DST Placement Identification

A Delaware Statutory Trust, commonly abbreviated as DST, is a legal entity that holds title to real property on behalf of multiple investors, and under Internal Revenue Service Revenue Ruling 2004-86, a beneficial interest in a properly structured DST is treated as a direct interest in real property for purposes of Section 1031, which means DST interests can qualify as replacement property in a 1031 exchange. For Baltimore, Maryland investors, DSTs solve a specific problem that comes up often near the forty five day identification deadline: an investor who has sold a large property and cannot find a suitable direct replacement in time, or who wants to right size out of active management entirely, can acquire a fractional interest in an institutional quality asset, such as a large multifamily community, a portfolio of net lease retail buildings, or a Class A industrial property, without taking on the operational responsibilities of direct ownership. Because DST interests are typically available in defined minimum denominations, they are also useful for closing out a small remainder of exchange proceeds that is too modest to justify acquiring an additional whole property on its own, helping an investor avoid unintentional boot from unused funds. DST interests are securities, and any offer or sale of a DST interest must comply with federal and state securities laws, meaning DST offerings are only available to investors who meet applicable suitability and, in many cases, accredited investor standards, and any decision to invest should be made only after reviewing the offering's private placement memorandum with a qualified securities professional. We identify DST offerings from established sponsors and coordinate directly with those sponsors to ensure the placement is structured to satisfy 1031 exchange requirements, including confirming the DST itself is not engaged in activity that could jeopardize its qualification, such as renegotiating existing leases or accepting additional capital contributions after the initial offering closes, both of which are generally restricted under the so called seven deadly sins that limit a DST trustee's powers once the offering is complete. Our analysis for each DST candidate covers the underlying property type and its fundamentals, sponsor track record across prior offerings including how sponsors have handled distributions and dispositions in past DST programs, and historical distribution history and coverage relative to projected returns, since a DST distribution that is not well covered by property level cash flow can be an early signal of stress. We coordinate with qualified intermediaries throughout the identification and closing process to ensure DST interests are properly documented on the identification letter with the correct legal description of the beneficial interest and purchase price detail. Because Maryland's graduated state income tax and the county piggyback local income tax apply on top of federal capital gains tax if an exchange fails to close, and because DST interests generally cannot be sold or exchanged out of individually before the trust's overall disposition event, we walk investors through the illiquidity and lack of control that come with a DST interest honestly, alongside the diversification and management relief it can provide, before any placement is finalized.