We review Delaware statutory trust interests from holders who need to exit before the property is sold, with the 1031 questions on the table from the start.
Confidential review. Direct buyer. Principal-led.
Positions of $100,000 and above
Direct, principal-led, and confidential.
We are a principal-led buyer that reviews beneficial interests in Delaware statutory trusts directly from holders who need liquidity before the trust sells its property. We work within the trust agreement's transfer provisions and handle documentation through to closing. Minimum $100,000.
Every position reviewed individually.
Direct decision-making.
Coverage across all 50 states.
Each position submitted is reviewed individually, with direct decision-making by a principal.
Where a position fits our focus, we provide a non-binding indication of interest.
If terms are agreed, we handle transfer documentation through to closing.
The structure, the exits, and the tax you deferred.
A DST is deliberately restricted. The restrictions are what let it hold 1031 exchange money, and they are also why leaving early is harder than buying in.
DSTs sold to 1031 exchange investors are generally structured around IRS Revenue Ruling 2004-86. In that ruling the IRS treated a Delaware statutory trust holding a net-leased property as an investment trust, and treated an exchange of real property for an interest in the trust as an exchange for an interest in the property itself. That treatment, with the other exchange requirements met, is why a DST interest can serve as replacement property.
The ruling's facts come with a list of things the trustee may not do. It may not accept new contributions of capital. It may not renegotiate the loan, or the lease except in a tenant bankruptcy or insolvency. It may not reinvest sale proceeds; the trust ends when the property is sold. It may make only minor non-structural changes, may invest cash between distributions only in short-term US government obligations or bank certificates of deposit, and must distribute available cash, less reserves, quarterly. The ruling also says what happens if the trustee is given more power: the trust becomes a business entity, classified as a partnership if it has two or more owners.
Those limits protect the tax treatment. They also mean the trust can't raise money to fix a problem, can't renegotiate when a loan or a lease needs it, and holds no spare cash to buy anyone out. Don't expect a buyback program of the kind non-traded REITs run.
When the trust sells the property, it terminates and distributes the proceeds. The timing belongs to the trustee and the sponsor, not to you. If the tenant is strong and the loan is long-dated, waiting can be the right call.
Your interest can be sold to a secondary buyer where the trust agreement permits. The agreement sets the transfer rules, which may include sponsor or trustee consent and investor qualifications for the buyer. If your interest was sold to you as a Regulation D private placement, the SEC's guidance on restricted securities applies: "you should be prepared to hold the securities indefinitely." NASD, FINRA's predecessor, made a similar point in 2005 about tenancy-in-common interests, the older fractional vehicle for exchange investors: a later sale "may only be possible at a significant discount to the net asset value."
If you bought your DST interest with exchange proceeds, the gain you deferred is still there. The IRS says gain from a like-kind exchange "is tax-deferred, but it is not tax-free." Your basis in the DST interest generally carries over from the property you gave up, with some adjustments, so a taxable sale can bring the deferred gain due along with any gain since you bought in.
Because the ruling treats a DST interest as an interest in the underlying real estate, ask your adviser whether selling your interest can start a new exchange. If it can, the IRS deadlines apply: 45 days from the sale to identify replacement property in writing, and 180 days, or the due date (with extensions) of that year's tax return if earlier, to receive it. The IRS warns that taking control of the cash before the exchange is complete may disqualify the entire transaction; a qualified intermediary can hold the proceeds instead.
One caution. Since 2018, section 1031 has applied only to real property, and the IRS instructions for Form 8824 list partnership interests among the property that does not qualify, unless the partnership has a valid section 761(a) election. The ruling's treatment depends on the trust staying within its limits, so confirm with your adviser what you hold on the day you sell.
Settle the tax plan before you sign a purchase agreement. An exchange has to be arranged before the sale closes, and the closing date generally determines the tax year of the sale.
A secondary buyer prices the property first and the wrapper second. On the property side: the tenant and its credit, the remaining lease term, the loan balance and its maturity, and what the building would sell for today. On the wrapper side: how little the trustee can do if any of those go wrong, the sponsor's likely hold period, any fees due to the sponsor at the eventual sale, and the transfer process.
In our pricing, a long lease to a strong tenant with no near-term loan maturity comes in close to the underlying value. A short remaining lease or a loan coming due comes in well below it, because the trust can do very little about either. We give a non-binding indication of interest only after reading the trust agreement and the sponsor's latest reports.
The sponsor and trust name, the property type and location, your percentage interest, the most recent valuation or statement, and whether you acquired the interest through an exchange. We review positions of $100,000 and above. We also review real estate partnership interests and non-traded REIT shares.
Sources
General information, not tax, legal or investment advice.
Yes, if the trust agreement permits it. A sale to a secondary buyer is subject to the agreement's transfer provisions and any required sponsor or trustee consent. The price is negotiated and depends mainly on the property, the lease and the loan. We review positions of $100,000 and above.
It can. Gain deferred in a like-kind exchange is tax-deferred, not tax-free, and your basis in the DST interest generally carries over, with some adjustments, from the property you exchanged. A taxable sale can therefore bring the earlier deferred gain due. Speak with your tax adviser before you agree terms.
Possibly. Revenue Ruling 2004-86 treats a DST interest as an interest in the underlying real property for exchange purposes, so ask your adviser whether your sale can begin a new exchange. If it can, you have 45 days to identify replacement property and 180 days, or your tax return due date if earlier, to complete the exchange, and you should not take control of the proceeds yourself.
Under the structure described in Revenue Ruling 2004-86, the trustee cannot accept new capital and must distribute available cash, less reserves, quarterly, so there is rarely money set aside for buybacks. Your realistic options are to wait for the property sale or to sell your interest to another buyer.
Transfer rights depend on the trust agreement, which may require sponsor or trustee consent and set out the paperwork for a transfer. We work within those provisions and handle documentation through to closing.
We consider positions with an estimated value of $100,000 or above.
Positions of $100,000 and above, reviewed by a principal.
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