How Do We Vet Our DST Sponsors?

Vetting and conducting due diligence on our Delaware Statutory Trust (DST) sponsors is critical to safeguarding your investments and ensuring alignment with your financial goals. This strict question/answer process allows us to assess the sponsor’s track record, expertise and integrity and provides insights into their ability to effectively manage your investments. By scrutinizing factors such as experience, financial stability, communication practices and past performance, we can potentially mitigate risks and advise you on informed investment decisions. Ultimately, rigorous due diligence on DST sponsors is essential for protecting your capital, maximizing potential returns and minimizing pitfalls. Since DSTs in general are private investments and do not provide public reporting like a public company (with the exception of a DST that has utilized a 721 UPREIT) we go the extra mile to ensure our product offerings meet our strict criteria before recommending to our clients.

Communications

Since transparent and timely communication ensures investors remain well-informed about the decisions made within their investments, we pay close attention to their communication practices. We want to know the frequency of communications and updates on property performance, financial reports and all relevant information. We ask them about their timeliness in providing information related to tax returns, including 1099s, Form 8-Ks and Form 10-Ks, grantor letters for DSTs, and corporate changes that could be relevant to investors or the SEC, etc.

Third Party Reporting

It’s imperative the sponsor’s assessments are conducted by a credible third-party reporting source. Equally important is that the sponsor is willing to share these findings with you. When the sponsor fosters transparency and accountability, you can establish confidence in the sponsor’s operations and reporting practices.

We require third party reports on the sponsor which review financials but also provides background checks, criminal, civil, litigation on the company and its officers. We also check any regulatory findings with the SEC, FTC, FINRA and the NYSE.

In addition, each DST offering has an independent third party report that reviews and outlines the offering memorandum. They review items such as the proforma, the local market and investment market, fees (load) (are they customary and inline) appraisal, purchase price, environmental and property condition, deal structure and compliance.

Expertise

Understanding the sponsor’s longevity in business provides insights into its stability and experience. We evaluate the real estate acumen of the management team to gauge their depth of experience and expertise in the field. We scrutinize the sponsor’s familiarity with acquiring and managing real estate investments, ensuring they possess the requisite skills and knowledge to navigate market complexities. We assess their proficiency in the property types offered through the DST and their specific markets. We ascertain the sponsor’s familiarity with the entire DST investment process and willingness to offer guidance and support throughout the investment lifecycle.

Financial strength

Assessing the size of the sponsor company provides us insight into its financial stability and resources. We ask how often they audit their DST properties. We inquire about their ability to secure favorable pricing and loan terms on properties, and we check to see whether the sponsor can leverage its own capital to facilitate property acquisitions. We look to see if the sponsor’s underwriting is typically more aggressive or conservative to ensure everything is on the up and up.

Fees

We need to understand the types of sponsor fees, such as acquisition fees, disposition fees and asset management fees and we compare these fees to industry standards to gauge their competitiveness. We also inquire whether the sponsor imposes caps on disposition fees and expenses, offering you protection against unforeseen costs.

Exit Strategies

It’s crucial to know about the DST sponsor’s overarching goal and the strategy for exiting the investment at the end of the holding period. We assess whether the exit strategy aligns with the goals and objectives of our investors so you can gain clarity on the DST’s trajectory and ascertain whether it offers a suitable investment opportunity that aligns with your financial objectives.

Track Record

Key inquiries include the general number of sponsored programs and total equity offered since inception, providing a snapshot of the sponsor’s experience and scale. Understanding the types of assets under management and their historical performance is critical for evaluating the sponsor’s investment expertise. We inquire about the number of properties previously and currently offered by the sponsor, shedding light on their portfolio diversification and management capabilities. We look at the frequency of DST offerings launched by the sponsor over the years. We want to know how long the the company been in business and how long in the DST industry. We review full cycle deals and overall returns along with current operating offerings and projected/budgeted returns vs actual to see their distribution history. We specifically look to see if they are usually in line or do have a track record of reducing returns from over promising and/or being too aggressive on the initial underwriting.

If you have a sponsor in mind, please don’t hesitate to ask us about their track record. and we’re happy to review any materials you have about them.

 

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