DST vs Qualified Opportunity Zone

3 Replies

Are there any investors with positive experiences with Delaware Statutory Trusts? I’m debating selling an investment property to avoid 90k in gains and researching DSTs vs opportunity zones. 

As I see it, the opportunity zones are more risky as most are ground up development in marginal areas. Two years before any returns. Upside on the flip is good if the projects are successful but the ramp up without any returns is tough to swallow.

DSTs are not without risk especially since most are not involved in any real value add improvements. Where is the upside on the flip? Pure asset appreciation? Rent bumps that make the asset more valuable? Seems as the property gets further into a lease the potential for greater appreciation based on rent rolls is diminished. 

I’ve invested in several other private equity real estate funds but each has some significant value add component that makes the flip very attractive. Typically 1.5 - 2x multiple on equity invested. 

But with DSTs I don’t see that as a viable option unless I am missing something here.

Any thoughts are welcomed. Thanks 

Mark— have you considered creating your own OZ fund and using it for investment properties you actively own/manage in the OZ? Lots of existing properties in opportunity zones that could easily qualify under the ‘substantial improvement’ threshold. Compared to new development, you’d be cash flowing in a matter of months rather than years. 

@Mark Herrmann

Also, despite the perception of the “low-income” status of the zones, there are actually some really good areas designated as OZs that really didn’t need the incentive for development. One example is Birmingham, where I live, which had all of downtown and surrounding area designated as an OZ.

@Mark Herrmann , It's all the moving parts you've rightly identified.  Shorter lease tends to decrease value but offset by appreciation, debt paydown, rent bumps and long term tenants. 

If you want a loose comparison to the equities world  DSTs are not designed to be "growth stocks".  They're dividend plays.  And just like a dividend play there's some backside upside.  Just not as much as in a growth play.  But when you buy Walmart you're not betting on appreciation - youre buying cash flow first.  So that's where you've got to examine your own model and needs.