One of the emerging trends in commercial real estate development financing is the use of DST structures to secure development financing. The Delaware Statutory Trust (DST) entity organization is commonly used as a 1031 exchange investment vehicle for investors seeking to shield capital gains from taxation. There exists a robust market for investment in properties held in DSTs and this can be leveraged by the developer to obtain construction phase financing.
Like all lenders, the construction lender wants to know how they are going to get out of the investment before they make a commitment to get into it and a DST sponsor who has a proven distribution network for the capitalization of DST property acquisitions can provide the cold comfort the construction lender is looking for and the source of near-term profit-taking the developer is looking for. This can be underwritten to create a win-win scenario for all of the parties at-interest.
The key issues are:
- Pre-negotiating the DST acquisition price – since the developer needs the DST purchase as the take-out, the developer typically agrees to a slight discounting of the value in order to utilize the take-out to secure the financing from the construction lender. This also goes a long way towards sustaining the argument for a proposed non-recourse construction financing for the commercial income-producing property at interest.
- Developer experience – most DSTs are capitalized by the broker-dealer and registered investment adviser marketplace, so the standards for developer qualification are quite high, leaving most developers out of contention. Having said, joint-venture proposals with experienced DST sponsors go a long way towards resolving the issue (and INVIZEN can help refer you to DST sponsors who would entertain such proposals).
- Asset classes – most commercial income-producing property asset classes are considered to be acceptable, though some less than others. The most difficult asset classes to underwrite are retail and hospitality due to the problems inherent in each. Accordingly, the underwriting review is of critical importance and the requirement for careful investment/asset monitoring for the full term of the investment cannot be overstated (again, talk to INVIZEN about having this done on an affordable, proactive, real-time basis).
- Timing – the timing is the entire focus. The DST take-out has to be conditionally negotiated before the construction mortgage loan financing proposal is sent to the construction lender, as this will give it the credibility boost it may need for acceptance. Without the DST conditional approval in hand, the construction mortgage financing application process is no better off than it was without any consideration being given to the DST structure at all.
INVIZEN offers the only end-to-end solution specifically-designed to help end loan and investment losses in CRE securities private placement offerings by addressing the totality of the underwriting and due diligence issues in a real-time, proactive environment that only gets started with pre-closing due diligence. The INVIZEN RTS program is designed to help prevent the key risks from becoming future asset impairment problems while also proactively managing and/or deterring investment fraud, management performance and foreclosure default event exposure.
INVIZEN was purposely built to provide underwriting and due diligence reviews with one singular goal in mind: preventing future loss on capital investment made today.
To understand the INVIZEN value proposition is to understand the basic processes that attend the underwriting goal of using independent information to determine the value of an income-producing business asset. INVIZEN automates these processes so the cost of underwriting drops dramatically and the speed of processing increases dramatically as well. The underwriting happens in real-time and that means we can give CRE NNN property investors the luxury of future investment performance assurance by re-underwriting the transaction each and every month of the investment holding period to give you up to 24 months of advance notice of changes in the market, the asset or operations that may have an impact on the future income-generating capacity of the market, property and site. These notices can be both good and bad. INVIZEN has artificial intelligence at its core and computers don’t care if you have trash, it will still be another man’s treasure.
There is so much more to the INVIZEN Real-Time Status Asset Care Protection Program that INVIZEN was intentionally designed to support:
- CRE Developers & Sponsors. Developers and sponsors seeking capital financing have the advantage of a systemic solution that provides the support needed to increase the odds of a successful capital financing outcome.
- Investors & Lenders. Investors and lenders seeking to participate in commercial real estate securities private placement offerings and other credit instruments have the advantage of a systemic solution that provides the highest practical investment performance assurance we can contrive.
- Broker-Dealers & Registered Investment Advisors. Securities broker-dealers and registered investment advisors on both the buy-side and sell-side of the transaction have the advantage of a reporting system that provides FINRA compliance support, protection from future investment fraud claims, increased transaction velocity and the opportunity to increase their operating margins – all in one package.
Find out more. Talk to an INVIZEN representative today at 832.663.9634.