Investment
Delaware Statutory Trust (DST)
A passive real estate alternative for 1031 Exchange investors.
What is a Delaware Statutory Trust?
A Delaware Statutory Trust, or DST, is a legal ownership structure that allows multiple investors to hold fractional interests in a single institutional-grade real estate asset. Think of it like owning shares in a property rather than owning the property outright. A DST is most commonly used as part of a 1031 Exchange → For industrial property owners completing a 1031 Exchange, a DST can serve as a qualifying replacement property, allowing you to defer capital gains taxes while transitioning out of active property management entirely. You sell your building. Your proceeds roll into the DST. The DST owns the property, a professional sponsor manages it, and you receive your proportionate share of income distributions without any landlord responsibilities. No tenants, no maintenance calls, no cap ex decisions.
Who is a DST the Right Fit For?
A DST is not the right answer for every 1031 Exchange. It is the right answer for a specific type of owner in a specific situation. The ideal DST candidate is typically someone who has built significant equity in an industrial asset over many years, is ready to step away from active management, and wants to preserve and grow that equity without triggering a large tax event, but does not want the ongoing responsibility of owning and operating another building. This profile is common in the IE industrial market. Long-term owners who purchased buildings in the 1990s or early 2000s, who have watched their equity grow substantially, and who are beginning to think about what comes next, for themselves, their income, and their estate.
A real example:
We recently sold a multi-tenant leased investment in Fontana that had been in a family for years as an inherited asset. The seller managed the property himself but lived in San Diego and was not able to give the building the attention it needed: deferred maintenance, cap ex items piling up, and tenants that required more active management than the owner could provide from a distance. Rather than cash out and face a substantial tax bill, the seller completed a 1031 Exchange into a DST that owned a large distribution facility leased to a national credit tenant. The result: capital gains deferred, passive income stream established, management responsibility eliminated entirely.
How a DST Works
DSTs are structured and managed by professional sponsors, real estate companies that acquire, finance, and operate institutional-grade properties and offer fractional ownership interests to accredited investors completing 1031 Exchanges. Common DST property types include large distribution centers, net-leased industrial facilities, and other institutional assets with creditworthy tenants on long-term leases. These are properties that most individual investors could not access or afford on their own. Your investment in a DST entitles you to:
- Your pro-rata share of rental income distributions
- Potential appreciation in the underlying asset value
- Continued tax deferral on your capital gains through the 1031 Exchange structure
The DST sponsor handles everything else: property management, leasing, capital expenditures, and ultimately the disposition of the asset when the time comes.
What to Understand Before You Proceed
A DST offers genuine benefits, but it is not without trade-offs. Every owner considering a DST should understand these clearly before committing:
Illiquidity:
DST interests are not publicly traded. Once your proceeds are invested, they are locked up until the sponsor disposes of the underlying asset, a process that typically takes several years. There is no guaranteed exit timeline and no secondary market for your interest. This is not a liquid investment.
Loss of control:
As a fractional interest holder, you have no say in how the property is managed, when it is sold, or what the terms of any future transaction will be. You are a passive investor, not an owner-operator. For owners accustomed to making all the decisions about their building, this is a meaningful shift.
Returns are not guaranteed:
DST income distributions depend on the performance of the underlying property and tenant. If the tenant vacates, stops paying rent, or if market conditions deteriorate, distributions can be reduced or suspended. Evaluate the creditworthiness of the underlying tenant and the strength of the lease carefully before investing.
Accredited investor requirement:
DST investments are available only to accredited investors as defined by SEC regulations.
Deal-by-deal evaluation:
Every DST offering is different. The property, the tenant, the lease structure, the sponsor’s track record, and the terms of the investment all vary. There is no one-size-fits-all DST; each deal must be evaluated on its own merits.
Estate Planning Considerations
For owners who have built significant equity and whose heirs do not intend to continue in real estate, a DST can be a powerful estate planning tool. Rather than leaving a building, with all its management responsibilities and potential financing complications, to heirs who may not want it, a DST provides passive income during your lifetime and a transferable fractional interest that is simpler to pass on or liquidate at the appropriate time. This is a conversation best had with your estate planning attorney and CPA alongside your real estate advisor.
Our Role
We facilitate the sale of your relinquished property and help you understand your options, including whether a DST makes sense given your situation. We are real estate brokers, not financial advisors or DST sponsors. If you have a financial advisor, CPA, or estate planning attorney, we always recommend consulting with them first before making any DST investment decision. If you would like an introduction to a DST sponsor or specialist after consulting with your personal advisory team, we can assist with that as well. Our focus is the real estate transaction: getting you the best possible outcome on the sale side, and making sure you understand all of your options on the replacement side.
This content is for informational purposes only and does not constitute legal, tax, or investment advice. DST investments involve significant risks including illiquidity, loss of principal, and no guaranteed returns. DSTs are available to accredited investors only. Please consult a qualified financial advisor, attorney, and CPA before making any DST investment decision.
Thinking About a DST as Part of Your 1031 Exchange?
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