Investment risk management is always an issue in the CRE vertical, but 1031 investments such as exchanges for beneficial interests in a Delaware Statutory Trust (DST) transaction structure can be very risky. The reality is that a market disruption of some kind is bound to happen over that 10-year mandated holding period and that leaves the 1031 exchange investor dangerously exposed to loss or recapture.
INVIZEN offers an affordable and proactive solution for DST transaction sponsors, investors and lenders seeking to minimize their risk exposure through our Real-Time Status Asset Care Protection Program (or RTS). In a nutshell, RTS re-underwrites the market and financial prospects of the entire transaction each and every month for the entire holding period to provide the highest level of performance assurance possible. Our underwriting approach is based upon a proprietary program that is designed to prevent a bankruptcy petition from being the result of an unforeseen liquidity crisis.
Ten years ago, Sears and ToysRus were considered safe bets and people poured capital into these single-tenant lease transactions, many of which were DSTs or similar 1031 exchange investments because they thought they were safe. That was only true as of the date the underwriting took place and the deal closed. Not so much today.
One thing is certain: technological advances will continue to create asset obsolescence risk and that risk can either be the source of profit-taking or loss for the investor. We all get to decide which side we want to be on. What side do you want to be on?