How to Choose the Right Delaware Statutory Trust Broker

Delaware Statutory Trusts (DSTs) represent intricate investment vehicles allowing individual investors to acquire fractional shares of real estate properties typically held by real estate investment trusts, pension funds, and institutional investment firms.

A DST broker-dealer is a securities firm specializing in the sale of DST investments to investors. These broker-dealers typically collaborate with DST sponsors to market and facilitate the sale of these offerings. DST broker-dealers must hold proper licensing from the Securities and Exchange Commission (SEC).

In our experience, each DST is unique, and we believe the same holds for DST brokers. Selecting a DST broker is a decision as crucial as choosing the assets within a Delaware Statutory Trust. In this article, we aim to help investors make informed choices when selecting a Delaware Statutory Trust broker by emphasizing essential attributes, competencies, and cost considerations while researching prospective DST brokers.

Five Key Factors to Consider When Choosing a DST Broker

DST brokers, much like the sponsors who construct and package these specialized investment vehicles, require careful evaluation before making investment decisions. Conducting due diligence on both DST brokers and sponsors can empower investors to make informed choices while potentially saving money due to varying fees within the DST brokerage and investment services landscape.

Delaware Statutory Trust brokers collaborate closely with DST sponsors to promote these investments and connect investors with trust offerings, primarily through online platforms. Typically, sponsors initially fund these investments and then market their DST offerings to broker-dealers. The broker-dealers subsequently offer them to investors until the sponsor’s initial investment is entirely replaced. While sponsors conduct comprehensive asset analyses before placing them in trust, brokers also conduct rigorous due diligence on the properties before presenting them to clients, usually through private placement memorandums or investment decks.

Since DSTs are classified as securities, all DST brokers and their registered representatives must hold full licenses to offer DSTs to individual investors. When evaluating potential DST investment opportunities, consider the following five factors:

1. Regulatory History: Check the broker’s regulatory history and whether they have been involved in any previous lawsuits. The SEC’s online tool at Investor.gov/CRS and FINRA’s BrokerCheck offer valuable insights into broker-dealers and registered investment advisors, including any disciplinary actions against them.
2. Experience Level: Assess the broker’s experience and the number of years they have spent in the investment industry. Brokers and sponsors with extensive experience often possess valuable wisdom and knowledge to share with investors.
3. Underwriting Standards and Expertise: Determine the broker’s underwriting standards and core competencies. Some brokers specialize in working with a single sponsor, while others collaborate with multiple sponsors. Additionally, consider whether the broker’s expertise aligns with your investment objectives, such as a focus on specific commercial real estate sectors.
4. Size of the Broker: The size of the broker-dealer matters. Larger broker-dealers typically have more substantial support teams capable of assisting with investor relations, due diligence, client management, reporting, and other critical aspects of DST investing.
5. Fee Structure: Evaluate the broker’s fee structure comprehensively. Delaware Statutory Trusts may include various fees, such as property acquisition, due diligence, marketing, loan origination, commissions, and broker-dealer allowances. Before making investment decisions, conduct a thorough analysis of potential DST fees and weigh them against potential returns.

Numerous brokers offer DST investment opportunities, and investors need to create a checklist and address the concerns outlined above. This approach will lead to well-informed investment decisions and assist investors in finding DST opportunities aligned with their investment objectives and risk tolerance.

How We Can Help

To ensure that investors find a DST broker who genuinely prioritizes their best interests, they can consider turning to a trusted intermediary like 1031 Exchange Place. 1031 Exchange Place is a reputable service provider that specializes in facilitating 1031 exchanges and DST investments.

Here’s how 1031 Exchange Place can assist investors in finding a DST broker with their best interests in mind:

1. Expertise and Industry Knowledge: 1031 Exchange Place has extensive experience in real estate investment and the 1031 exchange market. They have a deep understanding of DSTs and the brokers who deal with them. They can provide valuable insights into selecting a broker with a strong track record of serving investors’ needs.
2. Vetting and Due Diligence: 1031 Exchange Place conducts thorough due diligence on DST sponsors and broker-dealers. They assess their regulatory history, experience, underwriting standards, and fee structures, ensuring that they meet high standards and align with investors’ interests.
3. Objective Guidance: As a neutral intermediary, 1031 Exchange Place doesn’t have a vested interest in promoting any particular broker or sponsor. They provide impartial advice and recommendations, focusing solely on finding the best match for investors’ specific requirements.
4. Access to a Network: 1031 Exchange Place often has established relationships with reputable DST brokers and sponsors. They can leverage their network to connect investors with brokers who have a strong reputation for transparency, integrity, and a commitment to clients’ best interests.
5. Educational Resources: 1031 Exchange Place offers educational resources and guidance to investors, helping them understand the nuances of DST investing and the factors to consider when choosing a broker. This empowers investors to make informed decisions that align with their financial goals.

By collaborating with 1031 Exchange Place, investors can benefit from a trusted partner that strives to ensure they find a DST broker who prioritizes their financial well-being and investment objectives, ultimately enhancing their investment experience and peace of mind.