Investment Opportunities

1031 Exchange/DST Investments

When you sell a business or investment property and make a profit, you generally have to pay capital gains taxes. A 1031 exchange allows you to sell your real estate property, reinvest the proceeds in “like-kind” real estate, and defer the payment of taxes on that sale.

About 1031 Delaware Statutory Trust (DST) Exchange

  • Eligible assets include real estate held for investment purposes
  • Rollover principal and capital gains of the real estate sale
  • Eligible investments include real property without location restrictions
  • Must identify a replacement property within 45 days and close within 180 days
  • Capital gains may be deferred indefinitely with a step-up in basis upon death
  • Maximize after-tax return through income and appreciation

Delaware Statutory Trusts (DST)


In the majority of cases, 1031 exchanges are completed by the investment property owner with the help of a real estate broker. However, there is an alternative, a passive solution to satisfying a 1031 Exchange, and that is a Delaware Statutory Trust (DST).

DSTs that are properly structured are recognized by the IRS as qualified replacement property for real property. Investors in a DST are not direct owners of the real estate. The trust holds title to the property, for the benefit of many investors, each of whom has a “beneficial interest” and is treated as owning an undivided fractional interest in the property. 

Simply put, DSTs provide a turn-key solution for investors who may not have the time, energy or real estate expertise to find or manage a replacement property.

DSTs can be used for all or a portion of the sales proceeds. Also, it is important to be mindful that there are fees and expenses associated with a DST.

  • Access to institutional-quality real estate
  • Professional asset and property management
  • Passive ownership
  • Non-recourse institutional financing
  • Lower minimum investments
  • Portfolio diversification
  • Ability to close quickly

Understanding the Role of a Qualified Intermediary

A qualified intermediary (QI) must facilitate a 1031 exchange. The QI is a person who holds funds from the relinquished property and uses them to acquire the new replacement property. These funds never come into contact with the property owner who is involved in the 1031, per the IRS 1031 rules.

  • Prepares the legal agreements necessary to properly structure a 1031 exchange
  • Holds and safeguards your money from the sale of a property (i.e., your 1031 proceeds) until you close on a replacement property
  • Ensures that your exchange complies with the Internal Revenue Service’s rules

1031 Exchange/DST Investments FAQs

A Delaware Statutory Trust (DST) is a legal entity that allows investors to own a fractional interest in professionally managed real estate. DSTs can provide access to institutional-quality properties without the responsibilities associated with directly owning and managing real estate.

Certain DST interests may qualify as replacement property in a 1031 exchange, potentially allowing an investor to defer capital gains taxes when selling investment real estate and reinvesting the proceeds into qualifying replacement property. Strict IRS rules and timelines apply, and investors should consult with their tax and legal professionals regarding their individual circumstances.

A 721 Exchange generally allows an investor to contribute real estate, including certain DST interests, to a partnership in exchange for an interest in the partnership without recognizing gain at the time of the contribution, subject to applicable requirements. In some DST structures, investors may have the opportunity to contribute their DST interests to a Real Estate Investment Trust’s (REIT) operating partnership in exchange for operating partnership (OP) units.

DSTs may invest in a variety of property types, including multifamily housing, industrial properties, self-storage facilities, healthcare facilities, office buildings, and other commercial real estate.

DSTs may be worth exploring for investors who own investment real estate and are considering a 1031 exchange, as well as investors seeking passive exposure to certain real estate investments. DSTs involve risks and limitations, including potential illiquidity, limited control over the underlying property, and the potential for loss of principal. Whether a DST is appropriate depends on an individual’s financial situation, investment objectives, risk tolerance, liquidity needs, and tax circumstances.

DSTs may offer access to professionally managed real estate, potential income, diversification, and a more passive ownership structure. They may also provide investors with access to larger or institutional-quality properties that may be difficult to purchase individually.

DST investments are subject to real estate and market risks, including changes
in property values, occupancy, rental income, interest rates, and economic
conditions. DST investments are generally illiquid and may have typical holding
periods of five to 10 years or longer. Investors may also have limited control over
the underlying property, and there is a risk of loss of principal.

Rockport can help individuals evaluate how a DST may fit within their broader financial plan, including investment objectives, cash flow needs, diversification, retirement planning, and estate planning considerations. When appropriate, we can also coordinate with a client’s tax and legal professionals.