Delaware Statutory Trusts (DSTs) have become a popular strategy for passive real estate investing, helping accredited investors earn income without needing hands-on involvement. Those who utilize DSTs to end 1031 exchanges also enjoy tax deferrals and income preservation.
One common question for those who are about to enter a DST is this: Do Delaware Statutory Trusts appreciate in value?
The answer is yes; DSTs do appreciate in value.
In this guide, Realized 1031 discusses the intricacies of DST appreciation — how it works, factors that affect appreciation, and more. Let’s take a closer look.
Basics of 1031 DST Appreciation
A DST is a legal entity that lets investors own fractional interests in a trust, which in turn, owns a real estate property. The underlying properties in a DST are typically income-producing and may include large-scale real estate such as apartment complexes, office buildings, or industrial facilities. Income distributions are not guaranteed and depend on the performance of the trust and the real estate market.
The DST is managed and operated by the sponsor, and investors have no direct say over the day-to-day management of the property. These restrictions allow interests in the trust to qualify as replacement property under Section 1031. mandated by Revenue Ruling 2004-86.
Appreciation, in the context of real estate investing, refers to the increase in a property’s value over time. This increase is influenced by factors like market conditions, location, and property improvements. DSTs are no different. If the underlying real estate assets held by the DST increase in market value, the trust — and by extension, the investors — may benefit.
How Do DSTs Appreciate in Value?
In direct ownership, appreciation builds equity that an investor could potentially borrow against or realize upon an individual sale decision. Appreciation in a DST, meanwhile, benefits the investors collectively and can be realized when the entire underlying property is sold at the end of the DST’s holding period. Most DSTs are structured with a target holding period—commonly five to seven years—though actual timing depends on market conditions, sponsor decisions, and the terms outlined in the trust agreement. During this period, investors cannot direct the sale or refinance of the asset and have no liquidity options outside the sponsor’s exit strategy. Example Scenario:
- Investors enter a DST that owns a $20 million hotel.
- Over the next five years, the property appreciates, resulting in a sales price of $25 million.
- If the property is sold and all debt, fees, and costs are paid, the net proceeds—including any appreciation—may be distributed to investors based on their pro rata ownership.
Various Factors That Affect 1031 Delaware Statutory Trust Appreciation
Many variables affect how much a DST property may appreciate. While each asset is affected by its own characteristics, the following factors are commonly considered across most DST offerings:
- Location: Where the property is a key factor in how it appreciates. Those in high-growth, economically strong locations are more likely to appreciate at a higher rate compared to those in economically distressed areas.
- Asset Type: Multifamily and industrial assets have historically shown stronger appreciation trends than retail or office, though this varies by market and past performance is not a guarantee of future results.
- Sponsor Strategy: For DSTs in particular, the sponsor strategies have a major effect on the property’s appreciation. Some sponsors have more conservative approaches that focus on stable income. Others take bolder strategies, such as major capital improvements and proactive management, that have a goal of increasing net operating income. These strategies carry different levels of risk, and returns are not guaranteed.
Wrapping Up: DST Appreciation Basics for Investors
Delaware Statutory Trusts (DSTs) are investment vehicles that hold real estate assets on behalf of multiple investors. Depending on the real estate market, location, asset type, and sponsor strategy, the underlying properties may appreciate or decline in value over time. If you’re considering a DST as part of a 1031 exchange or for portfolio diversification, be sure to consult with your tax advisor and investment professional. Look at historical performance, understand the sponsor’s strategy, and align the DST’s goals with your own.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. DSTs are typically offered as private placements and may only be suitable for accredited investors. These investments are illiquid, subject to market and sponsor risk, and may result in loss of principal.
Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses.
Sources:
https://www.irs.gov/irb/2004-33_IRB
https://smartasset.com/investing/real-estate-appreciation
https://smartasset.com/investing/delaware-statutory-trusts-dsts
https://www.credaily.com/briefs/key-trends-shaping-commercial-real-estate-in-2025/
