A Delaware Statutory Trust (DST) is a legal entity that holds real property and issues fractional beneficial interests to investors. A sponsor acquires and manages the property; investors may receive proportional distributions from income and receive their share of eventual sale proceeds — without any management responsibilities.

DSTs are typically used by real estate investors completing a 1031 exchange who want to exit active management. They are illiquid, involve real estate and sponsor risk, are generally available only to accredited investors, and can result in loss of principal. They are not suitable for all investors or all situations.

Under IRS Revenue Ruling 2004-86, properly structured DST interests may qualify as like-kind replacement property in a 1031 exchange. This allows investors completing an exchange to potentially defer capital gains taxes while transitioning into passive real estate ownership rather than purchasing another property outright.

The exchange must still meet all IRS requirements — the 45-day identification and 180-day closing deadlines apply, and a qualified intermediary is required. DSTs generally close quickly, which may help investors meet the 180-day deadline. Consult your QI, CPA, and investment adviser before proceeding.

DST investments involve several significant risks investors should understand before proceeding: illiquidity (you cannot easily exit before the property is sold), sponsor risk (outcomes depend heavily on the quality of management), distribution risk (income is not guaranteed and may vary or cease), real estate market risk (property values may decline), leverage risk (many DSTs use debt financing, which amplifies losses), and tax law risk (rules affecting DSTs may change).

Loss of principal is possible. DSTs are generally available only to accredited investors. Investors should read the full Private Placement Memorandum for any specific offering and consult their investment adviser, CPA, and legal counsel before investing.

DSTs most commonly hold institutional-quality commercial real estate — multifamily apartment communities, net-leased retail properties with national tenants, industrial and logistics facilities, medical office buildings, and self-storage facilities. Some offerings hold multiple properties across types or geographies within a single DST.

The specific property, its location, occupancy, and financial performance vary by offering. Investors should review offering materials carefully and not assume that prior DST investments are representative of future offerings.

Most DST investments have a projected hold period of 5 to 10 years, though actual timing is not guaranteed and may be shorter or longer depending on market conditions and the sponsor's exit strategy. Investors should not expect to be able to access their capital before the property is sold.

At exit, investors receive their proportional share of sale proceeds. If the sale generates a gain, investors may choose to complete another 1031 exchange into a qualifying replacement property — including another DST — to potentially defer the gain again.

Under current tax law, heirs who inherit a DST interest may receive a stepped-up cost basis equal to the fair market value at the date of the investor's death. If applicable, this could potentially reduce or eliminate the deferred capital gains that accumulated during the investor's lifetime — one of the estate planning arguments made for holding real estate through a 1031 exchange strategy.

However, step-up rules are subject to change by Congress, and outcomes depend on the structure of the estate and applicable law at the time of death. This is not a guaranteed outcome. Estate planning attorneys and CPAs should be consulted to evaluate how this may apply to a specific situation.

Sponsor evaluation is one of the most important steps in DST due diligence. Key factors to assess include the sponsor's track record with prior offerings (including how prior exits performed), their years in operation, the assets under management, their fee structure and alignment of interests with investors, the quality and transparency of their reporting, and whether they have operated through a full market cycle.

No two sponsors are the same. A good investment adviser can help you compare offerings across sponsors and identify potential red flags. Never invest in a DST based solely on projected distributions in marketing materials — review the full PPM and ask questions.

DST offerings should be compared across sponsor track record, property type, location, occupancy, tenant concentration, lease terms, debt structure, projected hold period, distribution assumptions, fees, reserves, and exit strategy. Projected distributions alone are not enough to evaluate an offering.

Investors should review the full Private Placement Memorandum for each offering and discuss it with their investment adviser, CPA, and legal counsel before making any decisions. A qualified adviser can help identify differences that may not be apparent from summary materials.

Yes, investors may use multiple DSTs as replacement properties in a 1031 exchange, provided the exchange satisfies the IRS identification and closing rules. Using more than one DST may help diversify by sponsor, property type, geography, tenant profile, or projected hold period.

However, diversification does not eliminate risk, and each DST must be evaluated independently. All replacement properties must still be formally identified within the 45-day window and acquired within the 180-day period. Consult your qualified intermediary and investment adviser about how to structure a multi-DST exchange.

Neither is universally better — it depends on what the investor wants from the next phase of their real estate holdings. A DST may be worth considering if exiting active management and 1031 exchange eligibility are priorities. A traditional replacement property may be more appropriate if the investor wants control, leverage flexibility, or the ability to make improvements.

The significant tradeoff with a DST is illiquidity and sponsor dependency. The significant tradeoff with direct ownership is continued operational responsibility. We model both paths with clients before making any recommendation — and in some cases, a combination of both within a single exchange may be worth evaluating.