Investment Timeline

Understanding the DST Investment Lifecycle

Delaware Statutory Trust (DST) investments follow a specific timeline from acquisition to disposition. Understanding this timeline is crucial for investors to set appropriate expectations and make informed decisions. This guide outlines the typical phases of a DST investment and what to expect at each stage.

DST Investment Lifecycle Overview

Pre-Offering Phase

Before a DST investment is offered to investors, the sponsor undergoes a rigorous process to identify, acquire, and structure the investment opportunity.

Property Identification: Sponsors research markets and identify properties that meet their investment criteria
Due Diligence: Comprehensive analysis of the property, including physical inspections, financial review, and market research
Financing: Securing appropriate debt financing with favorable terms
Legal Structure: Establishing the DST entity and preparing offering documents

Typical Duration: 3-6 months

Offering Period

Once the property is acquired and the DST is structured, the investment is offered to qualified investors.

Marketing: The sponsor markets the DST offering through broker-dealers and registered representatives
Investor Due Diligence: Investors and their advisors review the Private Placement Memorandum (PPM) and other offering documents
Subscription: Interested investors complete subscription documents and transfer funds
Closing: The offering closes when all equity has been raised or the offering period expires

Typical Duration: 1-6 months

Operational Phase

During this phase, the property is professionally managed to generate income for investors and implement the business plan.

Property Management: Professional management handles day-to-day operations, leasing, and maintenance
Distributions: Investors typically receive monthly or quarterly cash distributions from rental income
Reporting: Regular financial reports and updates are provided to investors
Business Plan Execution: Implementation of value-add strategies, if applicable

Typical Duration: 5-10 years

Disposition Phase

At the end of the investment period, the property is sold and proceeds are distributed to investors.

Marketing the Property: The sponsor markets the property to potential buyers
Sale Negotiation: Negotiating terms with potential buyers to maximize value
Closing: Completing the sale transaction
Distribution of Proceeds: Final distributions to investors, including return of capital and any appreciation

Typical Duration: 3-6 months

Post-Disposition Options

After the DST property is sold, investors have several options for their proceeds.

1031 Exchange: Reinvest in another like-kind property or DST to continue tax deferral
Cash Out: Pay applicable taxes and use the proceeds for other purposes
Diversification: Split proceeds among multiple new investments, potentially including both 1031 exchanges and taxable investments

Decision Timeline: 45 days to identify replacement property for 1031 exchange

Key Timeline Considerations

1031 Exchange Timelines

For investors using a 1031 exchange to invest in a DST, specific IRS timelines must be followed:

45-Day Identification Period: Investors must identify potential replacement properties within 45 days of selling their relinquished property
180-Day Exchange Period: The purchase of the replacement property must be completed within 180 days of the sale of the relinquished property

Expected Hold Periods

DST investments typically have projected hold periods, but actual timing can vary based on market conditions and the sponsor's strategy.

Short-Term

3-5 years, often for opportunistic investments with specific value-add strategies.

Medium-Term

5-7 years, common for core-plus and some value-add investment strategies.

Long-Term

7-10+ years, typically for core investments focused on stable income over time.

Case Study: Full DST Investment Cycle

An investor completes a 1031 exchange into a multifamily DST with a projected 7-year hold period:

Month 0: Sells relinquished property and identifies the DST as a replacement property within the 45-day window
Month 2: Completes investment in the DST within the 180-day exchange period
Months 3-86: Receives monthly distributions from the DST (approximately 7 years)
Month 87: Sponsor announces plans to sell the property
Month 90: Property sale closes, and the investor receives final distribution
Month 90-93: Investor identifies new replacement property for another 1031 exchange
Month 96: Completes investment in new replacement property, continuing the tax deferral

Early Exit Considerations

DST investments are generally illiquid, and early exit options are limited. However, in certain circumstances, investors may have options:

Secondary Market: Some DST interests may be sold on the secondary market, typically at a discount
Hardship Provisions: Some sponsors may offer limited liquidity options in cases of investor hardship
Estate Planning: DST interests can be transferred to heirs, potentially with a step-up in basis