Increasing numbers of investors are now recognizing the benefits of Delaware Statutory Trusts (DSTs), including the tax deferral, passive income, and diversification that come along with them. However, some still hesitate because of one major challenge: the illiquidity of DSTs. Having your capital stuck for five to seven years or more can make you feel trapped and apprehensive.
If the benefits outweigh the illiquidity issue and you still wish to commit, you’ll be pleased to know that there are DST liquidity solutions available. Realized 1031 has shared details about each option below. Keep reading to learn more!
1. Holding Until Liquidation
The most straightforward and traditional path to liquidity is waiting for the DST’s holding period to be over. The liquidity event happens when the sponsor initiates the sale of the underlying assets and dissolves the trust. Given this limitation, investors who usually enter DSTs already understand that they won’t easily access their capital for up to a decade or more. If they foresee the need for cash in the near future, they’d plan ahead and ensure that there are other, more liquid assets in their portfolio. Otherwise, the capital will remain tied up, regardless of personal needs or market shifts.
2. Selling to the Secondary Market
Let’s say that you already anticipated the long holding period of the DST. However, life is unpredictable, and you may find yourself in need of the trapped capital. You can actually sell your DST interests to the secondary market. This solution entails finding a willing buyer and negotiating a sale. However, finding eager investors may prove difficult as there is no organized secondary market. There’s also the tendency for sellers to lower the value of their interests in an effort to attract buyers, which lowers their overall profits. Thankfully, Realized 1031 provides solutions for this type of liquidity option.
3. Sponsor Buyback
Some DST sponsors may offer to buy back interests, but this is rare and typically not guaranteed. When buybacks are available, the offer price may be below the current market value, as sponsors may factor in transaction costs or market conditions.
Take Advantage of Realized 1031’s DST Secondary Market Services
The lack of an organized secondary market remains the most significant challenge to DST 1031 liquidity. Thankfully, Realized 1031 has created secondary market services that help you exit DSTs early.
We launched the first SEC- and FINRA-reviewed Alternative Trading System (ATS) for DSTs, offering a more transparent and compliant way to access liquidity. This system is fully integrated with qualified intermediary services, enabling seamless 1031 exchange planning post-sale. With our system, we’ve completed more than $5 million secondary market transactions, with 85% of the sales closing at or within 90% of the asking price.
Our process is easy. First, you engage with us to get an opinion of market value (OMV) to help with interest valuation. We then work with our network to find suitable buyers. If you accept a buyer’s offer after negotiations, we can help with the closing process along with partners.
Wrapping Up: Delaware Statutory Trust Liquidity Options
Given how DSTs are designed as long-term investments, liquidity becomes an issue for investors who need to access their cash. Holding until the liquidity event is still the ideal option, but selling your interests to the secondary market or a sponsor buyback are some avenues you can try. If you go for the former method, Realized 1031’s secondary market services help you find willing buyers and increase the chance of a successful sale.
Sources:
https://smartasset.com/investing/delaware-statutory-trusts-dsts
