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Important Disclaimers
This article (the “Article”) is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any investment or any securities. This Article does not constitute investment advice and is not intended to be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. Readers should make their own investigations and evaluations of the information contained herein. The information contained herein does not take into account the particular investment objectives or financial circumstances of any specific person or entity who may receive it. Each reader should consult its own attorney, business adviser and tax adviser as to legal, business, tax and related matters concerning the information contained herein.  Except where otherwise indicated herein, the information provided herein is based on matters as they exist as of the date of preparation and not as of any future date and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after the date of preparation. Certain information contained in this Article constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,”  “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. Readers should not rely on these forward-looking statements.  Certain information reflects subjective determinations which may prove to be incorrect. There can be no assurance that the estimates or projections will be accurate or that historical trends will continue. In considering the prior performance information contained herein, readers should bear in mind past performance is not necessarily indicative of future results. All rights reserved. The material may not be reproduced or distributed, in whole or in part, without the prior written permission of PrimeAlpha LLC.

How are Delaware Statutory Trusts (DST) Managed?

Download the 6 Page Thought Leadership on Understanding 1031 Exchanges and Delaware Statutory Trusts

DST Fees: DST fees can be divided into upfront, operating, and disposition fees. For example, trusts will charge organization or acquisition fees to investors, like any real estate purchase transaction. It is important to review the fee structure, so you are aware of the total costs involved in the purchase.

Exiting DSTs

Standard Dispositions: It is important to review the DST’s exit strategy to understand the sponsor’s disposition strategy. The most common exit is that the DST sponsor sells the property on behalf of the trust, and any gains or losses are passed to the investor based on their pro rata share of the portfolio, and less any disposition fee charged by the sponsor. It is important to understand the disposition fee structure. Sponsors may take the fee regardless of the return to the investors and others are subordinate to the investor’s return.

LLC Conversion: If the property loses its underlying asset value due to poor circumstances, a DST can be converted into an LLC. Through this LLC, refinancing, raising capital, and finding new lease agreements are permitted. However, investors of the DST are no longer shielded from capital gains tax since the individual shares are now considered personal property.

REIT Conversion: Another exit strategy an investor might be offered is a 721 Exchange. If the DST is sold to a buyer with a sizable real estate portfolio, often a Real Estate Investment Trust (REIT), the REIT may offer to pay the investor in partnership units in lieu of cash. This 721 Exchange generally allows the investor to maintain their tax deferral as well as potentially benefit from diversification and value created from the REIT’s larger portfolio.

The Bottom Line

As with any investment, it is important to understand what you own and why you own it. Consulting with your accounting and tax professionals is a great way to understand the pros and cons of specific 1031 or DST investment options. In addition, reading the Private Placement Memorandum (PPM) will help you understand the investment structure, fees, exit strategy, and properties. Investors seeking to defer capital gains taxes from the sale of appreciated real estate and move to passive property management may find that the DST investment structure is a solid solution.

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Special Thanks to our Contributor

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Keystone National Properties (KNPRE) is a real estate and private equity firm whose team is passionate about delivering value, the strategic growth of the firm, and positively impacting the world. KNPRE’s founding philosophy is “Doing well by doing good.”

This material does not constitute, or form part of a solicitation in any state or other jurisdiction or offer to purchase or issue any interest in an investment vehicle or any security or investment product. Any such offer or solicitation will only be made pursuant to the respective investment vehicle’s offering documents and relevant subscription documents, which will be furnished to qualified investors on a confidential basis at their request. The information contained herein has been prepared by Keystone 1031 and is current as of the date hereof.



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