1031 Exchange

What is a Delaware Statutory Trust (DST)?

When conducting a tax-deferred 1031 exchange, there are a multitude of options in terms of what type of property to trade into. Some investors will sell a multifamily property and buy another multifamily property, either larger or smaller than the property they sold. Others trade into different product types such as industrial and retail (NNN properties). However even with the most hands-off NNN retail property (such as a Walgreens, CVS, Dollar General etc.) where the tenant is responsible for the maintenance, property taxes and insurance, is it still really hands-off? What happens if that tenant leaves and you are left with 25,000 SF of empty space 35 miles outside of Albuquerque, NM? Enter Delaware Statutory Trusts. I have seen many of my clients trade into DSTs and while I am not advocating for or against them, below is some information about what they are and how they work.

Delaware Statutory Trusts
Delaware Statutory Trusts (DST) are not new, but current tax laws have made them a preferred investment vehicle for passive 1031 Exchange investors and direct (non-1031) investors alike. DSTs are derived from Delaware Statutory law as a separate legal entity, created as a trust, which qualifies under Section 1031 as a tax-deferred exchange.1

In 2004, the IRS blessed DSTs with an official Revenue Ruling about how to structure a DST that will qualify as replacement property for 1031 Exchanges. The Revenue Ruling (Rev. Ruling 2004-86) permits the DST to own 100% of the fee simple interest in the underlying real estate and may allow up to 100 investors to participate as beneficial owners of the property.2

How Delaware Statutory Trusts Work
The real estate sponsor firm, which also serves as the master tenant, acquires the property under the DST umbrella and opens up the trust for potential investors to purchase a beneficial interest. The investors may either deposit their 1031 Exchange proceeds into the DST or purchase an interest in the DST directly.

DST investors may benefit from a professionally managed, potentially institutional quality property. The underlying property could be a 500-unit apartment building, a 100,000 square-foot medical office property, or a shopping center leased to investment-grade tenants. Most DST investments are assets that your run-of-the-mill, small- to mid-sized accredited investors could not otherwise afford. However, by pooling money with other investors, they can acquire this type of asset.

Investors who are familiar with the tenants in common (TIC) investment strategy may see some similarities in the DST concept; however, it is important to understand the differences between the two concepts. While a TIC may have up to 35 investors, each owning an undivided, pro-rata share of the title to the property, a DST may have up to 100 investors (sometimes more), with each investor owning a beneficial interest in the trust which, in turn, owns the underlying asset.3

DST vs. TIC Ownership
There are two benefits that the DST structure offers over the TIC concept. One is that because a DST is not limited to 35 investors, the minimum investment may be much lower, sometimes in the $100,000 range. The second major advantage is that in a DST, the lender makes only one loan to one borrower: the DST’s sponsor.

In a TIC investment, the lender can fund up to 35 separate loans, one to each investor.3 In times of tight money, however, the DST gives the lenders greater security because the lender has fully qualified the sponsor, who is the underlying responsible party.

Be aware that the higher number of investors, plus the larger number of shares, may or may not protect your investment; careful scrutiny of the controlling partner/sponsor is advised. There are a lot of crooks in this business.

Risks Involved
DSTs are not without risks. As with any real estate investment, investors may be subject to high vacancy rates and loan defaults. It is also important for investors who may be considering the DST strategy to consult with an experienced investment professional and obtain competent legal and tax advice. The DST structure may be a viable investment alternative for qualified real estate investors, but only your tax adviser and a lawyer can tell you if it is right for you.

Los Angeles Multifamily Renovation Vacancy

Tips For Leasing Your Vacant Apartment Unit During Covid-19

Apartment vacancy is high in Los Angeles right now as a result of the effects of Covid-19.  As a result many landlords are left with vacant units that are collecting dust due to current residents moving out for various reasons which include things like exiting Los Angeles entirely, consolidating from say a 2BR unit to a 1BR unit to save money or even moving back in with their parents.

18 months ago if you had a vacancy in a prime area, you might only have had to put out a ‘For Rent’ sign and you would have applications in within a few days.  Times have changed during the global pandemic and in order to lease your vacancy, you may have to do some things that you otherwise would not have had to do.

Here are a few tips for leasing your vacant apartment unit during a period of high vacancy such as this one:

Freshen Up Your Unit – Keep in mind that you are competing with nicer buildings who also have vacancies and whose rents are likely falling as a result. Your product has to look good. I’m not saying that you need to fully renovate your vacancy but there are various low cost improvements you can make to make it look a little bit fresher such as painting the unit, putting in new blinds, reglazing the bathtub and changing out old light fixtures, kitchen and/or bathroom fixtures. These minor improvements can make a difference in terms of attracting prospects.

Take Good Photos – I can’t tell you how sad it is to search to find tired looking units with even worse photos. The first thing the average millennial renter will do when searching for an apartment is go online and search listings. If your unit does not show well on screen, you will likely not get inquiries. You do not have to hire a professional photographer for every vacancy. The new iphones have excellent wide-angle lenses which will do just fine in terms of capturing what you need to capture.

Utilize All Online Listing Platforms Available to You – Although putting up a For-Rent sign may have been your only source of leads in the past, if you are not using online listing sites like, Zillow, or even Craigslist, you will not get the volume of inquiries you are looking for.

Answer The Phone and Respond to Inquiries Promptly – This should go without saying but I speak to many rental prospects on the phone who are so happy to get a warm body who actually answers the call and responds to their inquiries quickly. A lot of times with renters, the first person they can get on the phone is the first place they will tour and often times the place they will lease. You should create a template response that goes out to all text and email leads which you can just copy and paste to each prospect without having to write a new one every time!

Be Realistic With Pricing and Even Offer a Concession – Let’s face it, with high vacancy comes the flattening and even decline of apartment rental rates. In some major metropolitan areas, some large apartment landlords are reporting rents being down as much as 20%. Price your unit accordingly and if you are offering say a one month concession, try to negotiate a 13-month lease.

Los Angeles Multifamily Vacancy

Apartment Vacancy Continues to Rise in Major Metropolitan Areas

If you own a multifamily property in Los Angeles, chances are that in the last 12 months (during the global pandemic), you have dealt with some component of vacancy at your property.  We expect this trend to continue at least through 2021.   

Here is why:

Why vacancy rates are expected to rise in 2021:

1. New Supply Being Delivered to Market:  More than 396,000 apartment units were delivered in 2020, a peak year for deliveries, according to Dodge Data & Analytics Supply Track. Another 506,637 are anticipated to be delivered in 2021. However, it is possible given labor and material shortages that not all of those apartments will be completed this year. The cities with the highest levels of apartment construction underway now include New York, Washington, Dallas, Houston, Los Angeles and Seattle, according to Dodge.

2. Demand is Down:  Demand, particularly for Class A apartments in prime urban locations, dropped precipitously early in the pandemic as young adults left to move in with their parents and tenants moved to the suburbs in search of more living space, less density and lower rent. Working remotely and the lack of availability of urban amenities during the pandemic meant renters were more likely to move away from expensive downtown locations. Those renters are not anticipated to return to their offices – at least not full-time – until later in 2021 or perhaps 2022.

3. Disconnect Between Demand and Supply:  While demand is expected to remain strong for Class B and Class C apartments, especially in markets with relatively steady employment, new supply is primarily Class A apartments in already saturated markets where demand is down.

4. Uneven Performance by Market: Vacancy rates also vary by market. Class A apartments in prime urban markets, particularly in gateway cities, are not expected to recover until 2022, according to market analysis by CBRE. But markets in the Midwest and South, which didn’t deteriorate as much in 2020, are anticipated to have lower vacancy rates in 2021.

5. Job Growth Won’t Replace 2020 Job Losses:  Fannie Mae’s economic forecast expects job growth of 5.5% by the end of 2021, but even that estimated 7.9 million new jobs won’t make up for the estimated 9.3 million jobs lost in 2020. Fannie Mae expects it will be 2022 before those jobs are replaced and before demand will increase substantially for apartments.

Why vacancy rates will improve in 2022

The U.S. economy will begin rebounding in 2021, particularly as vaccinations become more widespread. That rebound is anticipated to accelerate in 2022. By late 2021 and into 2022, job growth is anticipated by Moody’s Analytics to increase in Austin, Dallas and Phoenix, which should increase multifamily demand. All three cities have a significant amount of supply, but demand is strong enough to absorb that supply. Other cities where employment recovery levels by the fourth quarter of 2021 are expected to be strong include Salt Lake City, Indianapolis, Houston, Denver, Atlanta, San Antonio and Jacksonville. Cities with lower expected employment recovery include Pittsburgh, Chicago, Los Angeles, New York, Orlando, Providence, San Francisco, Cleveland, Detroit and Las Vegas.

LA Soft Story Ordinance

What You Need to Know About the Los Angeles Soft Story Building Earthquake Retrofit Ordinance


Chances are, before 2015 you may not have even heard of the term “soft story building.”  However by now, if you own multifamily property in Los Angeles, the city-wide soft story ordinance is pretty much all you are hearing about.  In November of 2015, Los Angeles Mayor, Eric Garcetti, passed the most sweeping mandatory seismic regulation in the nation ordering some 14,000 soft story apartment properties built before January 1, 1978 to undergo significant earthquake retrofitting to prevent buildings from crumbling as a result of violent shaking from an earthquake.

What is a soft-story building?

A soft-story building is a structure which has a weaker first floor and is unable to carry the weight of the stories above during an earthquake. The first floor generally would have large openings in the perimeter walls such as garages, tuck under parking or even large windows.

Buildings that are most vulnerable have been identified with the following criteria:

  • Consist of 2 or more stories wood frame construction
  • Built under building code standards enacted before January 1, 1978
  • Contains ground floor parking or other similar open floor space

***The program does not apply to residential buildings with 3 or less units.

Notices to owners will go out in the following phases:

Phase I.  Buildings with 16 or more dwelling units

  • 3-story and above – May 2, 2016
  • Condos/Commercial – Oct 30, 2017

Phase II.  Buildings with 3 or more stories

  • With less than 16 units – Oct 17, 2016

Phase III.  Buildings not falling within the definition of Priority I or II

  • With 9-15 units – Jan 30, 2017
  • With 4-6 units – Aug 14, 2017
  • With 7-8 units – May 29, 2017
  • 2-story – July 22, 2016

Timing of compliance:

From the receipt of the Order to Comply, qualifying soft story building owners must:

Within 2 years: Submit proof of previous retrofit, or plans to retrofit or demolish
Within 3.5 years: Obtain permit to start construction or demolition
Within 7 years: Complete construction

For further information, please visit this dedicated soft story ordinance website for the Los Angeles Department of Building and Safety.


Why This Page Exists…

This blog was created this as an information hub for multifamily apartment landlords across the Greater Los Angeles area.  I hope that the information you find here will be useful in the  day-to-day operations of your properties.