Property Types in Syndicated DST Real Estate

Table of Contents:

    Syndicated real estate investing spans various property types, each with its unique benefits and drawbacks. Diversifying the types of DST Real Estate you invest in can be an effective strategy to potentially reduce risk. Here’s an overview of the primary property categories available in 1031 DST listings and DST real estate investments.

    1. Residential Property

    Multifamily apartments are currently our preferred asset class due to their historical performance. This type of DST real estate has shown the second lowest beta (volatility) of all asset classes, meaning it experiences fewer fluctuations in value. Multifamily apartments have provided the highest overall returns over the past 44 years, considering both cash flow and appreciation.

    From an after-tax perspective, multifamily apartments can offer the best annual after-tax cash flow due to their shorter depreciation schedule of 27.5 years, compared to the 39-year schedule for other commercial properties. This category also includes subcategories like student housing and assisted living. These subcategories require specialized knowledge from the Sponsor, especially for assisted living, which involves running a regulated business alongside the property management.

    Property Type Characteristics:

    2. Commercial Office

    Commercial office properties encompass office complexes, office buildings, and medical offices, typically classified as Class A, B, or C. Class A properties are of the highest quality, featuring superior construction and prime locations, and tend to be newer. Class B properties offer good quality but may be older and located in less central areas. Class C properties include the remaining office spaces.

    Medical office buildings are particularly strong within this category. Physicians invest significantly in outfitting their offices and are less likely to relocate, leading to better tenant retention. Medical offices situated near hospitals are especially desirable.

    3. Retail

    Retail properties include shopping centers, strip malls, “Big Box” retail (e.g., Home Depot), and triple net (NNN) properties. DST 1031 properties often include portfolios of triple net properties, which are single-tenant buildings where the tenant covers property taxes, maintenance, and insurance. This setup reduces the landlord’s responsibilities to the roof and walls.

    When investing in NNN properties, we prefer leases backed by major corporations rather than franchisees, as this can lower default risk. While retail properties can offer higher projected returns than multifamily apartments, they also carry more risk since shopping is not as essential as housing. Adding select retail properties to your portfolio can provide diversification and potentially lower overall risk.

    4. Industrial Property

    Industrial properties, though less common in DST real estate, can be a robust category. Businesses often modify industrial spaces to suit their specific needs, making them less likely to relocate. This stability can make industrial properties a valuable addition to a diversified real estate portfolio.

    5. Hospitality

    Hotels and entertainment venues were hit hardest during the Great Recession, with values dropping significantly. This category carries more risk than most investors are willing to accept, as travel and hospitality demand can be highly volatile. From our perspective, hospitality properties are not the best fit for our clients due to their higher risk profile.

    Conclusion

    Understanding the different property types available in DST real estate is crucial for making informed investment decisions. By exploring various DST real estate and DST properties for sale, investors can build a diversified portfolio that aligns with their risk tolerance and financial goals. Investing in DST real estate offers the potential for steady cash flow and long-term appreciation, making it a compelling option for those looking to optimize their real estate investments.