Delaware Statutory Trust
An Option to Keep on Your Radar
The Delaware Statutory Trust (DST) is considered an "arm chair" investment or rather a "passive" investment opportunity that allows an individual to own fractional shares in institutional-grade properties. A DST is a legal entity created as a trust under Delaware law that has the ability to hold real-estate.
It's Role in Real-Estate
DST's are formed pursuant to private governing agreements under which a property or several properties are held, managed, administered, and/or operated for profit by a trustee for the benefit of the holders of the DST's beneficial interests.
How does it Work?
When a trustee of the DST initially purchases the property and takes the title. The sponsor of the DST (the party that arranges the bank financing and coordinates the management of the property) will then structure the transaction and arrange for the sale of beneficial interests to individual investors. The beneficial interests are considered to be securities under federal securities laws, for purposes of 1031 Exchanges.
- Higher quality, investment-grade assets that wouldn't be available to the average investor otherwise
- Provides investors with current income
- It requires no management or daily operation responsibilities
- Debt is non-recourse (DST investor is not personally liable in the event of a default)
Does it Suit You?
The DST option may not suit every investor. For instance it may not suit those that enjoy managing daily operations, those that are only interested in short-term investment (typically this requires a holding period of two or more years), also the DST option is designed for investors that are accredited (high-net worth) as defined in Regulation D of the Securities Act of 1933.
Your Due Diligence
Due to the sophistication and intricacies of this investment structure, due diligence emphasis should be placed. This goes for any real-estate, property management and asset management expertise, prior performance track record, experience with sophisticated financing structures, transparent investor communications, financial strength of the sponsor and excellent legal representation.