So I just sat with a friend who spent his career (decades) as a commercial bank loan officer, mostly in real estate, with a retirement career as an independent bank auditor. Together we looked at three DST from three different Sponsors. Each one had a Master Tenant Lease agreement with the DST. We tried to analyze financials with reference to the terms of the agreement. It's clear the Sponsors are shifting income to itself, but it is very difficult to know how much or make heads or tails of this. It is happening differently in each PPM so there is no consistent example to provide.
I thought the NOI is supposed to be distributed to the investor by their percent of units owned. The deals we looked at had Master Lease Agreements between the Sponsor or an entity of the Sponsor and the DST. In some, Sponsors have rent, over the Master Lease rent, or some other means, by agreement written into the terms of the PPM, inure to the Sponsor and in one some real DST expenses are being paid for by the Sponsor so income and expense is bypassing the DST I&E. It makes evaluation difficult to impossible.
I am wondering, if, as a general rule, the investor will find any DST that don't break the financials up like that. In one of these PPM, the proforma cash flow statement does not disclose the Master Lease Payment. Shouldn't a Master Lease Payment be considered a DST operating expense and therefore be reflected in the proforma, the banker has asked.
I have spent a lot of time trying to understand the whole 1031/DST/UPREIT space. For me fortunately I believe I have traditional security losses that equate to my capital gain, but I fear this DST industry has successfully pulled the wool over the eyes of retail investors who have a 1031 - 45 day count down and feel they have no other choice.
The debate can start here. I am just not going to participate.
