All that glitters may not be the gold you are looking for.
When it comes to 1031 exchange replacement property strategies, many investors are
introduced to Delaware Statutory Trusts (DSTs) that ultimately roll into 721 UP-REITs. At
first glance, the opportunity may look attractive, large institutional sponsors, a well-known
financial advisor, and the prestige of a nationally recognized financial wealth management firm who has been managing your diversified wealth management portfolio for the last 30 plus years.
But here’s the reality: not all DST-to-721 UP-REIT investments are created equal. Investors,
especially high net worth individuals selling appreciated property, need to carefully examine
the REIT their DST will be absorbed into. Too often, trusted financial advisors and large
institutions steer clients into a narrow menu of DST offerings that may not serve the investor’s long-term wealth preservation or income goals with the appropriate diversification needed.
The true measure of a REIT’s health isn’t its size or name recognition; it’s the coverage ratios that support its distributions:
If these metrics show weak coverage, it raises an important question:
What is the point of exchanging into a DST that is forced into a REIT with poor distribution
support?
A REIT with thin FFO, AFFO, or MFFO coverage ratios may face:
Pressure on future NAV (Net Asset Value)
This can result in a disappointing outcome for investors who thought they were entering a
conservative, tax-efficient strategy.
Many investors understandably place trust in the large institutions where they house their
accounts. But it’s critical to remember: size and prestige do not equal the best advice.
The difference comes down to diligence, experience, and transparency—qualities that only
specialized 1031 exchange advisors with decades of focus, like www.1031dst.com, consistently deliver.
A 1031 exchange into a DST that’s later rolled into a REIT should be more than just a tax
deferral strategy, it should be a carefully vetted investment decision.
Ask the hard questions:
Because at the end of the day, all that glitters may not be the gold you’re looking for.
For investors seeking a trusted, conflict-free advisory team with 20+ years of experience,
contact our team. We provide the facts, the due diligence, and the perspective that helps. Clients make informed decisions—not just glittering ones.
Q: What is a 1031 Exchange?
A 1031 Exchange allows investors to defer capital gains taxes by reinvesting proceeds from the sale of real estate into qualified replacement property, often through a Delaware Statutory Trust (DST).
Q: What is a Delaware Statutory Trust (DST)?
A DST is a legal entity that allows multiple investors to own fractional interests in large
institutional-grade real estate, making it a popular option for passive real estate investing.
Q: What is a 721 UP-REIT?
A 721 UP-REIT is a structure where DST investors can contribute their interests into a REIT in exchange for operating partnership units. While this can provide liquidity and diversification, not all 721 UP-REITs are created equal, and due diligence is critical.
Q: Why should investors care about FFO, AFFO, and MFFO?
These metrics show whether a REIT’s distributions are truly supported by operating income. Weak coverage may signal risk to future NAV and investor returns, which is why real estate
due diligence is essential before committing.
Q: How does a DST provide tax deferral benefits?
DSTs qualify as replacement properties for a 1031 Exchange, helping investors achieve tax deferred investing without the burden of direct property management.
Important Disclosures:
*This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”).
*There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal.
*DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million exclusive of primary residence, and/or possessing an annual income of over $200,000, or $300,000 with a spouse and expects the same or greater for the current year) and accredited entities (generally described as an entity owned entirely by accredited investors and/or owning investments in excess of $5 million). Please check with a qualified CPA or attorney to determine if you are accredited.
*Past performance is no guarantee of future results. *Diversification does not guarantee returns and does not protect against loss.
*Potential cash flow, potential returns and potential appreciation are not guaranteed.
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