Category: Delaware Statutory Trust

The Delaware Statutory Trust, or DST, is a popular investment choice for real estate investors interested in deferring capital gains taxes on appreciated property by using a 1031 exchange. We created the eBook — Bringing Clarity to Your 1031 Exchange — to help potential investors better understand the benefits and risks associated with DSTs.  Read More

An alternative investment is an investment that does not fall into the traditional asset class of stocks, bonds, and cash. The most common types of alternative investments are precious metals, oil and gas, venture capital, hedge funds, and real estate. An investment made into a DST to complete a 1031 exchange, for example would be considered an alternative investment.  Read More

Many real estate investors consider investing in a DST when they sell property and are looking to complete a 1031 exchange. A Delaware Statutory Trust, or DST, is a legal structure that is often utilized to hold title to property and form certain real estate investments. The DST structure may resemble a limited liability company (LLC), a real estate investment trust (REIT), or a limited partnership (LP). However, unlike those structures, IRS Revenue Ruling 2004-86 considers a DST direct ownership of property vs. owning a business that owns property. As such, a properly structured DST property may qualify as a like-kind exchange property for a 1031 exchange. DSTs appeal to many investors for reasons such as the potential for cash flow and appreciation of real estate, all while avoiding the day-to-day management responsibilities. We like to remind clients that, at the end of the day, an investment in a DST is still an investment in real estate with many of the same potential risks and benefits. However, there are nuances to the DST structure that, understandably, investors have a desire to comprehend prior to investing. One nuance that is often asked about is the existence, operation, and structure of the master lease.

The Master Lease: An Overview

In order to comply with certain IRS regulations DSTs have several rules they must follow. One of these rules is that a DST cannot restructure or renegotiate a lease with a tenant. This can become very restrictive to the management of a property because there are often cases where it is essential to the investment that a lease be restructured or renegotiated. A typical example is a multifamily property where the leases are typically one year in length and new people are moving in and out on a regular basis as leases expire. Because of this, it becomes essential to create what is known as a “master lease.” The master lease creates an entity controlled by the DST sponsor known as the “master tenant” which leases the property from the DST, then subleases the property to the end tenants, such as residents of an apartment, guests at a hotel, self-storage renters, or retail tenants. This arrangement satisfies the need to adjust leases while also being compliant with the rules the DST must follow. Please note that each DST offering is unique, and this is meant to be a general high-level overview of what a master lease is. For details about a specific DST offering please consult the offering documents. As always, we welcome you to reach out to our team.

How a Master Lease Works

With an understanding of why the master tenant is established within a DST, we can discuss how the income at the property flows to the master tenant and the DST investors. The master tenant collects rents from the subtenants (the individuals renting the apartments, hotel rooms, etc.) and then pays the master lease rent to the DST. This is typically a set amount based on predictable expenses such as loan and tax payments (often called “base” rent or “stated” rent). The income received from the master lease is used by the DST to pay debt obligations, make reserve contributions, pay expenses, and make distributions to DST investors. If a DST property is performing as planned the amount collected from the subtenants is expected to be more than the amount the master tenant pays in rent to the DST. In this scenario the master tenant can pass additional income to the DST, this additional income is typically referred to as “bonus” ”supplemental,” or “additional” rent,” and is often calculated with a split between the master tenant and the DST. Most DST investors look to these investments in part for the ongoing income they are typically expected to provide. To understand how income eventually flows to DST investors it is helpful to think of it in that the DST owners receive, in distributions, whatever gross rent is collected minus the master tenant’s fee, property and loan expenses, reserve contributions, and the various fees charged by the sponsors. In other words, the master tenant resembles a funnel through which income flows, and also as the day-to-day operating mechanism of the DST. Master leases are an integral part of the DST structure, and reviewing them is part of our due diligence process. Because of the nuances involved, we believe that any investor considering investing in a DST – even seasoned real estate investors – should work with an advisor experienced in DST products who can assist them in understanding and evaluating the investments. Have more questions? Please reach out to a member of our team.  Read More

Delaware Statutory Trust (DST) fundraising accelerated meaningfully in 2025, reflecting continued capital flows into passive real estate investment structures. This is also reflective of increasing commercial real estate transactions and investors continuing to look to defer taxes through 1031 exchanges, as a majority of DST investments are made in conjunction with a 1031 exchange. According to AltsWire and data compiled by Mountain Dell Consulting, total DST equity raised reached approximately $8.4 billion in 2025, up from roughly $5.6 billion in 2024. The 2025 figure narrowly missed hitting the high-water mark of 9.2 billion set in 2022.1 Momentum strengthened as the year progressed. December marked the highest monthly fundraising total of 2025, with approximately $862 million raised. Many expect that momentum to continue or perhaps accelerate through 2026 - if this happens, DST volume in 2026 could potentially surpass the 10 billion dollar mark. The data also showed that multiple established sponsors contributed meaningfully to total fundraising volume, with multifamily and industrial assets representing a significant share of offerings. While sponsor rankings shift annually, the broader pattern indicates steady platform participation and continued product availability across property types.

What This Means for Investors

The increase in DST fundraising suggests that investor demand for passive investment properties remains strong. It also indicates that the broader investment real estate market has increased transactions and that investors continue to value tax-deferral strategies such as 1031 exchanges. Strong capital flows into DSTs are likely representative of:

• Liquidity and transaction volume in commercial real estate
• Continued availability of quality DST replacement property options
• Ongoing investor appetite for diversified, professionally managed assets
• Aging investors looking for an off-ramp to active real estate ownership

As with any investment vehicle, structure and suitability depend on individual objectives. However, the 2025 data indicate that Delaware Statutory Trusts continue to play an active role in the 1031 exchange landscape. At Chicagoland 1031 Exchange, we help investors understand the 1031 exchange process. We know that everyone's situation is different, and we are here to help you understand the ins and outs of 1031 exchanges and DST investments. We continue to believe that meaningful client relationships, along with thoughtful and thorough due diligence, are the best way we can serve our clients. 1. Source: Altwire  Read More