Real Estate Syndication & DST 1031 Exchanges

Delaware Statutory Trust (DST) 1031 exchanges are becoming increasingly popular among investors due to the potential advantages of real estate syndication. Real estate syndication is a key aspect of the structure of DST 1031 investments and is a significant factor in their growing popularity as an alternative investment for accredited investors.

What Exactly Is Syndication?

Syndication refers to the process of bringing together a group of investors or organizations to collectively invest in an asset that requires a large amount of capital. In the context of real estate, it means organizing a group of investors to pool their financial resources to purchase one or more properties. Investors are issued beneficial interests or shares in the property, and profits and losses are distributed according to their percentage of ownership.

This concept is particularly relevant when discussing Delaware Statutory Trusts (DSTs) because they allow for multiple investors to own a property for their 1031 exchange or cash investment, unlike traditional 1031 exchanges which typically involve a single investor.

Additionally, DSTs can have a much higher number of investors (usually up to 499) compared to other group investment structures like Tenant in commons (TICs), which have a limit of 35 investors, making them a suitable option for those looking to invest in larger and more diverse real estate assets. However, unlike regular syndications, the DST property or properties have already been acquired by the DST sponsor before being offered to 1031 exchange investors.


The Benefits of Syndication:

One of the major advantages of DST 1031 exchange investments for investors is that they eliminate the challenges and responsibilities of active ownership and management. In DST investments, the sponsor creates the trust and takes on the responsibilities of managing the assets and the business of the trust. These responsibilities can include:

-       Underwriting the Deal

-       Conducting due diligence on the property(ies)

-       Arranging financing

-       Creating a business plan for the property(ies)

-       Finding a property management company

-       Coordinating investor relations and potential monthly distribution checks to investors

-       Delaware Statutory Trust syndication provides investors with a passive ownership structure

In exchange for giving up active management, the passive investor of a DST 1031 property will typically receive 100% of their pro-rata portion of any potential principal pay-down from the loan on the property, thereby potentially building equity. In addition, DST 1031 properties are structured so that the investors in the DST receive 100% of their pro-rata portion of the potential rental income generated by the property's tenants.

Other Potential Benefits To DST Syndication:

Get ready to upgrade your real estate game, folks! With a syndicated Delaware Statutory Trust 1031 exchange, you'll have the chance to snag a piece of some seriously impressive, institutional grade assets.

We're talking industrial distribution centers, medical buildings, self-storage facilities, and even massive apartment communities worth $50 million or more! And the best part? With a typical minimum investment of $100,000, regular investors can get in on the action. It's like a VIP pass to a whole new level of real estate investing.


Want to spread your investment wings? Then a Delaware Statutory Trust (DST) is just what you need! With a DST, you'll have the ability to invest in multiple properties, possibly mitigating your risk and increasing your chances of success.

Plus, you'll be able to choose from a variety of asset classes, like multifamily, commercial buildings, self-storage, medical facilities, and industrial distribution centers. And, with the ability to invest in multiple geographic locations, you'll be able to diversify your portfolio like a pro! And let's not forget, portfolio diversification is a tried and true economic theory, recognized by none other than Nobel-Prize winning economist Harry Markowitz.

Just remember, diversification does not guarantee profits or protection against losses and that investors should read each DST offerings Private Placement Memorandum (PPM) paying attention to the risk factors prior to considering a DST investment.

Investing in commercial real estate can be challenging, as it requires a significant amount of experience and resources. Even for experienced investors, it can be difficult to source, inspect, underwrite, and close on large institutional properties within the timeline of a 1031 exchange.

However, with a Delaware Statutory Trust (DST) syndication, investors can work with the specialized team at Perch Wealth, a national DST expert advisory firm. They have created a platform,, that provides investors with access to a marketplace of DSTs from more than 25 different DST sponsor companies. Additionally, they have custom DSTs available only to their clients and provide independent information on DST sponsor companies as well as full due diligence and vetting on each DST investment.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

What to Know About 721 UPREITs in Relation to DSTs

One of the primary appeals of investing in commercial real estate is that it is a highly tax-advantaged asset class. There are many tools available for investors looking to defer paying capital gains tax upon the sale of real estate assets. The most well-known tool is the 1031 Exchange, which allows an investor to sell a property and roll the proceeds into another like-kind asset such as a building of greater value.

Another option is to roll the proceeds into a Delaware Statutory Trust, or DST, which is an entity used to hold title to investment property on behalf of individual owners, who each have a fractional ownership stake in the DST property.

However there is a third tool worth understanding, one that is often overlooked by investors. That tool is the Section 721 exchange into an UPREIT. Section 721 exchanges are often used in conjunction with DST investments, something we’ll explore in greater detail below.

What is a 721 UPREIT?

An Umbrella Partnership Real Estate Investment Trust, or UPREIT, is a unique structure that allows property owners to exchange their property for share ownership in the UPREIT. The share units will generally have the same value as the property that was contributed to the UPREIT. The UPREIT then owns the property and all administration associated with it.

UPREITs are regulated by Section 721 of the tax code and are often referred to as 721 Exchanges. Section 721 exchanges into an UPREIT do not create a taxable event. Therefore, UPREIT property contributors can defer paying taxes on the sale of property in exchange for UPREIT units, though capital gains taxes on UPREIT units will later be subject to standard REIT taxation.

Section 721 exchanges are different from 1031 exchanges, which require like-kind exchanges and so not allow for ownership exchanges of property. Therefore, while both 1031 exchanges and Section 721 exchanges into an UPREIT can be attractive, they should be used in different circumstances.


How do UPREITs work?

In a typical UPREIT structure, all REIT properties are purchased and owned directly or indirectly by its “umbrella partnership” – sometimes referred to as the “operating partnership” or “OP”. The properties are operated and managed within the OP, of which the REIT acts as the sole general partner as well as a significant limited partner.

With a standard Section 721 exchange, an owner sells their property just as they would if selling for cash. However, instead of selling for cash, they sell their interest in the real estate to the UPREIT operating partnership. Since the OP entity is not considered an “investment company” for tax purposes, the contribution is not treated as a sale and capital gains may therefore be deferred.

The seller then receives OP Units instead of cash in exchange. With these transactions, the seller is also allocated a certain percentage (or dollar amount) of debt for the OP as well for tax purposes.

In practice, however, most REIT managers are not interested in the property individuals want to sell. Therefore, many Section 721 exchanges often occur through a two-step process involving a DST.

How to Utilize UPREITs as Part of a DST Transaction

Because most REITs do not want to purchase an individual’s property, most sellers will utilize a DST as a sort of “middle man” before utilizing a 721 Exchange.

Through this process, an owner sells their relinquished property and to the extent there are capital gains, those capital gains are reinvested into a DST using a 1031 exchange. The seller then retains an ownership stake in the DST.

Some DSTs exist with an UPREIT structure that allow investors to convert their DST ownership stake into shares of said UPREIT. Through the UPREIT option, investors can exchange their DST interests for OP Units in a REIT at the time the REIT exercises its option to purchase the DST property. These OP Units can later be converted into REIT common shares at the owner’s discretion.

The Pros and Cons of Utilizing UPREITs

There are many benefits associated with 721 UPREIT exchanges, including:

·      Tax Advantages: The 721 exchange allows investors to defer paying capital gains tax on appreciated real estate in exchange for shares of an operating partnership (“OP Units”). Capital gains continue to be deferred until the investor sells their OP Units, converts the OP Units to REIT shares, or the property contributed to the UPREIT is sold by the acquiring operating partnership.

·      Increased Liquidity: Real estate is generally considered an illiquid asset class. It cannot be purchased and sold with the click of a button, as is the case with stocks, bonds and other equities. However, transactions conducted through a 721 exchange allow investors to preserve liquidity by converting some or all of their OP Units into shares of the REIT, which can then be traded more easily (although doing so then creates a taxable event).

·      Portfolio Diversification: By selling individually-owned property and exchanging into an UPREIT, an investor benefits from greater portfolio diversification. REITs usually hold title to multiple assets, including different property types and in disperse geographies. Investing in a REIT is one way to mitigate risk rather than having all of one’s capital tied up in a single property.

·      Passive Income Potential: 721 Exchanges allow for investors to sell their property and essentially, hand off all property management obligations to the REIT operating partnership. This allows an individual to switch from being an active investor to passive investor. So long as they have taxable income, REITs are obligated to pay dividends to their shareholders and therefore, those who relinquish their individual property can continue potentially collecting passive income well into the future.

·      Estate Planning: One of the primary reasons people utilize 721 exchanges is for estate planning purposes. Upon death, REIT shares can be equally divided among heirs, who may elect to hold or liquidate their respective shares. These shares are passed down through a trust, which gives the beneficiaries of the trust a stepped-up basis that allows them to avoid paying capital gains taxes and depreciation recapture.

Of course, there are some downsides that come with utilizing 721 UPREIT exchanges, including:

·      Inability to Make Future “Like-Kind” Exchanges: When an investor relinquishes their property into an UPREIT, they receive OP Units in exchange. These REIT shares cannot be exchanged for other “like-kind” real estate in the future. If REIT shares are sold, they become subject to capital gains tax and depreciation recapture.

·      Lack of Control: Those who sell property using a 721 Exchange become passive investors; they no longer have a say in how properties owned by the REIT are managed. In fact, individuals no longer own real estate directly at all. All properties are exclusively owned by the REIT, with investors having an ownership stake in the operating entity overseeing those properties.

·      Greater Susceptibility to Market Swings: Unlike real estate assets held directly, which are illiquid in nature and have a low correlation with the stock market’s daily ebbs and flows, REIT shares can be more volatile if the REIT is traded publicly on an exchange. When the stock market contracts, REIT investors will often sell their shares much faster than someone would be able to sell individually-owned property. This can cause REIT values to plummet, even if only momentarily. Publicly-traded REIT shares tend to be highly correlated with the S&P 500 and therefore, are more susceptible to market swings.


Is an UPREIT right for you?

Section 721 UPREIT transactions are limited to “accredited investors” as defined by the U.S. Securities and Exchange Commission. In order to qualify as an accredited investor, an individual must meet certain income or net worth requirements.

Assuming an investor is accredited, the best candidates for UPREITs are generally those who:

·      Own real estate with a low cost basis who would otherwise be subject to significant capital gains taxes upon sale;

·      Want to sell family-owned properties with multiple heirs involved;

·      Are seeking greater portfolio diversification, especially if a substantial portion of their wealth is currently tied up in a single asset; and

·      Want to transition from active to passive real estate investing, as UPREITs allow investors to hand off property management while continuing to seek passive income.

1031 exchanges typically garner the most attention in relation to how real estate owners can defer paying capital gains taxes. However, UPREITs are another potentially great solution for owners looking to dispose of property while simultaneously striving to preserve their capital.

If you’re interested in selling your property, contact us today to determine if a 1031 exchange into a DST and/or a 721 Exchange may be right for you.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

•         There is no guarantee that any strategy will be successful or achieve investment objectives;

•         Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

•         Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

•         Potential for foreclosure – All financed real estate investments have potential for foreclosure;

•         Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

•         Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

•         Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

How Should I Invest My Wealth in 2022?

The present market offers financial backers a plenty of speculation valuable open doors across various ventures. While having different choices can assist with further developing a singular's venture methodology, they can likewise cause vulnerability, bringing up issues about which speculation suits the individual's monetary targets. So you may be wondering where do I invest my wealth in the current economy.

To help give guidance on which investment is ideal for you, we will frame the fundamental components of the present most wanted speculations and go over the upsides and downsides of every one.

For this article, we will isolate the data into two segments. To start with, we will take a gander at more conventional speculation choices, like putting resources into stocks or bonds. Then, we will audit elective speculations. Albeit less known among the present financial backers, elective choices offer potential advantages that numerous customary speculations need.

Customary Investment Options

By and large, financial backers have depended upon a 60/40 portfolio piece to assist them with accomplishing their long-term monetary dreams, for example, fabricating a savings for retirement, reimbursing a home loan early, or paying instructive costs for their youngsters. As indicated by this model, a financial backer's portfolio ought to comprise of about 60% stocks and 40 percent bonds. This model generally would in general convey financial backers stable development and pay to assist them with meeting their monetary objectives.

Stocks, or values, are protections that address partial possession in an enterprise. Financial backers purchase stocks and depend upon the organization's development to expand their abundance after some time. Also, stocks may offer financial backers profits - or installments to investors - for recurring, automated revenue. Then again, bonds are obligation protections presented by a company or government substance hoping to raise capital. Not at all like stocks, bonds don't give financial backers proprietorship freedoms, yet rather they address a credit.

The largest contrast among stocks and securities is the manner by which they produce benefit: stocks should appreciate in esteem and be sold later on the financial exchange, while most bonds pay fixed interest after some time.

While stocks offer financial backers the potential for more significant yields than securities, securities are by and large considered a safer venture. Therefore, numerous financial backers go to venture reserves, like common assets, trade exchanged reserves, or shut end assets, to broaden their portfolios while keeping a 60/40 arrangement. These venture subsidizes arrange capital from various financial backers, which is then, at that point, put into an arrangement of stocks and bonds. Venture subsidizes offer financial backers the possibility to moderate risk through a more adjusted portfolio.

A Change in the Portfolio Model

Because of progressing unpredictability in the stock and security market, rising costs for wares, and high valuations, the customary 60/40 portfolio model is done serving financial backers in a similar way it once did. Therefore, numerous monetary specialists are presently suggesting that financial backers broaden their portfolios with 40% elective ventures to help possibly advance their monetary position.


Elective Investments

While various kinds of elective ventures exist, we will zero in on elective land speculations because of the advantages they might perhaps offer financial backers in the present market.

Why Invest in land?

Land has for quite some time been one of the most sought-after open doors for financial backers. As a restricted ware, land has generally managed the cost of financial backers the potential for long haul security, fantastic returns, recurring, automated revenue, charge benefits, and a fence against expansion. Notwithstanding, land speculations additionally accompany specific drawbacks. Beginning in land effective money management ordinarily requires a broad measure of capital and solid financials for the individuals who are utilizing obligation.

Besides, land by and large requires dynamic support - financial backers are expected to deal with their resources for guarantee ideal execution. In this manner, elective interests in land have begun filling in prominence among the venture local area. While they can frequently offer comparable benefits to land money management, they convey a uninvolved open door, meaning they have zero administration obligation. The following are a couple choices for financial backers looking for elective land speculations.

Real Estate Investment Trusts

A real estate investment trust (REIT) is an organization that possesses and normally works pay creating land or related resources. REITs consolidate all resource types, including multi-family, retail, senior living, self-capacity, cordiality, understudy lodging, office, and modern industrial properties, to give some examples. Dissimilar to other land ventures, REITs by and large buy or foster land for a drawn out hold.

Financial backers depend on a REIT's comprehension expert might interpret the housing business sector to broaden and balance out their portfolios. Numerous REITs are public, implying that all financial backers, including unaccredited financial backers with restricted capital, can put resources into them.

While public REITs convey many benefits related with customary land effective financial planning - like pay potential, broadening, and conceivable expansion security - they additionally accompany some particular inconveniences. For instance, REITs frequently experience slow development. Since REITs should pay out at least 90% of their benefits in profits, new acquisitions and improvements are restricted. To decide the strength of a venture, potential financial backers ought to lead a reasonable level of investment - with the help of a specialist on the REIT before buying shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a lawfully perceived land speculation trust where financial backers buy a possession interest, or partial proprietorship, in a land resource or land portfolio.

DSTs are usually depended upon by 1031 trade purchasers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

As well as giving financial backers recurring, automated revenue potential through an administration free venture, DSTs empower financial backers to put resources into institutional quality resources for which they wouldn't in any case haveaccess. These resources might have the option to convey more significant yields and longer-term strength.

Moreover, the obligation designs of DSTs are appealing to numerous financial backers. Individuals who put resources into DSTs have restricted obligation equivalent to their ventures; nonetheless, they can exploit the frequently alluring funding gotten by the support organizations. Sadly, just licensed financial backers can put resources into DSTs.

Opportunity Zones

Opportunity zones (OZs), characterized by the IRS, are "a financial advancement device that permits individuals to put resources into upset regions in the United States. This incentive’s intention is to prod financial development and work creation in low-pay networks while giving tax breaks to financial backers." OZs were presented. under the Tax Cuts and Jobs Act of 2017, and financial backers keen on putting resources into an OZ should do as such through a qualified opportunity fund (QOF).

QOFs can be an eminent choice for financial backers because of their tax breaks, which rely upon the period of time a financial backer holds a QOF venture. We have recently made sense of these advantages, which we allude to as OZ triple-layer charge motivators. Here is a depiction of the tax cuts a QOF offers a financial backer:

● Deferral: Those who rollover their capital increases into a QOF can concede capital earn respect from the first speculation until December 31, 2026.

● Decrease: how much capital increase perceived from the first speculation is diminished by 10

percent in the wake of accomplishing a five-year holding period, as long as that five-year holding period is accomplished by December 31, 2026.

● Avoidance: Long-term financial backers are qualified to pay no expense on the enthusiasm for their QOF venture upon attitude of that speculation, no matter what the benefit size, assuming the resources held in that QOF are held for no less than 10 years.

While opportunity zones are viewed as an unsafe speculation, provided their motivation, they might possibly convey financial backers better yields when contrasted with other elective land venture choices.


Interval Funds

An extra elective venture choice worth focusing on are interval funds. These assets are not restricted to land yet rather can be utilized to put resources into numerous protections, including land. Comparable to recently referenced reserves, these arrange investor money to put resources into various protections. Be that as it may, they offer a lower level of liquidity. Rather than having the option to exchange shares everyday, financial backers are normally restricted to selling their portions at expressed spans (i.e., quarterly, semi-every year, or yearly). The advantage of stretch assets is the adaptability they offer the assets - they permit the asset to execute longer-term procedures, making the potential for a more steady venture.

Accordingly, interval funds will generally convey better yields and a more broadened an open door. Presently, where do I put away my cash today? While the above data offers a depiction into the upsides and downsides of different speculation choices, you ought to think about extra perspectives. As opposed to promptly attempting to distinguish which choice is ideal for your purposes, the critical focal point here is to comprehend that the present market offers a variety of venture choices that were already obscure to quite a large number. Financial backers can broaden past stocks and bonds, which might potentially give them more significant yields while trying to relieve risk. To foster a venture portfolio that meets your monetary objectives, we encourage you to talk with one of our monetary experts.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: