How DSTs Can Help Brokers Close More Deals

Welcome to CRE Broker Playbook!

Today we're diving into a topic that can unlock save deals from falling apart: Delaware Statutory Trusts (DSTs). Our guest, Trevor Flor, founded Aimpoint Investments in 2018 and specializes in helping investors navigate complex real estate transitions while providing brokers with powerful tools to close more deals.

Meet Trevor Flor

Jake: Tell me about Aimpoint Investments and what you do.

Trevor: We are a dedicated real estate advisory practice with four focus areas: 1031 Exchange Consulting, DST Investments, Qualified Opportunity zones, and real estate funds that are real estate focused. Of those four, our primary focus is 1031 exchanges with DST Investments as part of the replacement property solution.

Three Ways DSTs Help Brokers Close Deals

Jake: Where do you typically come in the process and how do you help make this easier for a real estate broker?

Trevor: There are three ways that we incorporate a DST into the deal.

First is as a primary option. If an investor expresses interest in moving away from active ownership or active management, we can incorporate a DST as the primary replacement property in an exchange.

The second is as a complementary solution. If the broker is supporting the sale of an investor's property for $10 million as an example, but the only suitable replacement property they can find is an $8 million property, that investor may be subject to a $2 million taxable boot. We can come in and provide a complementary DST option that has no management requirement but is able to give them that additional $2 million in replacement property requirement and give them a full tax deferral.

And the third is as a backup solution. If the investor is in a 1031 exchange and they're not going to close by their 45-day identification deadline, we can support the identification of that primary option with a backup DST. If they uncover a defect during due diligence and don't want to close, they can pivot and close on the DST and give themselves a full tax deferral.

The DST Advantage Over Traditional Syndications

Jake: What are these DSTs typically like? What are the returns like and what do investors typically gravitate towards?

Trevor: The universe of DSTs includes about 60 different sponsors that are packaging these investment opportunities. We have sponsors that focus in each of the different property types—multifamily, industrial, storage, senior housing, student housing. The whole gamut is typically available in the DST structure.

We can build a portfolio of multiple property types across multiple markets. Because we're building a portfolio of multiple properties, the client benefits from diversification without stacking management responsibility. They get the diversification and have no management, which is a great benefit.

On returns: Just like any commercial real estate, there's income and growth components. On the income side, we're seeing DSTs distribute between 4 and 6% of the equity invested on an annual basis. On the growth side, it's very market and property type dependent. We've seen 20% IRRs on some deals, single digit IRRs on others.

Single Asset Focus = Better Control

Jake: Is a DST associated with one building, or multiple buildings inside one DST?

Trevor: You can own multiple properties in a DST, but what I prefer is a single asset DST. That way we have control as the investor and me as their advisor to build the portfolio we want.

If they buy a single DST with three properties, they may only like two of those properties, but they have to buy all three. Whereas if we look at single asset DSTs, we get to build the property portfolio the way we want. About 85% of DSTs are single asset DSTs.

Why Brokers Should Partner with Specialists

Jake: Where do you come in?

Trevor: There are tax-hesitant sellers that don't want to manage property but they don't want to sell because if they did a 1031 exchange they'd have to go manage a new property. They want to basically become a passive owner, and a DST becomes the right solution.

First, the broker may not know how to present the solution. Second, if they have a relationship in the DST space, a lot of financial advisors are primarily stock and bond advisors who also offer DSTs but don't really know what they're selling. Our firm is dedicated and specialized in this space. We do tremendous due diligence.

I've got 20 DSTs right now that have all been vetted by our investment committee. The wirehouses are starting to get into this space, but they have no idea how to evaluate commercial real estate. They don't speak the language. They probably have one investment opportunity on their platform.

When Brokers Should Reach Out

Jake: When should a commercial real estate broker reach out to you? What's the advantage of building a relationship before they absolutely need it?

Trevor: Couple of ways. Number one, I've got material they can keep on hand—collateral, brochures, website information. So if they're approached or end up in a conversation where this comes up, they have information at the ready.

The second is to keep me as a partner in the background. My goal is to help brokers close deals. I get involved in conversations all the time with brokers where I'm structuring an exchange, talking about how to unwind a partnership, how to time the sale to maximize tax deferral. I don't need to talk about DSTs at all if the broker doesn't want to. I am there to help them close the deal because I know at some point they're going to have a need.

I want to help brokers close deals. We can set up initial education to talk through how to look for these opportunities, how to drive new listings by providing this as a solution, and arm them with marketing material to inform those conversations.

And certainly if they're in an exchange right now dealing with a challenging environment to find suitable replacement property, I can step in with very short notice and provide DST options to salvage that exchange.

Want to learn more about how 1031 exchanges and DSTs can help your brokerage practice?

Connect with Trevor Flor on LinkedIn or visit AimpointInvest.com

Thanks for reading until the end!