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Delaware statutory trusts have climbed in popularity in the past few years, as investors have taken advantage of rising asset prices to complete 1031 exchanges into products that allow them to grow their wealth with a fully passive investment vehicle. But will this trend continue now that the real estate market has a hit a rocky patch?
Justin Amos, national sales manager and account executive at JTC Americas, joins the show to discuss the growth of the DST market and the trends that will shape its future.
Watch On YouTube
- Background on Delaware statutory trusts (DSTs), including their history as a product, and their advantages over similar types of investment “wrappers.”
- How the DST market has reacted to economic uncertainty in 2022 (including the general slowdown in the real estate market).
- What types of investors are attracted to DSTs.
- How the average lifecycle of a Delaware statutory trust has changed in the past few years, given the run-up in real estate asset prices.
- Justin’s prediction on the growth of the DST market over the next five years.
Featured On This Episode
- The Investor’s Guide To DSTs (AltsDb)
- Webinar: Innovative Strategies for Tax-Advantaged Investing – August 24, 2022 (JTC Americas)
Today’s Guest: Justin Amos, JTC Americas
About The Alternative Investment Podcast
The Alternative Investment Podcast covers new trends in the alternate investment landscape. Hosts Jimmy Atkinson and Andy Hagans discuss tax-advantaged investment strategies to help you grow your wealth.
Andy Hagans: Welcome to the Alternative Investment Podcast, I am your host Andy Hagans and today we’re talking about future and current trends in the DST industry. We’re talking 1031s Delaware statutory trusts.
And all kinds of the nitty gritty that my guest, Justin Amos, who is national sales manager and account executive at JTC America has all those trends that he has seen from that inside perspective because he really has his fingers on the pulse of the DST industry. Justin, welcome to the Program.
Justin Amos: Thank you for having me, I appreciate you having me.
Andy Hagans: And so I mentioned that I really think that you see this world, the world of DSTs from the inside angle coat. So could you tell us a little bit more about your background, what you do at JTC America.
Justin Amos: Yeah that’s no, of course, so in our role, you know within the 1031 exchange spaces, you know really twofold at JTC America.
You know, as a qualified intermediary we get to do the day to day experience you know managing clients, you know 1031 exchanges from beginning to end, and then also as a fund administrator.
We work with DST sponsors helping provide the back office solutions so.
Helping onboarding that those investors that are coming from 1031 exchanges onto their into their investment offerings managing that the investment process throughout the entire fund life cycle so handling the fund accounting treasury services are really getting to know the weeds of what sponsors are looking for from.
You know, as administrator like ourselves, but in additionally putting out products that are meeting these investors criteria for a suitable replacement property.
Andy Hagans: Okay, so you’re working with with the sponsors for fun administration and then you’re qualified intermediary for investors, who are wanting to 1031 exchange.
India DST so you’re actually familiar with all of the friction re like all these kinds of transaction there’s pain points or friction, or whatever you want to call it, and you basically get to see that from both angles.
Justin Amos: Yeah and and hopefully our solutions are actually helping solve that and that friction that you speak of a lot, a lot of times when we’re speaking with sponsors.
That friction ends up having to be with you know with qualified intermediaries and their investor services team having to reach out to each of these investors with some time you know amounts to hundreds and hundreds of investors, so you can imagine, having to touch on different points.
For these investors trying to get the money put into the into the offering so they can actually close the accounts, you know.
As you may or may not know some of these offerings closed, you know within days of you know, being launched into the market.
In some but they really don’t end up closing they they they may have the capital or fully you know.
A mass for the offering but they don’t actually close until a few weeks later, and that has to do with you know.
finalizing the documents, a part of the transaction getting the money actually into the offering is because sometimes you know you guys are still very new paper database, or one person is controlling the.
portion of the proceeds that end up sending out the money, so a lot of headaches that can be involved.
You know, with this type of transaction these types of investments, and you know our solution really combines all of it into one really eliminating.
The headaches for our sponsors and so that way they can focus on what they you know they do best is you know sourcing these acquisitions and putting quality product out to to meet their investors neutral investment.
Andy Hagans: Well, so and i’m familiar, by the way, with JTC America and a lot of your solutions, so I know that you know JTC America as a company is very technology oriented.
And like you said focus on hopefully removing that.
friction, but is this is this industry still stuck in the Stone Age you know talking about 1031 exchanges and qualified intermediaries or is that starting to change.
Justin Amos: not know I think that’s you know it’s a great question I I think we’re slowly starting to change.
You know I think we, when we were back you know founded in 2005 with this idea that there are certain investment programs, you know well, well intentioned.
You know, may lack the the transparency or technology to help streamline the administrative requirements for these types of you know, funds or transactions.
We were really going out to really do better with industry, as you may know, you know back thousand five or 2008 when the turn of the housing crisis, there was a lot of Q, if I were gambling people’s money.
You know, putting them in commingling people’s funds, putting them in a highly liquid accounts, and you know, there was a lot of fraud being done in the space and.
And I still to this day, the Q I the coffins meteor or QA industry is not regulated, you know we were spent a lot of.
gtc and I know our executive team spent a lot of time on Capitol Hill trying to push best practices, you know, try to have that the who can be a cutie pie, and what the industry.
expects of these are these types of companies, but unfortunately still to this day there there, there is no regulation so.
there’s no certain set of rules that each queue, it has to do they each company can really.
You know, does what they what they want to do with with the with the funds or how they operate, they know some some have come up to in and.
meet the industry standard, but there is no this line in the sand, it just really needs to be a truly third party, you know regulator over these over these exchangers funds so.
Andy Hagans: So if i’m if i’m completing a 1031 exchange on needed qualified intermediary whether it’s into a dsp or or direct property.
Justin Amos: Correct.
That, and I could look into JTC America or.
Andy Hagans: My best friends second cousins bookie or something.
I want to go with the name brand gtc america’s.
Justin Amos: Yes, yeah that you would definitely want to go with your name brand you know, most people commonly think like oh like working with my CPA or attorney they can be.
They can be a qualified meteor I know I have no close relationships with them, but the irs teams those people, as you know, related party so because you’re they’re providing you with.
You know, certain advice or guidance, whether it be you know tax or legal.
Because, as a qualified intermediary we we can provide any legal or tax advice, otherwise I would disqualify us for hope for holding such position, so it really needs to be.
Truly third party oversight of these types of funds and and a name brand definitely helps make you feel comfortable about who you’re working with.
Obviously, another point, I would say expertise, how long has the company been in the industry for us we’ve been in the business for about 17 years.
And like I said, and then the technology component of it that we bring to the space, which I would say really separate ourselves from the other companies is that we’ve.
taken the liberty of not staying in the Stone Age operating on paper processing, you know just.
Focusing on one person to manage our operations, we have a full team providing our back office servicing and each of our clients are dedicated and exchange expert leveraging both our our.
Personal and manpower or people power and our technology together to really help our business scale and helping you know efficiently process, you know exchanges at a high club.
Andy Hagans: got it Okay, well, I think most of our listeners and viewers are familiar with 1031 exchanges i’m guessing a lot of them are pretty familiar with DST is but i’m guessing a few of them are not so you know I, we know that DST is there a way to 1031 exchange into real estate product.
But it’s fractionalized so I don’t have to 1031 exchange directly into a property that I individually own.
But instead i’m pulling my money, together with other investors and I get to be an LP a passive investor.
In the DST so it’s a way to 1031 into something that I passively own but can you talk a little bit about origins DST Delaware statutory trust, by the way, I don’t know if we’ve said that yet and episode.
talk a little bit about the origin of the dsp program and how might compared to similar types of rappers or vehicles.
Justin Amos: yeah, no, no, I definitely touch on that, so you know it was founded our revenue rolling up to 2004 dash 86 this it really became.
In essence, a difference to the the tenant in common space so for T ic or take investments, as you know, there became a lot of complications.
With these types of offerings though they do qualify as a suitable replacement property for these types of investments people pulling together into one large offering the difference being is that.
As fund managers or owners of the tenant in common investments started to find out that there are a lot of complications, even from an investor standpoint that having to.
You know, do background checks or having access to the debt portion of the investment, you know, a decisions that are looking to be made on the property or properties under this.
Offering have to go through each of the investors, and you know and everyone, as you can imagine, has their own set of agenda you know.
Andy Hagans: own set of a unanimous it’s like a unanimous.
By law type.
Justin Amos: yeah exactly right yeah so everyone has to agree like whether it’s you know, to change the fence post on on the House or maybe even just to do a construction thing so happy, you know.
So that so as you can imagine that that that can make those types of decisions drag on, and and be tedious, whereas in a Delaware statutory trust you, you are here it’s a slice of the pie.
And you’re buying a beneficial interest in this in this trust, but the responsibility, both from a financial standpoint and the decision making are with these you know large commercial real estate companies that have been doing this.
You know, for many, many years, and I think that’s the attractive part.
With Delaware statutory trust versus you know, trying to can comic investments so it’s not I wouldn’t say mom mom and pop or maybe your local you know real estate syndication these are companies that have you know.
track record a track record of success in the industry for many years.
On top of that, it is a passive investment so you know, going from the day to day management of you know trashing garbage on your you know your physical piece of real estate now you’re moving into something.
that’s truly meant to be just a rent check that you are a check the mail check that you get every single month.
Andy Hagans: Right, so now talking a little bit about the sts I mean, I know that they’ve they’ve blown up in a good way they’re tremendously popular and I think you touched on that just the structure of having a trustee.
And they’re highly regulated by the way, Dolores so trust there’s a lot of restrictions on.
You know what kind of real estate their assets, they can buy how they have to operate it and so on and so forth.
But just having that trust you make decisions and be a passive investor versus you know we have 20 investors and we need to to vote the same way on every single decision I mean It just seems intrinsically.
More efficient but let’s talk about sales for a minute and how these products are distributed, I know that some DST can be sold directly to accredited investors so like 506 C and then some of them are sold as five or six piece through registered REPS to broker dealers.
Do you have any sense on the proportion of you know transactions or assets that are placed through financial advisors versus five or six CDs that are you know directed.
Justin Amos: yeah so it not so I would say the industry itself has been predominantly 506 B, and I think that’s you know due to you know the lot of the sales agreements that these sponsors don’t have to.
Take the responsibility of going direct to the to investors and having to really source their own capital they they go through their iras are managing broker dealers that specialize in these types of investments and I have a wide net.
Andy Hagans: we’re real quick how many of those are there, so you mentioned, you know ra and.
broker dealers, you know financial advisors that specialize in this type of investment, I think it was louie Rentals so we had on the show.
yeah he he basically said look out of the thousands of our IAS and in the thousands of registered wraps the vast majority of them.
have almost no awareness, or no experience with these DST right so give any sense, even from the advisor perspective, like Is this a relatively narrow subset of advisors.
That tend to specialize in real estate transactions or do they just advise high net worth individuals or break that down for me.
Justin Amos: No, no, no, and so shout out to Rentals in the in his company there he him and his group are doing, you know great within another.
game putting people in front of the right piece product, and they have a great touch with both the sponsors and you know the iras and managing broker dealers that are in the space.
But it like he mentioned, and you know amen and we we feel your JTC America is is definitely a very 1031 exchanges itself.
Is a very niche and specialized market and not even you’re not every CPA or even every attorneys you know familiar with you know this type of investment.
As a solution for for for their clients and within which is why you know what you’re doing right now.
You know, with this podcast education and information informing people is what’s really going to help the industry continue to succeed and.
You know, get the word out there, that this these types of this type of offering is out there, this type of solution is out there, for you know your average exchanger.
But also, limiting it down to win numbers, you know I would definitely say a specialized not every financial advisor knows.
You know about gst they may have it on their you know their firms, you know platform as a potential solution but they’re not going to be able to you know walk you through the benefits do the due diligence.
Andy Hagans: On I see it in my little database, but i’ve never click that button exactly right yeah I was like I know I know it’s there, I was like I don’t know too much about it.
Justin Amos: Is this is something of interest to you.
And that’s probably about it, like and they and they might they might not like key phrases 1031 or.
or DST and and and don’t get DST you know confused with you know, a different sales stress, you know that’s.
You know Delaware statutory trust is something that’s actually you know proven to be successful it’s been around and there is a revenue ruin with the irs whereas you know what the deferred sales trust, this is something that’s been been growing pocket over the last few years, but.
don’t get that get that confused with you know.
Andy Hagans: just say you just gave me a flashback this was years ago I co founded ETF database which my partner’s Jimmy and Michael and I we sold that business that was the largest independent media site at the time that we had that covered etfs exchange traded funds.
Justin Amos: yeah.
Andy Hagans: And my mom always asked me how’s the eft database going at like for five years straight, you have the eft i’m like I think he I don’t know what eft stands for the ETF database anyway.
So so Delaware statutory there’s a lot of these acronyms get thrown around and.
Justin Amos: I know exactly right.
Sometimes it’s hard to keep them all together, but Delaware statutory trust is is you know what we’re talking about here, and the one that’s.
Actually, has you know some backing with you know irs revenue rulings and legal procedures that this is a qualified investments solution for 1031 exchanges.
Andy Hagans: got it got it okay so let’s talk about how hot this market is because I mean it’s tracked it tracks somewhat without hot 1030 ones are and how hot the real estate market as but DST is are.
There they’re kind of their own thing because not only you know you’re only going to 1031 and do a DST right and investor isn’t going to invest into one unless they’re 1031 exchanges, out of another property Is that correct.
Justin Amos: No actually so a lot of so 10 DS DS are actually also available to cash offerings as well, so the the different the different in minimums between investments.
You know very per sponsor but typically you know from an industry standard standpoint, usually it’s about you know $50,000, for you know cash investments and $100,000 for.
Andy Hagans: But that’s interesting though, but so if I invest then and and it’s not a replacement property at that point is just it’s almost like i’m investing in non traded retorts with different legal structure.
Of course um so that’s interesting So if I just invest cash into DST and then it goes full cycle, you know 579 years later I get my cash out, can I then 1031 exchange.
That cash proceeds.
go into a new property.
Justin Amos: No, no, you have to if.
you’re following the trend gag exactly right so If so, if you invested in a cash offerings and you know you’re not going in with an exchange proceeds, but now you’ve seen that you know that capital investment go full cycle and hopefully.
Now you have some capital gains at the time of the.
op ED so so that would be the advocate because i’m thinking.
Andy Hagans: Why would I invest if i’m just pure cash, why would I invest into the dsp versus just putting it into a REACH or any other kind of private equity real estate fund.
And the reason is because it’s treated for 1031 exchange purposes.
Justin Amos: yeah that’s.
Andy Hagans: that’s The primary reason that I would choose to invest just regular cash, not as a replacement property, but just invest in a dsp would be to like start the chain of 1031 exchanges.
Justin Amos: exactly right and so maybe you’re looking.
To you know build your real estate portfolio you don’t want to own physical piece of real estate, but you want to invest them use different times so offering so now you’re starting the chain of you know, essentially, you know.
1031 exchange in until you die as the common phrases with.
Andy Hagans: off till you drop.
Justin Amos: yeah exactly swati drop exactly right and so you’re starting that chain, because you can then you know full cycle now you have a capital gain you know or attacks.
Point and then you can reinvest it into an Indian other DST or if you, you know, depending on your cash offering into the investment, you can you know leave it and go into.
You know, a physical piece of real estate, but you really have that decision at that point, you know what were your ultimate direction you want to go.
I would say most most investors are not designed to pay the capital gains at that point, but you know, there are there are there are a few that end up doing, but I would say that those are slim to none.
Andy Hagans: got it Okay, so we know that.
Or at least, from what I understand the the cycle for do that DST is the sales cycle, I should say the capital raising cycle.
I guess I don’t know the trend and what it was like in 2015 2016 2017 but, like last year I would hear of DST is being open and then being fully funded literally in a couple days and just like almost immediately closing.
Because there’s so much investor interests so obviously the DSP market was very hot.
Now i’ve seen that you know we’ve seen the general real estate market into this year into 2022 it’s cool down, at least in terms of transaction volume.
And that includes commercial real estate residential real estate has has DST sales volume who down, along with the rest of the market or is, that is, the volume still you know continuing on this case it’s kind of add a new a new peak I would say.
Justin Amos: ya know so you know, over the last few years we’ve seen the the DST industry itself continually to increase increase in the equity race or separately of just a 1031 exchange transactions are being performed was focusing specifically on the sts.
Since at least 27 2018 see an increase of about 2 billion, you know 3,000,000,004 billion last year it was the highest DST equity raise you know, since, since it became a.
Revenue brilliant of 7 billion that was raised into all these different types of offerings there’s about 3334 you know named you know main companies that are putting out these types of product but there’s obviously there’s a few other small ones.
Andy Hagans: So so what’s the limiting factor that so it sounds to me like.
Spot it’s almost like must be deal flow or something because it’s almost like they can launch enough DST is if they’re all closing I.
Justin Amos: mean and that and that’s exactly right and like and that that oftentimes that’s the problem that you know sponsors are facing is just finding an acquisition that.
You know, ultimately meets their expectations as a company is being able to find a suitable deal that they can acquire that they feel confidently putting out to investors that will make.
Obviously, generate enough capital which there’s enough capital out there to put into these types of offering, especially from these companies i’ve shown a track record for success but it’s really just finding these companies, finding an acquisition that meets their investment criteria.
Andy Hagans: So then, if there’s it almost seems like there’s, at least temporarily, almost like a mismatch between supply of DSP opportunities and demand for them.
Our sponsors using this as an opportunity to like raise their fees are you seeing you know that there’s a sort of an industry standard type of deal, you know and fees that have remained relatively constant do you have any view on that.
Justin Amos: yeah, so I would say, from a from a sponsor standpoint, I think it has been relatively from an industry standard, I think.
And I think that’s because they know.
Will you know they know that they’re gonna let these have a pipeline of products that they’re looking to you know put in some place i’ve actually seen more and more.
You know even think you know with the lack of you know acquisition or finding a Superman property that would it would do that but we’re finding more and more companies coming into this space and creating these types of offering so.
Rather than being an attorney I think people are more trying to get their you know their their slice of the pie of these types of offering, especially because.
You know, like you were alluding to earlier about you know the change in the in the commercial real estate, where the residential.
The mark is that with inventory being so low less important properties on to space, because you know, partly because the.
rise in interest rates and being able to secure that maybe to complete their 1031 exchange and ultimately purchase the replacement property but also.
Just due to you know the changing you know, being able to be able to afford certain property, so it really just becomes.
A buyers market in that case, in the sense of being able to have enough capital to to purchase those properties and so DST has become advantageous.
Because, for two reasons, one, it allows people to still do a 1031 exchange and being able to defer those capital gains that they were looking to do at the first point for starting this 1031 exchange transaction.
But also depend mostly has to come with some leverage or some debt.
And they’re able to so people carrying over some debt into an exchange and the interview replace can now be soaked up by that DST offering without them as an exchange or having to take on.
New debt or acquiring a new mortgage that they would have had to do by buying a physical piece of real estate, I mean using an example of.
Andy Hagans: Oh, you mean just because the the DST like the sponsor has already secured the debt financing for the deal, so you as an individual you don’t need to worry about.
I don’t need to worry about my personal financial statements I find my hundred K or my 500 K into the DST the sponsors already taken care of whatever you know.
Justin Amos: yeah exactly right and depending on how you know how much you know, the percentage is it’s leveraging each to the debt, you know and the offering that’s how much we can be soaked up you know for for that.
perspective exchange because they’re they’re assuming the responsibility or the trust is assuming responsibility of this that so there’s no like I said there’s no the difference between the tech the tech investment there’s no necessary background check or you know.
Andy Hagans: Looking at your bank statement right faculty have to pay it off it’s the other responsibility of the sponsor but from an exchange perspective now you’re also offsetting the debt that you needed to.
Justin Amos: replace as as many or may not know in a 1031 exchange is not just replacing the equity in a suitable replacement property it’s also the debts, everything has become even Stevens, if you will.
You know, with the IRS to fully defer those capital gains any difference, you know when you know is would be taxed at the respective right but depending on that difference, but.
So that, so there is that other part of the advantageous part of investing into DST besides the passiveness is you know it could also help you have the exchanger and I having to take on some new debt that they may not want it.
Andy Hagans: Right, yet I imagine you know, given the types of assets that def to take you know tend to hold.
You know, you have the seven deadly sins, you have all these regulations govern the trustee you know essentially a sponsor the types of properties, they can buy.
The types of improvements, they can do typically very limited so there’s not going to be they’re not going to be like heavy value add.
Justin Amos: i’m struggling i’ve seen too much construction though we’ve seen some you know crew over the last year, so again with the popularity DST some sponsors get creative with you know different ground up least combinations of properties and.
Andy Hagans: Now that’s interesting yeah well, let me ask about that so.
You know, historically i’ve always told people and we actually have a DS DS investors guide on our website on old stevie calm that people can download and I mean it’s it’s really just an introduction into the world of DST is I think we’re getting more into the weeds now but historically.
In the guide we talked about how the tend to be income generating properties that don’t have you know that there can be a potential for capital appreciation of course.
But not like you know really opportunistic investment where you’re really looking for that huge capital gain that’s typically not going to be the type of asset that would be legal for a DST to own because of all those legal restrictions on.
Justin Amos: nurses yeah.
Andy Hagans: But, but what you’re saying is, and I assume legally, because I know people in this game are generally larger, more established sponsors, but they found ways to be more creative I mean are they looking at the type of assets that could have more capital appreciation or.
Justin Amos: yeah no no exactly right and like you said, legally, of course, is that you know that.
i’m not i’m not an attorney or I haven’t gone through law schools, so that is definitely about you know, Michael but now working with these you know these types of relationships, you know from a.
From a fundamental integration perspective, and you know, obviously overseeing some ppl items, you know we’ve gotten to see some creative structures that are a little bit more value added, or they have.
structures within the offering that where they can go into like you said a ground nice type of investment that eventually also.
These those investors will move into an ultimate asset that ends up being constructive so there’s there’s ways that are getting invest but typically you’re seeing the trust by actual physical pieces of real estate, but there are.
These more and more prayer structures that are you know, like I said immediately coming out there to to have a larger type of.
Andy Hagans: You know that’s.
that’s The interesting thing about vs Ts because you know.
There there’s such a wonderful rapper such a wonderful instrument to use the 1031 exchange program in a passive way to access institutional grade you know.
So they’re awesome right, but on the other hand, if the whole point is to go passive and then 1031 exchange and put together string of 1031 exchanges and swap till I drop.
I don’t really want a DST to be focused on current income I would actually prefer to wait at towards that capital gain right because that.
Is that see advantage of the 1031 exchange program is.
Justin Amos: yeah exactly right so ideally you’re you’re wanting to invest in something and then hope and hopefully that investment appreciates over the years that you’ve held it.
To a point now that you’re real and, obviously, you know, working with your CPA depreciate recapturing things like that that offset certain.
You know, expecting expenses, but you know, in theory, you’re going to have a game at the time that someone you know knocks on your door approaches you to buy that property.
or you’ve done improvements on the property over the years, you know, whatever whatever is gotten to that you know appraisal total and so now you’re you’re faced with the option of.
paying the Games or doing a 1031 exchange and like you said that’s you know the ultimate goal, and some of these investors are the sponsors, you know, over the last few years, you know I think when I first started I think these.
You know these investments and these these companies were you know holding it for the full length of time, so DST from beginning to end, only held for 10 years at the end of.
Andy Hagans: Let me stop you right there I don’t mean to interrupt but I.
That was my next question so yeah let’s talk about life cycle, so I referred, that we have an investor’s guide to DST is on our website.
You can scroll down I think it’s on our footer link done or foot or something you can scroll down the download that but historically I know we talked about this in the guide historically a life cycle.
For a DST at least you should count on it being five to 10 years it may be shorter than that but, like that’s.
To be on the safe side if you’re going to invest in one, you should be assuming i’m going to have limited to no liquidity for at least five years up to 10 years but we were talking briefly before we hit the record button.
And you mentioned that a lot of these life cycles had gotten a little bit shorter.
Justin Amos: yeah so so last few years, and I, and again I think this has to do with you know how promotion real estate has appreciated.
You know, significantly, you know, since 2019 2020 OPS, there was a pause with the pandemic, you know for real estate, but right once we figured out how to do it, you know.
transactions were starting to happen that you know unbelievable rate in 2021 was obviously a product of that so we were seeing you know certain offerings.
That that shift for between three to seven years, some of these offerings were coming full cycle, they they got in meant to you know hold it for a longer period of time, but they were just getting such.
amount of return that the sponsors couldn’t say no, and.
Andy Hagans: Also, to read between the lines, then, am I hearing essentially.
Look, our goal was to double in price to get you know which over seven years, might have worked out to whatever a 10 or 11% irr whatever it is, but, but then actually the asset price doubled in three years.
Yes, there’s no no point holding another four years let’s cash in now and lock in these.
Justin Amos: Exact exactly right and so and.
And that and that’s the you know the in theory and and working with a good sponsor you know they have the obligation, not just for themselves, but the goal is for to.
Double on the investment, but for the investor, so if they believe that they’re getting you know they’ve reached their threshold of what they were looking to accomplish within seven years, for instance.
And they did it in three you know you know why not cash out now and we can move that money into another and better offering that we can appreciate her you know.
Andy Hagans: Well, I would say this, I would say this to play devil’s advocate.
course I like that idea, because you give investors liquidity gives them choice.
yep So if I invested in multifamily I wanted to double my money or whatever, and I doubled my money, give me the money back, and then, if I want to put that in more multifamily I can, if I want to go do something else, with it, I can, on the other hand.
There are fees and expenses and commission’s that are associated for every transaction, so you know, in some ways, I personally just speaking as like an LP as an investor.
course i’m looking to balance Okay, I understand, every transaction there’s you know five to 10% of my investment is probably being eaten up by transaction costs and commissions.
So i’m balancing the velocity versus you know the freedom of being able to replace that money with well, but if I hold I don’t have to pay that you know it’s kind of like when you when you are.
buying and selling individually every single time you pay a realtor they get their permission, so the more you transact you know those fees add up.
Justin Amos: So so so the Nice part you know I you know with you know and how those are typically be handled it’s very most most sponsors and and I guess you know financial advisors are managing broker dealers and very front loaded.
so happy that you said it happens at the time of the investment, and you know and then at the time of closed.
You know if if if you’re just looking to roll into another one of the offerings I think that does eliminate a lot of the different fields that you could be going through.
with another realtor or anything like that and most spot you know if if you are happy with a sponsor and how they perform in this example as you’ve been.
Andy Hagans: So they so, for instance, a Commission or fees can be waived if you roll over a dsp with a particular sponsor into another dsp offered by that same sponsor.
Justin Amos: Correct I mean so each each investor has their respective registered REP that you know that got them into the offering and not in that they can advise on them on year to year, based on how its performing and things like that.
But if they’re just rolling into the same offering it’s not like they’re being put into you know being advised by anything, then it’s just an exchange fee because it’s just you’re working with the qualified nba you.
have your exchange fee and then you’re just investing into most sponsors when they are going through the cycle usually pre sent out a letter.
or so to each of the investors amount, a month or so before the actual closing of the sale.
notifying them hey we’ve accepted an offering for this investment, you know congratulations we’ve know hit whatever benchmark.
And Mr and Mrs investor, would you like to do a 1031 exchange If yes please check this box tell us what you’re working from acute qualified intermediary or investor services team will reach out to them.
and provide them with the information.
Okay, please tell us where you would like us to distribute the cash and we’re happy to have you on investment and like I said, most people in a DST typically aren’t.
You know cashing out if this specifically they’re happy because they’ve double their money or whatever the value, you know how much.
The capital gains would be in there, usually just keep staying with the respective company or they could diversify again the option choice and that’s The one thing we as humans, you know love to have.
Andy Hagans: yeah no absolutely I mean the interesting thing when you get that kind of a capital gain it’s I always tell people it’s a double edged sword because.
You know even even like Homeowners you know across the nation, myself included, it’s like wow my home has really gone up in value if they sold it I would realize, you know xyz capital gain, then I have to go buy another home and that asset price has inflated just as much.
Justin Amos: As my salary and you know.
Andy Hagans: If you stay in the real estate market, sometimes it just it feels like a Washington me, but I have an investor question actually because that you know I know the qualified intermediary you work with a lot of different investors.
And i’ve i’ve always kind of mentioned, you know the typical DST investor typical use case is someone who has performed multiple 1031 exchanges.
Indirect properties that they directly own and operate and manage and maybe they’re getting closer to retirement age.
or they you know have achieved some success in life and they’re tired of dealing with the three t’s right toilets tenants and trash and time ago passes time and hit the golf course, so the tennis court.
Justin Amos: yeah eliminate all the headaches.
Andy Hagans: Exactly, so you know people that are essentially.
Making kind of a one time shift from actively owning real estate assets and they may have done multiple 1031 exchanges along the way, and then they 1031 exchange into the DST and they’re probably just going to be owning DST then.
Justin Amos: From then on, forward from that point on yeah.
Andy Hagans: But you mentioned that right now.
Some investors, and this was before the call we’re just kind of shooting the breeze some some real estate owners they’re almost just parking their money in these because the real estate market it’s.
Obviously, the real estate market is making a lot of people a little nervous right now right.
This huge run up and a lot of people are sitting on big gains is like I can cash in some gains but Do I really necessarily want to buy another individual asset at these prices with interest rates, where they are it’s so given that the lighter.
Justin Amos: Side even can I.
You know I can I can I, you know because I obviously 1031 exchanges are you know very you know time time oriented so it’s I can I even secure the debt that I need.
You know because I just think about you know if it’s an all cash transaction sure like you know.
eliminate least one part of this dress then she’s buying a piece of real estate and can outbid somebody but also just even claim securing the debt that we potentially need to replace and the replacement property to and.
You know, sorry for interrupting.
Andy Hagans: No, no, no, so so well that’s what I was getting at is with the clients you’re working with now so now i’m talking about 2022 you know it looks like we’re probably in a recession and interest rates are higher there’s a lot of economic uncertainty.
Is there are there is there an increasing proportion of.
of investors who are using it as more of a temporary vehicle or maybe even like not by choice, but like you said, like they’re just not able to find a replacement property versus like the prototypical user I was talking about was like someone is getting ready to retire.
Justin Amos: yeah no I know we’ve definitely seen i’ve definitely seen an uptick in exchangers using.
Like the sts as i’ll call it a parachute, if you will, as I literally like a last resort of like okay i’ve listed two pieces of you know, real estate that i’m interested in buying maybe.
But i’m not entirely sure that i’m going to be able to secure that, so let me have this DST as a backup complete my 1031 exchange the further games that I, you know why I wanted to do.
And then you know sit in it for the you know the length of time, while I figure, while we all figure out, you know what you know the real estate markets, going to be like in the next couple of years and then depending on you know, and you know.
Working with your the right advisors, again we talked about this earlier about people who are knowledgeable about the DST space and this type of product, you know.
you’re having a good team around you whether you CPA attorney you’re managing broker dealer financial advisors are all going to guide you to the specific product, because then there’s.
Certain DST that have the option, even to go into like the 723 which is again another subset of a 1031 to 1031 is the DST and then the ultimate read.
That the sponsor owns in two years could buy that DST and so, then those investors have the option to you know stay in the DST and then they can go.
1031 exchange when they when they do sit on the DST does sell or they can 721 up opry into and don’t to the market at that point that ends there 1031 but then provides them with some flexibility about you know which you know, having the one about.
Andy Hagans: So definitely talk a little bit with some of that was above my head, I know a lot of.
investors and advisors have been asking about that process so that’s a newer trend.
Can you walk it can you kind of walk us through.
Why that’s happening now.
Justin Amos: yeah I would say I think if people are wanting to.
Again with with choice right is they want to have as many options available to them as as possible, so you know I mean we have first are selling piece of real estate, they want to do to further capital gains.
Because again you with a 1031 exchange you’re not eliminating those taxes you’re just referring them to another realize dating, so I think that’s a key point there, so you know, maybe your.
Whatever your economic situations at that time you know the capital gains rate, because obviously you can change between who’s.
In office you know which parties and office and things, and so, then, that the percentage is can change so maybe you want to defer it a couple years down the line.
You know, at that point, you can decide whether okay i’d like to realize those capital gains and go into.
You know, go into like the real estate market because now, these are real estate investment trusts, so now you’re going into more securities avenue of an investment versus.
You know beneficial offering in a DST if you decide to go that route and because I can have some people will ultimately their goal is to get into the.
To the securities market into the public market or private, depending on what the what the REACH status is or they can then continue their 1031 and then just you know go on as they would, if they want.
Andy Hagans: The investors, then at the end of that cycle, they get the choice either 1031 out.
or stay with us into the Read but you’re going to have to you’re going to have to pay your capital gains tax as we go into the read, but so I assume there’s other rewards for transferring the asset is is whether it’s higher value in.
Justin Amos: Southern So if you 721 up read it is another capital gains to ferment.
Okay, at that point of the transaction, but if you do sell your your interest in that read at whatever point where then there’s a capital gains realizations.
Andy Hagans: Know it’s I think they give you one last freebie with 721 last freebie.
But then you either hold this reach until you’re six feet under or you do get taxed, eventually, but in the meantime.
yeah great so all of the advantages of a REACH then would apply correct.
yeah there are some definite advantages to reach so that that makes sense it’s just really it’s really cool I mean thinking back to where we started even our conversation the tenants in common.
Justin Amos: To where it’s all of all right.
Andy Hagans: Is that a DS tease and then.
More and more choices and still you know there’s still relatively illiquid dsp is, of course, talking about you know going.
Justin Amos: Even but even then I think we’re starting to see you know.
I think they will have they will forever be the idea your mental hold them long term, but I think.
that the idea of having a marketplace to replace capital for these certain investments is, I think, starting to grow and.
grow and traction over the last few years, be again, I think, due to the popularity of the investment and more and more sponsors coming in and realizing.
Investors situations can change at any point from month to month year to year, and sometimes they may need capital, and so, how can we replace, you know that person’s offering.
The interested to make it work, so all these new new creative strategies and I think it’s all evolved just because you know the economy itself and the way people want to invest as as involved, and so I think it’s all great answers now having the proper know education.
Companies in the market, and you know the systems in place to make sure that you know, obviously continues to succeed and go on the trend that we you know we’ve been seeing.
Andy Hagans: yeah and I, you know JTC America is, I think you all do very good job, educating folks about you know how DST work 1031 exchanges we’re trying to do that here.
Adults db on the Alternative Investment podcast because there’s there’s a lot of good tax advantaged programs that investors don’t even take full advantage of.
You know it’s like let’s let’s optimize let’s take the current tax code these current tax programs.
let’s optimize what what we have there’s still a lot of if you look nationwide there’s a lot of low hanging fruit being left on the table, I mean even even by ultra high net worth and family offices there’s a lot of low hanging fruit left.
justin but I know we’re running low on time, but I want to put you on the hot seat.
we’ve got a couple predictions here Okay, so we talked about you, you threw out some stats on the growth of the DST market terms of assets transaction volume.
In the past several years, do you see that continuing I mean let’s let’s let’s fast forward five years from now, so 2027 how big is the DST market in 2027 is it is it going to double is it gonna is it gonna two and a half times from here, what do you think.
Justin Amos: So I think, so I think I think one other question, but I do think you know as long as the industry itself is making the right strides and be a you know continuing I think to embrace technology, you know embrace the transparency.
Is You know, as you know, when de SES first came to space, a lot of these sponsors we’re doing this in house and.
You know now more our a’s are starting to become you know where that this is an investment solution for their foot forth for their clients that have maybe some cash and or real estate.
And, and on top of that more and more sponsors companies that never did 1031 exchanges and these types of investments are now starting to come into the industry, maybe they were just traditional private equity and.
are wanting to now have you know expand on their their investors, they can you know pull for different types of offerings so I definitely.
Doubling I think is is definitely reasonable within the next five years, you know, but I don’t want to hold to a quote but I definitely think if we are making the right strides are.
Andy Hagans: Definitely gonna we’re gonna hold you to it, I mean every.
Justin Amos: yeah I definitely think doubling I think I think all the from all the different you know.
pieces beyond the sponsors, so you have like your wealth forges your alter egos are technologies that are starting to embrace.
alternative investments as as a real as a real solution and tax advantage offerings you know I don’t see the sky’s the limit with DS DS.
And so doubling by 2027, I think, is that we have the real case to do it, especially if you know physical piece of real estate is for these average investors is on the low the SES will become even more advantageous type of offer.
Andy Hagans: I like it, not all i’ll take that i’ll take the doubling in five years if of course if inflation stays you know elevated where it is.
I think it might double in nominal terms, even if it holds even in real terms, so we might we might see a triple in nominal terms I guess.
But but justin I think we’re about out of time, but where can our visitors go to learn more about JTC America as well as all the services you provide because I know you provide services, both for investors, as well as to fund sponsors.
Justin Amos: Yes, now, so you can you can find us at JTC America.com, you can click on the 1031 exchange section that covers.
Our information on all our different types of solutions you can also find me on linkedin and happy to posting there are monthly blogs, and any relative 1031 exchange information for the industry to try and keep everyone up to date.
Andy Hagans: Awesome so for our listeners and viewers, if you want links to everything we mentioned, including a link to Justin’s linkedin page.
You can access our show notes at AltsDB.com/podcasts and don’t forget to subscribe to the show on YouTube and your favorite podcast listening platform, so you can receive our new episodes as we release them. Justin, thanks again for coming on the show today, this was a blast.
Justin Amos: Now this is awesome Thank you very much for having me.