How to Evaluate a DST Offering
To evaluate a Delaware Statutory Trust (DST) offering, review the sponsor's track record, the underlying property quality, the financing structure, the total fee load, and the projected distribution yield relative to the underlying property cap rate.
Before you start
DST offerings are securities marketed by broker-dealers. The Private Placement Memorandum (PPM) is dense. Here's what to focus on.
What you need
- Full PPM (request if only summary is offered)
- Sponsor track record across prior vintages
- Underlying property details
- Comparable market cap rate data
Steps
- Step 01
Start with the sponsor
How many DST offerings has this sponsor completed? What were projected vs. realized returns on prior vintages? What's their track record across a full market cycle (2007-2010 and 2022-2025 are the relevant stress periods)? Request and review sponsor financial information.
- Step 02
Examine the property quality
Review property specifications, location, tenant roster, and lease terms. Would you underwrite this property directly at the stated cap rate? Apply the same standards you'd apply to a direct acquisition.
- Step 03
Analyze financing structure
LTV, fixed vs. floating rate, interest-only vs. amortizing, loan term vs. DST hold period. Interest-only loans that mature before DST exit carry refinance risk. Floating-rate debt adds rate sensitivity.
- Step 04
Compute the fee load
Add up: acquisition fee, broker-dealer selling commissions, asset management fee (annual), property management fee (annual), disposition fee, organization and offering costs. Total load typically runs 10-17% — higher loads on BD-distributed offerings, lower on RIA channels.
- Step 05
Compare distribution yield to cap rate
The cover page distribution yield is usually investor-yield-after-fees, not the underlying property cap rate. What's the property cap rate? If distribution yield equals or exceeds cap rate, fees and financing are bridging the gap — verify that bridge is sustainable.
- Step 06
Read risk factors carefully
The risk factors section is legally disclosed for a reason. Every material risk the sponsor acknowledges is here. Read it. A sponsor disclosing 50 risk factors isn't hiding — a sponsor with a thin risk factors section may be.
- Step 07
Evaluate exit strategy
When does the sponsor project sale? What's the projected exit cap rate? How does projected appreciation compare to recent market cap-rate movement? Is a 721 UPREIT rollover option available at exit?
- Step 08
Check DST-specific rule compliance
Is the DST structured to meet Rev. Rul. 2004-86 requirements (the 'seven deadly sins')? Specifically: no new capital contributions, no new borrowing, limited lease renegotiation, pro-rata distributions, reasonable reserves. Violations disqualify the DST as 1031-eligible.
Common mistakes
- Accepting the cover page yield as the full story
- Under-weighting sponsor track record vs. property characteristics
- Missing refinance risk on interest-only loans
- Ignoring total fee load over hold period
- Skipping DST structural compliance review
Frequently asked questions
What's a reasonable DST distribution yield?
In 2026, net-lease DST offerings typically project 5.25-6.5% annual distribution yield to investors after fees. Multifamily DSTs project 4.5-5.75%. Industrial DSTs project 5-6.25%. Very high projected yields (above 7% current) warrant extra scrutiny.
Can I see a sponsor's actual realized returns on prior DSTs?
Reputable sponsors publish performance data on completed DST offerings. Request vintage-specific actual vs. projected returns. If the sponsor won't share this information, proceed with caution.
How do DST broker-dealer commissions work?
When a DST is sold through a broker-dealer channel, the BD receives a commission of 5-8% of capital raised. This is paid from the offering (not by the investor separately) and reduces invested capital at acquisition. RIA-distributed DSTs have lower or no BD commissions.