The DST Market Experiences Reduced Decline in Volume Compared to Commercial Real Estate Overall
Written by Nathan Kuhn September 6, 2023
The rising interest rate environment of late 2022 and early 2023 has had a significant impact on commercial real estate activity. While prices have not declined as much as some analysts expected, transaction volume has waned as buyers and would-be sellers are likely finding it difficult to find an acceptable price for both sides. U.S. commercial real estate investment volume fell by approximately 57% in the first quarter of 2023 compared to the same quarter in 2022.1
Following the general real estate market trends, DST transaction volume is down as well, but not to the same extent as the overall commercial real estate market. The DST industry is on pace to raise approximately $5 billion by the end of 20232, which would be a drop of 45.6% year over year. While substantial, it’s noteworthy that DST transaction volume is not off by as much as overall market volume.
There are certainly a number of factors that contribute to the difference noted between the transaction drop in the overall real estate market as compared to the DST market. First, investors may be increasingly valuing the benefits of DST ownership. Namely, they are taking advantage of the passive ownership nature of the structure as a way to retire from property management and the hassles of owning real estate.
Second, in this high-interest rate environment, the financing in place on many DST offerings might look very attractive in comparison to what an investor may be able to obtain on a direct property. As noted previously, in the current real estate pricing environment, agreeing on a price between buyers and sellers may leave investors unable to find suitable replacement property at what they believe to be a reasonable price. Thus, they turn to DST investments as a solution.
Finally, it’s worth noting that even in a slower market, we have seen numerous DST offerings go full cycle with profitable returns; therefore, many repeat investors are exchanging back into DSTs.
There are likely many contributing factors to the DST market’s resilience compared to the overall commercial real estate market. If you want to discuss this topic or are interested in learning more about DSTs or 1031 exchanges, contact Chicagoland 1031 Exchange to speak with one of our advisors.
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1. CBRE
2. Robert A. Stanger & Co and Mountain Dell Consulting
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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last two years, and reasonably expects the same for the current year) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investor’s situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation.
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