powers.

What are the investor benefits to a DST?

  • Potentially lower minimum investments
  • Share, economic benefits and risks equal to the percentage of investment
  • Long term, triple net lease to credit tenants
  • Lender does not underwrite investors
  • No loan carve-out for investors; only sponsor guarantees

What is a Master Tenant?

  • The Master Tenant handles the day-to-day property management and is responsible for obtaining property tenants (or hires a property manager to do so)
  • Often an affiliate of the sponsor also providing capitalization
  • Enters into subleases of the real estate
  • Executes fixed debt service and rental payments while retaining the excess, but usually also responsible for any shortfall


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1031 Risk Disclosure:

  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with their tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read and understand all of the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

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