Once a popular option for smaller, independent investors looking to branch into the commercial real estate arena, Delaware Statutory Trusts (DSTs) are becoming a more mainstream investment option for larger real estate investment firms.
Simply put, a DST is an ownership structure where a group of individual investors buy fractional interests in substantial commercial real estate assets that would otherwise be beyond the reach of their individual budgets. A qualified real estate firm, known as the “DST sponsor,” creates the trust after locating and acquiring the real estate assets. Eventually, the property will be entirely owned by the investors as their investments replace the money that the DST sponsor used to buy it. DSTs have grown in popularity among investors looking to use a 1031 exchange to postpone paying capital gains taxes since they are accepted by the IRS as suitable “like kind” replacement assets. It offers an alternative to the more common strategy of purchasing a single property, frequently net-leased to a single tenant.
While DSTs have been around for some time, recent market volatility and increased interest rate hikes are making the investment structure appealing for institutional investors. As of now, 50 firms are offering DSTs. Hines, a privately-owned global real estate investment, development, and management firm, is one of the largest players having just joined the marketplace with the launch of Hines Real Estate Exchange (HREX). Not only is the market saturation lending credibility to the practice, it’s indicative that commercial real estate investments are becoming more approachable despite current economic bumps.