A Delaware Statutory Trust or DST is specific trust structure that is considered "like-kind" property for purposes of a 1031 exchange. Unlike a traditional 1031 replacement property you would find on your own, DST replacement properties can only be found off-market through select registered broker dealers. A DST is a "securitized" real estate offering that is considered a security under SEC regulations and can only be offered by licensed registered representatives or investment advisors to accredited investors*. A DST is professionally self-managed and typically holds income producing, institutional quality properties. Essentially you're a passive investor in a professionally managed property that maintains your original cost basis and provides you and your family with predictable tax-advantaged cash-on-cash monthly income with attractive growth potential. The DST structure also allows fractional ownership interests, allowing you to exactly match the dollar amount of your exchange equity and any debt that needs to be replaced. You don't have to worry about leftover "boot" with a 1031 DST. Unlike a traditional commercial real estate transaction, DSTs are unique in that the exchange property is already acquired and "exchange ready". There is no single closing date like you have with traditional commercial real estate transactions. With a 1031 DST, exchange investors are admitted in separate rolling closes until the DST has received the full amount of exchange equity available. Once the DST fills up the available equity, it will close to new investors. *An accredited investor is an individual that has an annual income in excess of $200,000, or joint income with spouse in excess of $300,000 -or- An individual net worth (the fair market value of total assets, but excluding the value of the principal residence, minus liabilities), or joint net worth with spouse in excess of $1,000,000.

A Delaware Statutory Trust (DST) offers several benefits for your exchange: access to institutional-quality real estate, diversification by property type and location, a turnkey solution managed by the DST sponsor, fast and efficient closings, elimination of property management responsibilities, predictable monthly income, and long-term, non-recourse financing without the need for lender approval.

A Delaware Statutory Trust or DST must adhere to the following prohibitions, which are commonly referred to as the Seven Deadly Sins (See IRS Revenue Ruling 2004-86): 1. Once the offering is closed, there can be no further capital contributions to the DST by either existing or new investors. 2. The DST cannot renegotiate existing loans or borrow more funds (except in the case of a tenant's bankruptcy or insolvency). 3. The DST cannot reinvest proceeds from the sale of its real estate. 4. The DST is limited to making minor, nonstructural capital improvements, in addition to those required by law. 5. Any reserves or cash held between distribution dates can only be invested in short-term debt obligations. 6. All cash, other than necessary reserves, must be paid out to investors. 7. The DST cannot renegotiate existing leases or enter into new leases (except in the case of a tenant's bankruptcy or insolvency).

A 721 UPREIT enables an exchange investor to significantly diversify their original 1031 DST exchange investment by converting some or all of their ownership into Operating Partnership or OP Units of a diversified Real Estate Investment Trust or REIT. After the 721 exchange, an investor gains the potential to increase liquidity by electing to convert some or all of the OP Units into REIT common shares. Once converted to common shares, they can then be redeemed and converted to cash more easily than DST interests, thereby managing the timing of capital gains they receive over time. While the 721 UPREIT strategy has many advantages, it's not for everyone and an exchange investor should also be made aware of the inherent risks and disadvantages. Typically the 721 UPREIT option on a DST is elected 2 years after the initial exchange into the DST. At the time of the 721 election, the exchange into OP units of a REIT is made at the current market value of the initial DST, which may be lower or higher than the original investment. Once the 721 UPREIT exchange is made, the exchange investor permanently loses the ability to initiate any future 1031 exchanges for the asset. While all 1031 DSTs typically include some type of 721 UPREIT provision as back-up, some DSTs include an optional 721 UPREIT election, while others initiate a forced or involuntary 721 UPREIT, regardless of the current market value of the DST. Again, the market value at the time of the 721 UPREIT is not guaranteed and vary significantly from the dollar amount originally invested in the DST. While the "721" term is a commonly used for marketing purposes, it's important that every exchange investor be aware of and understand both the advantages and the potential risks with any DST's 721 UPREIT provision when choosing the right DST for their exchange.

Most DSTs report annual taxes via substitute 1098 along with a 1099. DSTs do not issue a K-1 tax statement. The 1098 and 1099 together, outline the investor's pro-rata share of mortgage interest and rental income, which are then reported on Schedule E. There are some DSTs that simply generate an annual Grantor letter from the Trust for tax accounting that will include information on rent, principal, and interest from the property.