Recently, Kay Properties founder and CEO, Dwight Kay, sat down to discuss some of the DST real estate properties his firm recently had available for accredited investors. These properties are now fully subscribed, however they represent good examples of DST properties that are available on the kpi1031.com marketplace, and examples for 1031 exchange real estate options. The interview was recorded and transcribed so investors can have easy access and use it as a reference for their own Delaware Statutory Trust and 1031 exchange questions.
Because Dwight Kay is a nationally recognized expert on Delaware Statutory Trusts, and is considered to be the first person to have authored a book exclusively on Delaware Statutory Trusts and 1031 exchanges, this is another “must-read” interview for any potential 1031 exchange investor and is a straight-forward and informative insight into the types of DST real estate properties that are available for 1031 exchanges.
Key Takeaways:
- Get access to 20-40 DST properties from more than 25 sponsor firms at www.kpi1031.com.
- Learn more about what is believed to be the first-ever debt-free DST offering ever.
- What is an example of a net lease Delaware Statutory Trust property?
- What is a lender cash flow sweep, and how can debt-free real estate offerings avoid this?
- How to replace debt with DST properties for a 1031 exchange?
To listen to the entire interview, please check-out the Kay Properties and Investments YouTube channel here:
Here are some highlights from the recording:
- Specific examples of Delaware Statutory Trust investments including one of the first all-cash debt-free multifamily offerings in the history of Delaware Statutory Trusts.
- Details about a debt-free Delaware Statutory Trust multifamily property example in Nashville, TN.
- Net lease essential Walgreens pharmacy Delaware Statutory Trust property in Phoenix Arizona.
- Frito-Lay industrial distribution facility Delaware Statutory Trust.
- FedEx Ground industrial distribution facility Delaware Statutory Trust property.
- How debt-free Delaware Statutory Trust offerings can help investors avoid a cash flow sweep.
- Atlantic Medical Delaware Statutory Trust offering example.
- Brand new multifamily Delaware Statutory Trust investment opportunity in Houston, Texas.
- How to replace debt for Delaware Statutory Trust properties.
- Complete set of resources for Delaware Statutory Trust investors including free book, magazine subscription, webinars, podcasts, and private dinners.
Introduction by Dwight Kay:
All right, everybody. Thanks so much for joining us. This is Dwight Kay with Kay Properties and Investments. Today we're going to be going over Delaware Statutory Trust examples, 1031 DST Investments for 1031 exchanges. Bear with us as we jump into the risks and disclosures.
Kay Properties Disclosure Information
The information herein has been prepared for educational purposes only and does not constitute an offer to purchase securities, DST properties, or real estate. Such offers are only made through a private placement memorandum or ppm, which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors. Uh, if you're unsure, if you're an accredited investor and or an accredited entity, please verify with your CPA attorney prior to considering an investment. Internal Revenue Code section 1031, section 1033 and section 721, as well as Delaware Statutory Trust investments, are complex financial and tax concepts.
Therefore, we encourage you to consult with your legal and tax professionals regarding the specifics of your particular situation before considering an investment or an exchange. And this material is not to be interpreted as tax or legal advice. There are material risks associated with investing in real estate DST properties and real estate securities, including loss of investment principle, illiquidity, tenant vacancies, interest rate risk, declining rental rates, declining market values, general risks of owning and operating real estate financing risks, adverse tax consequences, as well as general economic risks. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. These scenarios included are hypothetical and not intended to represent any investor's actual situation or any performance of any investment. Your scenario may have many other factors not mentioned and included here, uh, because investor's situations and objectives vary.
This information's not intended to indicate suitability for any investor. Diversification does not guarantee profits or guaranteed protection against losses. Past performance is not indicative of future returns and potential cash flows. Returns and appreciation are not guaranteed and could be lower than anticipated. Please read the private placement memorandum or PPM in its entirety, paying careful attention to the risk section prior to investing, and all information provided is for educational purposes and is general in nature. Securities are offered through FNEX Capital, member FINRA, SIPC.
Dwight Kay Discusses Some Specific Examples of DST Investments for 1031 Exchange Investors
So, jumping in today, we're going to go over some example DST investments for 1031 Exchanges. It's important to note that the following properties are fully subscribed DST examples. These are Regulation D Rule 506(c) DST offerings. They're fully subscribed, not available for investment and future offerings will vary. If you'd like to see a list of currently available DST 1031 properties from typically over 25 different DST sponsor companies with anywhere from 20 to 40 different DST offerings, please visit and register at www.kpi1031.com for current inventory.
- Located in the Nashville MSA near Google’s new Data Center, the property is a townhome community that was completed in 2012-2015.
- Built in the rapidly growing city of Clarksville, TN, the property is favorably located within a 4-minute drive of Wal-Mart, Starbucks, McDonalds, and the zoned elementary, middle, and high schools.
- 0% Loan-to-Value (100% Debt-Free).
Thistlewood Townhomes Delaware Statutory Trust Property Example - A debt-free DST offering in Phoenix, AZ that consists of major pharmacy tenant whose long-term net lease is backed by the parent company. This tenant is considered recessionary-resistant as well as COVID-19 pandemic resistant.
Okay, so jumping into it, this one right here, um, is an interesting offering because this was what's believed to be the first all-cash debt-free multifamily in the history of Delaware Statutory Trust. Most Delaware Statutory Trust properties in the market today, and it's been this way for many, many years, have had leverage associated with them. So typically, fixed-rate, long-term non-recourse financing, you know attractive financing in my opinion if you're going to be placing debt on a property. But a lot of investors nowadays are looking for a way to mitigate risk, and they don't want the risk of a potential lender foreclosure. And really the only way to do that is to not have a lender. And so, this was an all-cash debt-free multifamily offering called The Thistlewood Townhomes, DST.
It was located in the Nashville metro area near Google's new data center that was being put in. The property was a townhome-style community. It was completed in 2015. It's a rapidly growing area, Clarksville, Tennessee, and within about a four mile drive from Walmart, Starbucks, and many national retailers. So, this was a debt-free multi-family DST.
- A pharmacy located in Phoenix, AZ. The property is located in a densely populated trade area with more than 210,000 residents within 5 miles.
- The property is located on a signalized hard corner location with a combined traffic count of 48,354 cars per a day.
- The Tenant, Walgreen Co., is a subsidiary of Walgreens Boots Alliance, the largest retail pharmacy, health and daily living destination across the U.S. and Europe with sales of $131.5 billion in the fiscal year ended August 2018.
- 0% Loan-to-Value (100% Debt-Free).
Essential Pharmacy Delaware Statutory Trust Property- The next one is an essential pharmacy, DST. This one was a Walgreens pharmacy, corporately backed and located in Phoenix, Arizona. So this area has about 210,000 residents within five miles. The property sits on a signalized hard corner location with a combined traffic count of around 48,000 cars per day. And the tenant, which was Walgreens company, is on a long-term net lease, where the tenant, okay, not the landlord, but the tenant Walgreens is responsible under a net lease for typically the majority if not all of the property maintenance, taxes, and insurance.
This is what we call a net lease. So this one is a corporate-backed net lease long term, with Walgreens, and in a market like Phoenix, Arizona was well received by investors. So again, that's an example offering.
- Industrial distribution facility in Sterling, VA, an affluent submarket of Washington D.C.
- The Frito Lay DST property was newly built in 2019 and consists of a long-term net lease with Frito Lay. This property was developed specifically for the tenant who uses the facility as a distribution facility.
- Located just north of Dulles International Airport, the property sits in a desirable infill industrial park.
- The Tenant, Frito-Lay North America makes some of the most popular and high-quality snacks available in the marketplace today.*
- 0% Loan-to-Value (100% Debt-Free).
Frito Lay Distribution Delaware Statutory Trust - Next, we have a Frito-Lay DST. This one was an industrial distribution facility in Sterling, Virginia, which is right next to Dulles International Airport just a short drive to the property from Dulles, which is an affluent submarket of Washington DC. This one was also a debt-free offering with no risk of lender foreclosure. It was a brand new, Frito-Lay distribution facility built in 2009 with a long-term net lease specifically built for the tenant and its needs. Again, just north of Dulles airport property sits an infill industrial submarket, and the tenant, Frito-Lay - everybody knows Frito-Lay who makes some of the most popular and high-quality snacks available in the marketplace today.
So industrial distribution is an asset class that many investors these days are very interested in because of the various demand drivers and economic factors, as well as with all the online shopping. So, industrial distribution has been a sought after asset class. This was a couple years ago before it was as sought after as it is today in 2023. But 2019 debt-free industrial distribution facility.
- A sorting and distribution facility located in Uvalde, TX. Nearby tenants include Pepsi Cola Distribution, Fresenius Medical Care, Reddy Ice Distribution, United Parcel Service (UPS), Garner Field Airport and the US Border Patrol.
- Long Term, 10-yr net lease with FedEx Ground Package System, Inc.
- The Texas FedEx DST property was newly built in 2019 specifically for the tenant who uses the facility as a sorting and distribution center facility.
- The Tenant, FedEx Ground Package System, Inc. is the most profitable subsidiary of FedEx and is currently FedEx’s fastest growing subsidiary.
- 0% Loan-to-Value (100% Debt-Free).
Texas FedEx Ground Delaware Statutory Trust Property - The next one is a FedEx Ground industrial distribution facility in Uvalde, Texas. This was a debt-free offering as well. A long-term 10 year net lease with FedEx Ground package System Inc. The property being debt-free is for investors that are looking to mitigate risk. They don't want the risk of a lender foreclosure or potential cash flow sweeps by a lender.
Dwight Kay Explains How Debt-Free Real Estate Offerings Can Avoid Lender Cash Flow Sweeps
A lot of corporate commercial real estate offerings have net leases that have large corporate tenants on the lease terms. The lenders have a provision in the loan docs whereby if that tenant their credit rating were to drop below a specific threshold, the lender would be able to sweep the cash flow. And we saw that with some DSTs, I think it was four or five years ago, whereby it was an investment grade tenant. But because of a large acquisition that the tenant believed made sense for their business model, the rating agencies, because of that increased debt, actually dropped them below investment grade credit rating for a short period of time. And when that happened, it triggered a cash flow sweep with the lender, where instead of the monthly rent going to investors on the offering, it had to go to the lender into a lockbox. Now, the tenant was able to, to increase their credit rating, and those funds were released back to investors, but that was a risk that if you're in a debt-free DST if that were to happen, you don't have that risk.
So, FedEx Ground is considered the most profitable subsidiary of FedEx and is currently their fastest-growing subsidiary. So that was a debt-free offering.
- A medical facility located in Atlanta, GA. This location consists of 8,213 SF which houses 16 patient stations, 1 private station and 2 home therapy rooms.
- This location has excellent access to Interstate 285, a highway loop which encircles Atlanta for 70 miles and connects three major highways to Atlanta.
- Long term net lease with Fresenius Kidney Care. Leased through July 31, 2033 with three 5-year renewal options.
- The Tenant, Fresenius Kidney Care (a division of Fresenius Medical Care North America) is a leader in the treatment of renal diseases.
- 0% LTV (100% Debt-Free).
Atlanta Medical Delaware Statutory Trust Property - Another one, Atlantic Medical DST. This is a Fresenius Dialysis Center located in Atlanta, Georgia. You've got 16 patient stations, one private station and two home therapy rooms right off Interstate 285 Highway loop, which encircles Atlanta for 70 miles. It's a long-term net lease through 2033 with three five-year renewal options with Fresenius medical care. So again, another debt-free offering that was available on our marketplace at www.kpi1031.com.
Again, we work with many different sponsors who have their offerings posted on our marketplace. A large majority of them are leveraged where they have financing for those investors needing to replace debt for their 1031 exchanges. But then a lot of them also have, a large majority of them are also debt-free, where they don't have the risk of a lender foreclosure or any financing. So, um, investors, you know, depending on your situation, you're able to view the offerings, understand the potential pros and cons. We'll walk you through the risks of each offering and talk you through the potential business plan. Then from that point, you're able to build a portfolio that you believe makes the most sense for your particular situation.
- 2020 New Construction.
- Class A 50 Unit Building with top-of-the-line amenities.
- 98% Occupancy.
- Turnkey Asset in Highly Desirable Location.
- Loan-to-Value: 38.4%.
Houston Multifamily Delaware Statutory Trust Property - Next, we have a multi-family property. It was a 50 unit multi-family building, brand new 2020 construction located in Houston, Texas, and the Montrose area, which is kind of the hip, artsy, you know all the bars and restaurants and art galleries part of downtown Houston. This was fully occupied, 98% occupied. This one did have a long-term fixed rate financing on it. It's a 10 year loan from Fannie Mae at a 38.4% loan to value. So for those investors that needed to replace debt, this one was available for them to, you know, purchase equal or greater value in their 1031 exchange.
Dwight Explains How to Replace Debt with Delaware Statutory Trust Properties
Now how it works when you're purchasing a DST that has debt on it, if the property for easy math purposes has a 50% loan to value, and if you've invested $100,000 of 1031 proceeds into that property, the loan is already locked, it's in place. And your $100,000 of equity just bought you $200,000 of property because it had a 50% loan of value on it. Where if it was a debt free property, your $100,000 of equity only bought you a $100,000 worth of real estate because it's debt free with no risk. So debt can be potentially accretive to potential cash flows. It can enhance potential returns, but you do have much higher risk because you have the risk of a lender foreclosure. So investors that are investing in offerings with debt need to understand that they should read the private placement memorandum, understand the risk factors, and if you're not willing to absorb the risk of a potential lender foreclosure, debt-free DSTs may be the right fit for you. So again, we can walk you through that as you're discussing your situation with us.
New Speaker (11:10):
- Amazon distribution center located in Akron, OH.
- Lease Guarantor: Amazon.com Inc.
- Investment Grade Lease Guarantor: Amazon.com, Inc has a Moody’s investment grade credit rating of A2 and a Standard and Poor’s investment grade credit rating of AA-.
- In 2019, tenants had $280.5 billion in revenue, 31% growth from 2018.
- 0% Loan to Value (100% Debt-Free).
Amazon E-Commerce Distribution DST - The next one was another debt-free property an Amazon e-commerce distribution DST available for 1031. Also, these DSTs a lot of investors or most investors utilize them for 1031 exchanges, but we also have clients that are building positions and want to be diversified outside of the stock market or put capital to work so they're direct cash investments.
DSTs are also available for direct cash investments. But this one here, the tenant was Amazon, Amazon.com Inc. is the lease guarantor with an investment grade tenant rating. Very, very large market cap. So again, a debt-free industrial distribution facility.
New Speaker (11:51):
Dwight Explains How to Replace Debt with Delaware Statutory Trust Properties
Now how it works when you're purchasing a DST that has debt on it, if the property for easy math purposes has a 50% loan to value, and if you've invested $100,000 of 1031 proceeds into that property, the loan is already locked, it's in place. And your $100,000 of equity just bought you $200,000 of property because it had a 50% loan of value on it. Where if it was a debt free property, your $100,000 of equity only bought you a $100,000 worth of real estate because it's debt free with no risk. So debt can be potentially accretive to potential cash flows. It can enhance potential returns, but you do have much higher risk because you have the risk of a lender foreclosure. So investors that are investing in offerings with debt need to understand that they should read the private placement memorandum, understand the risk factors, and if you're not willing to absorb the risk of a potential lender foreclosure, debt-free DSTs may be the right fit for you. So again, we can walk you through that as you're discussing your situation with us.
New Speaker (11:10):
Delaware Statutory Trust Properties and Sponsor Firms
So those are just some examples of Delaware Statutory Trust offerings. Again, they're fully subscribed, not available for investment, but if you visit www.kpi10131.com, you'll receive free access to our marketplace of DSTs at Kay properties. And these are, again, typically from over 25 different DST sponsor companies. So, the sponsor company is the asset manager that goes out offers on the building, puts it under contract, does all the, you know, the review and analysis of the appraisal property condition report, environmental report, negotiates with the seller and then closes and buys that asset, that piece of property, and then packages it in a DST that makes it available for investors.
Then once investors close on it, the sponsor provides asset management typically for the property as well as investor relations and reporting. So that's a sponsor company. And at, at Kay Properties we work with, it's around, plus or minus 25 different DST sponsor companies that we worked with for many, many years since we've been in the business that their job is to provide offerings for investors. So when you log in, you'll have access to those sponsor companies offerings, which again, is typically between 20 to 40 different DST offerings available. Okay? A large amount of those are debt free with no leverage associated, and then others that have leveraged non-recourse financing for those that need to purchase that equal or greater value, um, in their 10 31 exchange.
New Speaker (13:24):
So say you sold for, uh, $2 million, but when you sold your property, you paid off a loan of $1 million dollars. Okay? So let's say you have a $1 million to do your 1031 exchange with. If you want to have that full tax deferral, obviously first talk to your CPA attorney, they'll guide you on that. But the general rule thumb is to purchase equal or greater value as the property you sold. So if you sold for $2 million and paid off your loan for a million, now you have a million capital or equity available to reinvest. You would need to purchase $2 million worth of real estate for that full 1031 exchange tax deferral, which is that equal or greater value. So on the platform on the marketplace at kpi1031.com, you'll be able to see offerings with debt as well as those that are debt free. And then also we have some opportunistic and income-oriented real estate funds for direct cash investors. So if you register today, you'll get free access at www.kpi1031.com to the marketplace.
Delaware Statutory Trust Properties and Sponsor Firms
Also, we have a number of DST 1031 resources and educational materials when you register at www.kpi1031.com. You'll get
- A free book on 1031 DST Properties that I published years ago. It's believed by many to be the first book ever published on DSTs. So, we'll get you a copy of that.
- We'll give you a free subscription to the 1031 DST Digest magazine. So, you get a subscription to that which goes into case studies, overviews educational material on 1031 exchanges on Delaware Statutory Trusts on different asset classes, on locations and segments of the economy. So the 1031 DST Digest for those that are considering maybe doing a 10 31 exchange or a Delaware statutory trust will be a valuable resource and tool for you as you're learning all about, uh, this world that we live and breathe every day.
- Next, we have educational 1031 conference calls. We do those weekly, as well as 1031 DST webinars that we do weekly. So we'll get you access to those. And those are, again, timely topics on 1031 exchanges, Delaware Statutory Trust, and what you as an investor need to know about how they work, what you need to understand about them, their potential pros and benefits of investing in DSTs, and also the potential cons and risks. We'll walk you through in these conference calls and webinars, those pros and cons so you can make a decision as to what potentially makes the most sense for you and your situation.
- And then also we at Kay Properties we have clients located throughout the country. So we'll also put you on a list and invite you out to one of our free DST 1031 Exchange educational dinner events that we hold throughout the country from time to time. So love to have you meet us in person at one of those.
New Speaker (16:15):
So here at Kay Properties, our entire team, we're here to assist you in any way possible and we are your dedicated 1031 DST resource. So if you give us a call at 855-899-4597 speak to one of our team members, and we'll walk through your situation and see if we could potentially help you out. Or if you just want to register at www.kpi1031.com and get access to all those things mentioned earlier. So we're here to help you out. Feel free to reach out at any time and just really appreciate everybody and your time. So thank you very much.