What Are the Potential Risks of DST Ownership?

As with any investment, you should understand the risks associated with DSTs as outlined below. As you select a DST in which to invest, it’s important to review the corresponding private placement memorandum (PPM) in detail.

The cost to acquire a DST interest may be more than purchasing a property outright because of additional expenses of making the property available to multiple co-owners and marketing it in the form of a private security offering, including brokerage fees, which may outweigh the benefits of tax deferral.

Past performance does not ensure or indicate future earnings, and property appreciation is not guaranteed. Principal reduction or loss may occur depending on the performance of the underlying real estate.

DST interests are direct investments in real estate and are subject to all risks of owning, operating and disposing of real estate. Results from investing in real estate vary through cyclical economic times.

An investor purchasing DST interests relies upon the sponsor and property manager to make day-to-day decisions related to the property.

DSTs are illiquid investments. There is currently no established secondary market for the resale of DST interests. Additionally, DST investors do not have legal title of property held by the DST. Beneficial owners do not have the right to sell the property.

DST investments may not be suitable for all 1031 Exchange investors.

Conflicts of interest may exist that could adversely affect the investment.

Beneficial owners possess limited control and rights. The trust will be operated and managed solely by the trustee. Beneficial owners have no right to participate in the management of the trust.

Risks related to an investment in real estate. Real property investments are subject to varying degrees of risks including but not limited to: the speculative market and financial risks associated with fluctuations in the real estate market; loss of principal; variations in occupancy which may negatively impact cash flow; limited liquidity; limits on management control of the property; and changes in the value of the underlying investments.

The DST structure has certain limitations and must operate within the following guidelines. Failure to do so may cause actions that would likely preclude investors from conducting further 1031 Exchanges and may adversely impact the value of their investment.

  • Once the offering is closed, there can be no future contribution to the DST by either current or new beneficial owners
  • The trustee cannot renegotiate the terms of the existing loans, nor can it borrow any new funds from any party
  • The trustee cannot reinvest the proceeds from the sale of its real estate
  • The trustee is limited to making capital expenditures with respect to the property to those for (a) normal repair and maintenance, (b) minor non-structural capital improvements, and (c) those required by law
  • Any cash held between distribution dates can only be invested in short-term debt obligations
  • All cash, other than necessary reserves, must be distributed on a current basis
  • The trustee cannot enter into new leases or renegotiate the current lease

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