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From Brett Vogeler's Desk: If you're looking to diversify your real estate portfolio, complete a 1031 exchange under tight deadlines, or access institutional-grade properties with lower investment minimums, Delaware Statutory Trusts deserve your attention. Here's what you need to know about this $5.66 billion market and why 2025 could be your opportunity to get in.
The DST Market is Hot – And Growing Fast
2024-2025 Market Performance
$5.66 billion raised in 2024 – beating industry projections
$7.5 billion projected for 2025 – indicating strong continued growth
Over $4.19 billion already raised through July 2025 (+56.6% year-over-year)
45 active sponsors with 85+ programs currently available
Industrial (33%) and Multifamily (32%) leading asset classes
These aren't just numbers – they represent real money from real investors who see value in DST investments. The question is: should you be one of them?
What Exactly is a Delaware Statutory Trust?
Think of a DST as owning a piece of commercial real estate without the headaches. Here's the straight story:
Legal Structure: You own a beneficial interest in a trust that holds real estate – legally treated as direct real estate ownership for tax purposes
Professional Management: Sponsors handle everything – leasing, maintenance, financing, and eventual sale
Passive Income: You receive monthly or quarterly distributions without lifting a finger
1031 Eligible: IRS Revenue Ruling 2004-86 confirms DSTs qualify for like-kind exchanges
The 1031 Exchange Connection
DSTs shine in 1031 exchanges because they solve the biggest challenge: timing. You have just 45 days to identify replacement property and 180 days to close. DSTs offer:
Pre-packaged, ready-to-close investments
No financing contingencies or due diligence delays
Ability to diversify into multiple properties/markets
Professional underwriting already completed
Why DSTs Make Sense for Many Investors
Key Benefits:
Low Minimums, High Quality: Access institutional-grade properties starting at $50,000 (versus millions for direct ownership)
True Diversification: Spread risk across asset types, markets, and sponsors
No Management Burden: No tenant calls, no repairs, no refinancing decisions
Professional Underwriting: Benefit from sponsor expertise and institutional relationships
Potential Exit Strategies: Many DSTs offer paths to REIT conversion (UPREIT) for continued tax deferral
Current Yield Environment: What to Expect
Today's Distribution Rates
Market Average: 4.93-4.94% first-year distributions
Net-Lease DSTs: Commonly targeting 5.0-5.2% cash yields
Total Returns (Historical): Quality sponsors showing 7.22% weighted average IRR across full cycles
Note: Past performance doesn't guarantee future results, but it provides context for realistic expectations.
Who's Leading the Market
Sponsor | 2024 Equity Raised | Market Share | Key Strengths |
|---|---|---|---|
Ares Real Estate Exchange | ~$1.02B | 18% | Institutional platform, diversified assets |
JLL Exchange | ~$566M | 10% | Global reach, market expertise |
Inland Private Capital | ~$563M | 10% | Long track record, 7.22% average IRR |
Hines Real Estate Exchange | ~$403M | 7% | Development expertise, quality assets |
ExchangeRight | ~$397M | 7% | Net-lease focus, UPREIT pathway |
The Reality Check: Risks and Considerations
Important: DSTs aren't perfect. Here's what you need to know before investing.
Key Limitations:
Illiquidity: No active secondary market – plan to hold 5-10 years
No Control: You can't influence management decisions, lease terms, or sale timing
IRS Restrictions: DSTs can't refinance, make major renovations, or renegotiate leases (the "seven deadly sins")
Fees: Upfront costs typically 8-15% including commissions, organization expenses, and reserves
Accredited Investor Only: Most DSTs require accredited status
Tax Considerations:
Potential UBIT exposure on certain income types
State tax implications based on property locations
Coordinate with your CPA before investing
Real-World Performance Examples
Here's what actual sponsors have delivered:
Inland Private Capital: 7.22% weighted average IRR across full-cycle programs (varies by asset class: multifamily 9.81%, self-storage 12.59%)
Capital Square: Recent UPREIT transactions delivered 152% and 200% total returns on specific deals
ExchangeRight: Consistently delivers net-lease portfolios with 5.0-5.2% target distributions
These are historical results on completed deals – not guarantees of future performance.
Practical Advice for Your 1031 Exchange
Timeline Management:
45-Day Rule: Identify replacement properties within 45 days of sale
180-Day Rule: Complete purchase within 180 days of sale
DST Advantage: Can close quickly since properties are pre-packaged
My Recommendation:
Start Early: Don't wait until day 40 to explore options
Diversify: Consider 2-3 DSTs across different asset types
Focus on Economics: Don't let tax benefits override sound investment principles
Verify Accreditation: Ensure you meet requirements before proceeding
Review Carefully: Understand fees, hold periods, and exit strategies
Due Diligence Checklist
Before investing in any DST, evaluate:
Sponsor Track Record: Full-cycle performance, AUM, specialization
Property Quality: Location, tenant credit, lease terms, market fundamentals
Capital Structure: Debt levels, maturity dates, interest rates
Fee Structure: Total costs and how they compare to market
Distribution Sustainability: Cash flow coverage, reserve policies
Exit Strategy: Planned hold period, potential UPREIT pathway
Ready to Explore DST Opportunities?
The DST market is moving fast, with quality offerings often fully subscribed within weeks. If you're considering a 1031 exchange or looking to diversify your real estate holdings, we should talk.
I'll help you:
Evaluate current DST offerings that match your goals
Navigate the 1031 exchange timeline and requirements
Perform due diligence on sponsors and properties
Structure a diversified DST portfolio within your budget
Contact me today to discuss your specific situation and explore current opportunities.
Brett Vogeler
Real Estate Broker
Straight talk. Smart strategies. Successful outcomes.
Disclaimer: This newsletter is for informational purposes only and does not constitute investment advice. DST investments involve risk, including potential loss of principal. Past performance is not indicative of future results. Consult with qualified tax and financial advisors before making investment decisions. All data current as of publication date and subject to change.
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