DSTs Could Be a Better Substitution for TICs

Posted on May 8th, 2014 at 8:20 AM

From the Desk of Jim Eccleston at Eccleston Law Offices:

Delaware Statutory Trusts (“DSTs”) are complex real estate private placements, which allow investors who are selling commercial real estate to reinvest those profits and defer the capital gains taxes from the sale of their property.

DSTs share similarities with tenant-in-common (“TIC”) exchanges. While costly and illiquid, there are potentially fewer headaches and more structural improvements with DSTs according to market observers.

DSTs have lower upfront fees, lower minimums, portfolio offerings and added options which encourage investor diversification and position DST products for enhanced performance.

For example, in a DST, the trustee decides and determines what happens in a commercial property. At the moment, most deals invest in apartment buildings or triple-net-lease properties with a long-term lease. These trusts may make sense in estate planning for older clients who own commercial real estate and want to defer taxes. But the rap on DSTs is similar to that on TICs. They are private placements and carry high fees and commissions.

After the credit crisis, the number of deals on TICs and DSTs decline dramatically. In 2010, TICs made up just 24% of the deals that year. However, the market for DSTs, which are sold by representatives of independent broker-dealers, is showing signs of strengthening. Equity raised for DSTs and TICs has increased every year since its low, with $427.1 million in equity raised last year. And DSTs, which were 89% of the deals, last year, have all but replaced TICs.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

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