11 Core Features That Define Today’s Delaware Statutory Trusts

Johannes Ernharth
Jan 10
7 min read

Understanding variables that shape DST quality, structure, and investor outcomes.

Delaware Statutory Trusts have become a preferred vehicle for investors seeking passive real estate ownership through 1031 exchanges. Yet no two DSTs are truly alike. Property type, business plan, leverage, and sponsor discipline can vary widely, influencing both performance potential and risk profile.

Investors are often presented with only a narrow selection, with limited visibility into the full range of structures and strategies available in the marketplace, and with varying degrees of quality and suitability. Conversely, others are offered so many options that distinguishing quality from noise becomes difficult, leaving even experienced investors uncertain about how to separate the strong programs from the rest.

This guide highlights the core features—and key variables—that define today's DST landscape and help distinguish conservative, well-structured programs from those requiring deeper due diligence.

1) Real Estate Property Types

DSTs serve as passive ownership structures for real estate that qualifies as like-kind property under Section 1031 -- essentially, most investment or business-use real estate. In practice, DST sponsors tend

to focus on institutional-quality sectors such as multifamily housing, industrial logistics, self-storage, student housing, and net-leased retail properties, where durable tenancy and consistent income fundamentals may support more predictable cash flow and overall performance.

2) Property / Offering Market Values

DST offering sizes vary considerably by property type, sponsor, and capital structure, but most fall within a $25 million to $150 million total capitalization range, with equity raises typically between $10 million and $75 million. Larger multifamily, industrial, and multi-property DSTs offerings often trend toward the upper end of that range, while single-tenant net lease or smaller niche assets generally fall toward the lower end.

3) Geographic Diversification

DST offerings can vary meaningfully by geographic focus, reflecting differences in local economies, demographics, regulatory environments, and supply and demand dynamics. As a result, sponsors and platforms must be selective, seeking regions where fundamentals appear more supportive of long-term income and stability, while avoiding overconcentration in any single market. This approach allows investors to pursue emerging value opportunities while reducing the risks associated with having all capital tied to one location or regional cycle.

4) Business Plans

DST business plans vary widely based on property type, lease structure, and sponsor intent. Some target long-term, net-leased assets built for income stability and low involvement, while others pursue multi-tenant or light value-add or lease up properties requiring identifiable capex and/or possible rent growth execution. While nearly all aim to deliver passive income and tax deferral, the specific business plan often defines the true character and comparability of each offering.

5) Quality Among Offerings

DST offerings can vary significantly in structure, assumptions, and overall discipline, making sponsor quality an essential consideration. Well-constructed trusts typically reflect conservative underwriting, adequate reserves, and transparent sponsor practices, while others may exhibit overstated projections or fee designs that can erode investor value and challenge long-term performance over time. These distinctions can separate stable, durable programs from those that could underperform expectations.

6) DST Leverage

DSTs may be structured as either all-equity or leveraged offerings, depending on the sponsor’s capitalization strategy.

An all-equity DST is capitalized without third-party debt, meaning the acquisition and operating reserves are fully funded through investor equity rather than borrowing.

A leveraged DST, by contrast, includes financing at the trust level—typically in the 40%–60% loan-to-value (LTV) range, though some are structured with higher leverage. For example, a $100 million acquisition at 50% LTV would consist of $50 million in debt and $50 million in equity. An investor contributing $500,000 of equity would therefore be proportionally attributed an additional $500,000 of non-recourse debt, resulting in a total 1031 replacement property value of $1 million.

While leverage is widely used in real estate investing to enhance capital efficiency, making LTV DSTs a practical fit for many exchange scenarios, they’re regularly employed to satisfy the “equal-to-or-greater” replacement value requirement necessary for a fully tax-deferred 1031 exchange when the debt retired at sale leaves insufficient equity to meet that threshold.

7) 721 UPREITs Feature

Certain DSTs are structured to allow for a future Section 721 UPREIT conversion. Under this arrangement, the DST property is eventually sold to a diversified private REIT. Depending on the structure, this conversion may be either mandatory (required for all investors) or optional (available at the investor's discretion). After the DST has operated for several years, UPREIT investors have their DST interests exchanged for ownership units in the REIT on a tax-deferred basis. The valuation of the DST interests converting into REIT units are determined at the time of conversion. UPREITs are often attractive for their diversification and liquidity potential (see below).

8) Number of Properties

Most conventional DSTs hold a single property, though multi-property DSTs are also available in the marketplace. Multi-property structures can introduce additional complexities during both the identification phase and at exit, but they may be appropriate for certain client situations.

Additionally, with DST investment minimums typically starting at $100,000, exchangers often diversify across multiple DST offerings within a single 1031 exchange. For example, an investor selling a $1 million property could allocate their proceeds across four different DST properties at $250,000 each, allowing for diversification across property types, locations, and sponsors.

9) DST Lifecycles

Sponsors typically provide an initial underwritten estimate for when a DST may pursue an exit event.

For Conventional DSTs, this estimate reflects the period during which the property is expected to meet its value-creation objectives, after which a sale and distribution of proceeds may be considered. Sponsors frequently reference a general 7-to-10-year hold before liquidity can be expected, although some projects may present shorter or longer ranges based on asset type, market conditions, and business plan. Regardless, there is never a guaranteed date.

For 721 UPREIT DSTs, liquidity may take a different form depending on if the DST states that the conversion will be mandatory or optional. UPREIT conversions will generally require a two-year minimum hold before sponsors will evaluate whether a contribution of the property to the REIT’s operating partnership is appropriate.

DSTs with Mandatory REIT conversions typically take place 24-30 months after the DST closes to new investors, assuming the DST and REIT sponsors conclude that the conversion is appropriate.
Optional conversions are more variable and allow investors to elect whether to receive to convert ownership to the REIT or instead receive liquidity proceeds that are eligible for another 1031 Exchange. Optional REITs will typically reference a different internal valuation or IRR thresholds that must be met to trigger a conversion, which can add additional variability.

Investors should view both exit and conversion timelines as estimates rather than guarantees. While Mandatory are more likely to occur close to schedule, actual timing in both instances can depend on market conditions and sponsor judgment. Further, once REIT ownership is established, REITs will be subject to incremental liquidity terms unique to each REIT.

10) Liquidity Events

Once the DST property is under contract for sale, investors receive advance notice of the anticipated distribution date for their proceeds. At this liquidity event, investors have the same three options they had when they originally purchased the DST:

They can receive net proceeds as cash, which triggers a fully taxable event.
Alternatively, they can direct the proceeds into another 1031 exchange, where they remain eligible for either active real estate investments or passive approaches such as additional DSTs.
Finally, they can structure a partial 1031 exchange, splitting their proceeds between like-kind replacement property and a taxable cash distribution.

This process applies to conventional DSTs and optional 721 UPREIT programs when investors elect not to participate in the UPREIT conversion.

In mandatory 721 UPREIT DSTs, investors have no access to liquidity until the UPREIT conversion is complete. After receiving operating partnership units, they become subject to the REIT's redemption program, which typically includes strict annual limits and can be suspended entirely at the REIT's discretion. It's also critical to understand that any sale of REIT units triggers full taxation of previously deferred gains on those amounts and permanently disqualifies those proceeds from future 1031 exchange treatment.

11) Illiquidity

Unless structured as an UPREIT, investors should always consider DSTs to be illiquid investments until the property completes its full lifecycle and is sold.

DSTs are entirely passive investments, meaning investors have no control over management decisions, including the timing of the exit sale. While occasional off-market transactions between private parties may occur, there is no functioning secondary market for DST interests. As a practical matter, investors should not expect to access any portion of their invested capital until the DST completes its cycle.

Even in 721 UPREIT situations where the DST converts to REIT ownership, liquidity is not guaranteed. Investors become subject to the private REIT's specific liquidity provisions and redemption windows, which may limit or restrict access to capital based on the REIT's available liquidity and operational requirements.

For clients who anticipate needing liquidity before the projected exit timeline, those cash needs should be addressed at the time of the initial exchange—either by taking a portion as a fully taxable distribution or by structuring a partial 1031 exchange.

Facilitating Improved Potential

Understanding these eleven features gives advisors a clearer lens for evaluating DST quality, structure, and suitability, especially in a marketplace where offerings can look similar on the surface but differ materially beneath it.

With clients relying on you to help separate durable programs from those that require deeper scrutiny, having a disciplined framework becomes essential.

If you would like support applying these principles to real cases or want a deeper look at current offerings, connect with RCX Capital. We can help you evaluate options efficiently so you stay focused on delivering strong outcomes for your clients.

Contact us for more info on how we help RIAs, CPAs, and other advisors confidently navigate complex real estate decisions with clarity and discipline.

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Some of the risks related to investing in commercial real estate include, but are not limited to: market risks such as local property supply and demand conditions; tenants’ inability to pay rent; tenant turnover; inflation and other increases in operating costs; adverse changes in laws and regulations; relative illiquidity of real estate investments; changing market demographics; acts of God such as earthquakes, floods or other uninsured losses; interest rate fluctuations; and availability of financing. Investments in real estate or real estate securities are not guaranteed and have the potential to suffer losses.

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