Delaware Statutory Trusts (DST) can offer lucrative, passive revenue streams if you choose the right Sponsor. When Realized evaluates a Sponsor, we want to determine whether or not the Sponsor is a reliable and reputable one. We also want to research their standing and how it could impact the potential investment and return. Additionally, we examine the offer in an effort to ensure it is a viable one and that it aligns with an investor’s goals.
Here’s an overview of a Sponsor and the details we analyze before potentially making investment decisions.
What is a Sponsor?
A Sponsor is an individual or company in charge of finding, acquiring, and managing real estate property on behalf of a partnership. In a DST, the Sponsor is also responsible for the following:
- Creating the DST
- Soliciting investors
- Acting as the trustee
- Overseeing property management
- Maintaining control over the Master Tenant
- Structuring the debt on the property or portfolio
The Sponsor is why DST investors don’t have to worry about managing properties or obtaining financing. For their services, Sponsors collect fees, which they build into the offering.
Why is it Important to Evaluate a Sponsor?
There are more than 40 active Sponsors in the DST space with many others expected to enter the market within the next six to 12 months. Typically, Sponsors have a long track record in real estate. However, with the record growth Realized has seen in the DST market in recent years, many firms took the opportunity to bring their institutional-grade products to the retail investor market. With so many new Sponsors coming to the table, it’s important to thoroughly evaluate each option.
How can I Evaluate a Sponsor?
We believe evaluating the Sponsor is equally as critical as evaluating the property. Aligning yourself with a reliable Sponsor is key in pursuing a promising arrangement. Here are some ways to gauge the strength of each Sponsor and, as a result, the strength of your investment:
- Length of track record: An established history offers a strong insight into a Sponsor’s track record. That doesn’t mean those relatively new to the field are incompetent. It just means you must conduct more research before investing.
- Performance in varying economic cycles: Examining how a Sponsor manages investments during a recession is more telling than how they perform when markets are up. Were they able to maintain the property? Did they have to sell? Or did they rise to the challenge and turn a profit?
- Asset class: Whether you purchase interest in an apartment building, hotel, or office building, your Sponsor should have previous success in the same type of asset class you’re considering.
- Size and financial strength: Sponsors with experienced teams and larger operations tend to be better equipped to locate, analyze, and manage properties. Larger Sponsors also typically benefit from economies of scale, which can reduce the cost for investors.
How Should I Evaluate a Sponsor’s Offer?
In addition to evaluating a Sponsor’s track record, you should also examine how a Sponsor structures a deal. We refer to this as assessing an offer’s structural risk. Without structure and market analysis, it is difficult to get a full picture of the investment.
To assess offers thoroughly, Realized uses a simulation tool to evaluate Sponsor projections and compare them to historic market data. This allows us to evaluate the impact on cash flow and investor returns. The comparison between Sponsor projections and historic market data can be an indicator of how conservative or aggressive Sponsor projections are and how realistic and potentially profitable the investment may be.
Realized’s Evaluation Process
Every offering you see on our Marketplace must go through a Sponsor review by Realized Financial, our broker-dealer. After that initial Sponsor review is complete, the research team conducts an in-depth financial analysis from the offering documents to determine the suitability of the deal. We then hand it off to our broker-dealer, Realized Financial, for a thorough compliance review. Our due diligence committee also reviews the offering. The reports created by our due diligence committee must receive unanimous approval before the offering can be extended to investors.
Realized takes pride in this multi-level review process, which helps us determine the overall strength and compliance of our offerings. Above all, we strive to ensure a Sponsor and their offer provide good matches for our investors.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
No public market currently exists and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment.
The actual amount and timing of distributions paid by programs is not guaranteed and may vary. There is no guarantee that investors will receive distributions or a return of their capital. These programs can give no assurance that it will be able to pay or maintain distributions, or that distributions will increase over time.
Past performance is not a guarantee of future results. All real estate investments have the potential to lose value during the life of the investment.