The direct answer: a Delaware Statutory Trust is a legal entity that owns institutional real estate; investors buy fractional interests that the IRS treats as direct real-estate ownership — which is what makes a DST eligible replacement property in a 1031 exchange.1 Passive, fractional, fast to close — and illiquid, unvoting, and fee-laden. This guide covers the whole structure, both sides at equal volume.
A Delaware Statutory Trust is a legal entity, formed under Delaware law, that owns real estate — commonly a single institutional property or small portfolio: an apartment community, a distribution center, a medical building, a necessity-retail center. A sponsor acquires the property, places it in the trust, and sells beneficial interests to investors. You own a fractional, undivided slice of the trust, the trust owns the building, and a trustee — not the investors — runs it.
The reason the structure matters is one IRS ruling: Revenue Ruling 2004-86 treats a properly structured DST interest as a direct interest in the underlying real estate, which makes it eligible replacement property for a 1031 exchange.1 A REIT share is not; a partnership interest is not; a DST interest is. That single sentence built the securitized 1031 market.
The cast: the sponsor finds, underwrites, finances, and packages the property, then manages the program; the trustee holds legal title under the trust agreement; investors hold beneficial interests and receive their share of net cash flow, commonly distributed monthly. Any mortgage lives at the trust level — investors take on no personal liability and, usefully for exchangers, the trust’s debt counts toward the equal-or-greater-debt requirement without a loan application.1,2
Income, depreciation, and expenses pass through to investors in proportion to their interests — how that lands on your return is its own subject, covered in How DSTs Are Taxed.
Each of these is a “may,” not a promise — and each has a price, below.
To keep its 1031-eligible status, a DST operates under strict limits the industry calls the seven deadly sins: once the offering closes, the trust generally cannot raise new capital, renegotiate or add debt, reinvest sale proceeds, make more than minor capital improvements, retain cash beyond reserves, enter new leases or renegotiate leases (which is why master-lease structures are common), or do much of anything except own and collect.1,2 These rules protect your tax treatment and simultaneously explain DST behavior investors find strange later — why the trust can’t refinance its way through trouble, and why a serious problem usually means the property is sold rather than fixed.
Because the trust itself cannot enter or renegotiate leases once the offering closes, many DSTs are built with a master lease: the trust leases the entire property to an affiliate of the sponsor, which then handles the tenant-level leasing a trust cannot touch. Your distributions flow from the master lease’s rent, not directly from the tenants’ — an elegant solution to the structural rules that also deserves a careful read, because it can smooth what investors see: tenant turnover, concessions, and softness at the property can sit behind a level master-lease payment until they can’t. The master lessee’s own economics — and what happens if property cash flow stops covering the master rent — are disclosed in the PPM and worth understanding before, not after.1
DST economics carry a front-end load — selling commissions, dealer-manager fee, organization and offering costs, acquisition fee, and the sponsor’s markup, commonly disclosed in the 8–12%-of-equity range — plus ongoing sponsor-level fees and disposition costs. Every figure is in the PPM’s Use of Proceeds table, and our companion guide walks the whole stack line by line: DST Fees, Honestly.
The comparison most exchangers are actually making is not DST versus REIT — it is DST versus buying another building. Direct ownership keeps control, financing choices, exit timing, and the ability to force value through management; it also keeps the work, the concentration, the personal guarantees, and the 45-day scramble to find something worth owning. The DST surrenders every control in that sentence and, in exchange, removes every burden in it — plus closes in days at fractional size across several properties. Neither is the adult choice in the abstract. Investors who still enjoy operating usually shouldn’t buy passivity; investors buying a fourth decade of landlording out of habit usually shouldn’t buy that either. The honest comparison is total net outcome including your time, priced at what your time now costs.
A TIC gives you deeded co-ownership and a vote, with unanimous-consent risk and slower closings (full comparison). A public REIT gives you liquidity and diversification but is not 1031-eligible — selling a building to buy REIT shares is a taxable event. The DST sits between: 1031-eligible and passive, but illiquid and unvoting. Which trade-off fits is an investor question, not a product question.
DST offerings are private placements under Regulation D, generally limited to accredited investors — for individuals, income over $200,000 ($300,000 joint) in each of the last two years, or net worth over $1 million excluding the primary residence, among other paths.3 Verification is required for 506(c) offerings. Exchange proceeds do not change the requirement: accreditation is about the investor, not the money’s source.
Common sectors in current programs: multifamily communities, industrial and distribution, medical office and healthcare, necessity retail, self-storage, senior housing, and net-leased single tenants. Structures split between single-property trusts (clean story, concentrated risk) and multi-property portfolios (diversification inside one identification). Leverage varies program to program, from all-cash trusts — attractive to exchangers with no debt to replace — to meaningfully levered ones that help satisfy the equal-or-greater-debt test without a loan application. None of these attributes is better in the abstract; each is a fit question against what you sold and what you need.
Fractional 1031 investing predates the DST: the early-2000s market ran on tenant-in-common programs, which strained under their own governance — unanimous votes among dozens of co-owners in the 2008 downturn did not go well. Revenue Ruling 2004-86 had just opened the DST alternative,1 and the industry migrated: trustee governance replaced co-owner votes, and the DST became the dominant securitized 1031 vehicle. The structure’s rigidity — the seven deadly sins — is not an accident of drafting; it is the price of the tax ruling, learned the hard way by the structure that came before.
A DST program typically projects a five-to-ten-year hold, then exits by selling the property — sending investors into a fresh 1031 decision — or by contributing it to an affiliated REIT’s operating partnership in a 721 transaction that ends the exchange chain. The timing is the sponsor’s call, not yours, and the planning belongs at purchase: DST Exit Strategies and The 721 Exit, Honestly cover both doors. Contact our team to discuss whether a DST may be appropriate for your circumstances.
This guide is educational and is not tax or legal advice; consult your own tax and legal advisors about your specific situation. Qualified investors seeking to defer taxes through Section 1031 or Section 721 transactions may be able to do so under current law; not all investors will be able to utilize these benefits. Tax laws are subject to change and future legislation could affect the availability or benefits of Section 1031 exchanges and basis step-up provisions. Investments discussed may be speculative, illiquid, and involve a high degree of risk, including the possible loss of principal. Such investments are generally available only to qualified or accredited investors. Securities are offered through Realta Equities, Inc., Member FINRA/SIPC, and investment advisory services are offered through Realta Investment Advisors, Inc., co-located at 1201 N. Orange Street, Suite 729, Wilmington, DE 19801. Neither Realta Equities, Inc. nor Realta Investment Advisors, Inc. is affiliated with Carmona Wealth.
