I have reviewed several PPM-s for DST-s. I wonder what do others look at closely? I usually do look at:
* Property location, business plan, environment. Main employers? Is it a growing area? Personal prior knowledge or ask family friends, or google. Weather, other risks.
* Sponsor's prior experience, results.
* Forecasted cash flow. If they plan x% rent increase yearly, is that feasible?, etc.
Btw this is for a list of DST-s that my financial advisor already selected. I definitely could not look at all of them...
Recently I ruled out a DST that was a NNN lease on a medical use facility. It was a small property (compared to others I looked at) with 4-5 million valuation. Monthly rent was just under 300k. The expenses included 4200 bank fee per month and 15k asset management fee per month. I thought that these are unnecessarily high for a NNN property. (There is a single rent payer!)
@Matyas A. S. I would say all of those considerations you listed are valid. In order of importance in my opinion, I would go with the second one first, followed by your first choice, and then lastly the cash flow one. Another element you should certainly consider is any LTV baked into the program. Have a great weekend ahead!
@Matyas A. S. Some sponsors will supply 3rd party due diligence called a Mick report. This is very useful to dig in beyond the assumptions in the PPM.
There are also other independent 3rd parties that have deep experience reviewing PPMs. Send me a DM and I’ll share contact info.
Ask your adviser what they do to vet the deals. They may have done a lot of the leg work.
When I launched the passive investment department at an advisory firm I had to develop a pretty intensive due diligence sheet.
If the adviser is a fiduciary they should have something similar too.
We analyzed everything from debt, insurance coverage regarding risks of the area, ect
@Brandon Bruckman Have you ever heard of FactRight? If yes, are Mick Reports similar? I find some DST sponsors pay to have public "due diligence" reports, but for others the information is hard to find.
@Matyas A. S. my colleagues and I have develop a methodology for analyzing DSTs. We like to call it the "Where, What, Who" method. Here are a few of the things we look for:
Where - Where is the market / sub market that the DST is investing in? What are the vacancy / occupation rates of the area? What is the historical rent growth and what is the rent growth projected in the PPM? Do these contradict each other?
What - What are we investing in? We analyze the DST's projections for income, expenses, NOI, and investor cash flow. Are these projections aggressive or reasonable for the market / sub market? Does the DST have reserves? If leveraged, what is the debt coverage ratio?
Who - Who is the DST sponsor? What is their prior deal track record? This final point is one of my favorite in the methodology. Where is the DST sponsor obtaining it's data for the PPM? Are the data / projections from independent 3rd parties or are they from paid / internal sources?
@Chad Kolinsky Mick goes deeper. You are correct, some sponsors will provide others ask you to pay for the 3rd party report.
I like to review the PPM with my clients, then get our DST sponsor on the phone to go over the PPM in more detail to make sure the client fully understands the risks/fees associated with a DST and really understand the property that they will be investing in.
@Matyas A. S. Just checking in... did you find a DST? How is it going for you?
@Matyas A. S. , I know it's been a while but what did you decide?
It's important to have the advice and perspective of an industry old-timer, in my opinion.
If you're still figuring out what to do and need any help, feel free to contact me.