This disclosure is required on all DST offerings
“The risks of investing in a DST include but are not limited to: the risk of relying upon the program sponsor and their continued competency and success; the risk of sponsor insolvency; and the risks associated with giving complete discretion regarding the management, leasing or disposition of the property to a third party. If the property held by the DST is leveraged, there is the risk of being unable to re-finance the program at the end of the term of said loan. Also, there is the risk of possible conflicts of interest with program sponsors, trustees, or property managers.
*All real estate and DST investments carry the risk of a complete loss of invested capital and that returns/cash flow/appreciation/distributions after appreciation are not guaranteed and could be lower than anticipated. The Sponsor may potentially utilize equity or financing in the form of a bridge loan, first mortgage, preferred equity or mezzanine financing regarding the acquisition of the Property. This poses a level of risk to investors if the Sponsor was unable to raise the entire offering amount and retire the equity or financing, including foreclosure and a complete loss of investor capital.
In addition, there are tax-related risks when using a DST ownership structure for the purpose of a 1031 exchange. While DST offerings are designed for this, there is no guarantee that the IRS will approve each individual DST structure or each individual exchange.
Other issues include:
- Illiquidity (there is currently no secondary market)
- Tax status risk which may result in immediate tax liabilities, including penalties
- The fact that substantial fees associated with the purchase of the investment may, in certain cases, outweigh the tax benefits
- The significant tax risks for acquiring interests as replacement property
- The risks of using leverage in real estate
The investment is speculative and involves a high degree of risk
- The risks associated with fractionalized ownership in real estate and investment contracts as securities
- Property appreciation is not guaranteed
- The potential for loss of principal invested; and