Delaware Statutory Trusts, or DSTs, can offer passive income without the hassle of managing a property full-time. But how can you be confident you’re investing with a reliable Sponsor? Before you commit to a DST, it’s important to thoroughly evaluate potential offers. To help you better understand the different variables to analyze before making a decision, such as risk factors and economic trends, we’re breaking down the data we use in our due diligence analysis.
Realized uses a hybrid due diligence model to evaluate potential offers from top to bottom and from bottom to top. This means we look at macro and micro attributes. For example, we examine macro-level data like the property type and metro market analytics as well as micro-level information like the individual Sponsor’s track record.
During our due diligence process, Realized harnesses information from several sources to analyze a property’s potential performance projections and geographical risk. We do this to determine if an offer is viable for our clients. We also rely on the property’s appraisal as well as Moody’s Analytics’ CRE, a tool that supplies financial intelligence and analytical tools to aid in business decision making.
While Moody’s Analytics CRE delivers data about historical rent volatility, occupancy rates, and construction trends, property appraisals supply information about demographic trends, demand drivers, and the property’s area. We use this collective data to determine the DST’s potential risks and whether or not the property’s performance has the potential to meet the Sponsor’s projections.
For instance, if a Sponsor projects an annual rent growth of 5% annually but the submarket historically shows rent growths of only 3% annually, this may indicate the Sponsor is projecting unrealistic rents, thus jeopardizing investor returns.
In addition to the analysis of the property, we believe third-party data is critical in determining the strength of the Sponsor. It allows us to dig deeper into the specific entities as well as the parent company. It also helps us determine if there is a guarantor, or an individual who will repay the debt should a Sponsor default. This allows us to understand the Sponsor’s credit profile, no matter if they’re a subsidiary of a larger company or a private credit tenant:
Even though your Realized representative will guide you through this process, it’s important for you to understand our due diligence analysis. That way you can stay in the know about your investments and feel confident in your path.