Delaware Statutory Trust Placement

A Delaware statutory trust, commonly referred to as a DST, holds title to real property on behalf of multiple investors who each own a fractional beneficial interest, and the IRS has confirmed in Revenue Ruling 2004-86 that a properly structured DST interest qualifies as like-kind replacement property for a 1031 exchange. For a Los Angeles exchanger who no longer wants active management responsibility, a DST interest offers a way to stay invested in real estate without landlord duties.

An exchanger with a smaller relinquished property sale price, or one who simply does not want to actively manage a replacement property, can use DST interests to acquire a fractional stake in institutional-quality assets, such as a large multifamily portfolio or a national credit-tenant retail portfolio, that would otherwise be inaccessible at that investor's price point.

A DST interest is offered as a security under federal and California securities law, generally limited to accredited investors, and is sold through a licensed broker dealer with accompanying private placement memorandum disclosures. This is a meaningfully different transaction process than a direct real estate purchase, and Los Angeles exchangers considering a DST should work with both their tax advisor and a properly licensed securities professional before committing funds.

DST investors do not control property-level decisions, such as refinancing, capital improvements, or the timing of a sale, which rest with the DST sponsor, and DST interests are generally illiquid with no established secondary market, meaning an investor should be prepared to hold through the sponsor's anticipated hold period, often five to ten years.

A DST interest identified and acquired as replacement property is subject to the same forty five day identification and one hundred eighty day closing deadlines as any other replacement property, and because DST offerings are pre-packaged with title and financing already in place, closing can sometimes move faster than a direct property purchase, which is useful late in an exchange timeline.

Tenant in common, or TIC, ownership is a separate replacement structure that also qualifies for 1031 exchange purposes under different IRS guidance, generally involving direct co-ownership with more investor voting rights than a DST but also more operational complexity; syndications and crowdfunded real estate offerings structured as LLC or partnership interests generally do not qualify as like-kind replacement property.

Because a DST interest is a security, we coordinate with the exchanger's own licensed broker dealer or registered investment advisor on suitability and offering selection rather than making that determination ourselves; our role is to help identify the exchange timeline and mechanics fit, while the securities-specific advice comes from an appropriately licensed professional.