Delaware Statutory Trust Investments

This is a legally recognized real estate investment trust (REIT) established for business purposes. It doesn’t have to be in or involve the US state of Delaware. DSTs are usually set up as private agreements for real property and are used to hold title to investment real estate. They can be offered as replacement property for accredited investors wanting to defer their capital gains tax through the 1031 tax deferred exchange and, also, as cash investments for investors wanting to diversify their real estate investments. DSTs are alternative investments, which makes them generally unsuitable for retail investors.

Delaware Statutory Trusts give smaller investors the opportunity to own a fractional interest, along with other investors, in institutional quality, professionally managed commercial properties. Owners are supposed to receive a percentage share of the income, appreciation, and tax benefits that come with the whole property. Meanwhile, they don’t have to deal with managing these properties themselves.

With $100K, a DST investor can diversify exchange proceeds across different properties. This type of real estate investment also offers different leverage ratios that an investor can use for their exchange requirements. That is because DST properties usually are structured with “built-in” debt to meet said requirements.

• This is an illiquid asset. Aside from potential cash flow income, DST investors won’t receive any proceeds unless this asset is sold, which could take seven years or more.
• DST investors are silent partners who have no vote when it comes to dispositions or property operations, including who rents the property, whether there should be capital improvements, when their investment is sold, or anything else involving the property.
• After a DST has become formally established, no additional equity contributions can be made, loans cannot be added, and existing loans are not allowed to be modified.
• There is no secondary market for reselling this type of investment.
• DSTs can be adversely impacted by the economy.
• Investors are likely to pay high fees for this opportunity.

• AEI
• Black Creek Group
• Bluerock
• Cantor Fitzgerald
• Capital Square 1031
• Core
• Cove Capital
• Cunat Exchange
• ExchangeRight
• Griffin Capital
• InCommercial Property Group
• Inland Private Capital Corporation
• LSC
• Nelson Partners
• NB Private Capital
• Nexpoint
• Passco
• REVA
• Valeo Groupe Americas

It is not uncommon for a DST Sponsor that found the property and set up the trust to turn to broker-dealers to sell to individual investors. These brokerage firms are paid at least 7% or more in commissions for their efforts, which can be an incentive for some financial advisors to disregard customers’ best interests and unsuitably market and sell Delaware Statutory Trust investment deals to them.

Not only are DSTs alternative investments, but also the Financial Industry Regulatory Authority (FINRA) regards them as “non-conventional investments.” In a notice to members, including broker-dealers and their registered representatives, the self-regulatory organization (SRO) reminded them that they must engage in the proper due diligence and ensure through analysis that Delaware Statutory Trusts are suitable for a customer before recommending one to them. Brokerage firms also must make sure that they do not downplay the risks involved and that the downsides do not outweigh any potential benefits.

Shepherd Smith Edwards and Kantas (investorlawyers.com) represents investors who have suffered serious losses in a DST that was unsuitably marketed and sold to them by their financial advisor. Our seasoned REIT attorneys and skilled non-conventional investment loss lawyers can help you determine whether you have grounds for a legal claim for damages against your broker-dealer.

With over a century’s worth of combined experience in securities law and the securities industry, we have helped Delaware Statutory Trust investors and other REIT investors recoup their investment losses from negligent financial advisors.

To schedule your free, no obligation case assessment, call (800) 259-9010 or fill out this form.