Can I 1031 my apartment building into a DST — and should I?
Yes. A Delaware Statutory Trust (DST) holds institutional real estate — apartments, industrial, medical — and the IRS treats a DST interest as like-kind replacement property for a 1031 exchange. It is the classic exit for a tired landlord: full tax deferral, zero management, monthly distributions, and the ability to close in days rather than months. The tradeoffs are real: no control, sponsor fees, a typical five-to-ten-year hold with no way out early, and returns that depend entirely on the sponsor's underwriting.
Why DSTs solve the two hardest 1031 problems.
The 45-day identification clock kills more exchanges than anything else — and a DST can be identified and closed in under a week, which is why even sellers who want another building often list a DST as the backup on their identification form. The second problem DSTs solve is the leftovers: exchange math rarely lands on a round number, and a DST can absorb an exact dollar amount (minimums commonly run $25,000–$100,000) with pre-packaged non-recourse debt that helps match the debt you paid off. For the owner who is genuinely done — done with tenants, toilets, and 2 a.m. calls — the DST converts a management job into a monthly deposit while keeping the full deferral intact.
The tradeoffs, stated plainly.
You are a passive investor with no vote: the sponsor decides when to refinance, when to sell, what to spend. Fees are layered in — acquisition markups, ongoing management, disposition — and they come out of your return whether the deal performs or not. There is no liquidity: plan on holding until the sponsor sells, typically five to ten years. And DSTs operate under tight IRS constraints (no new capital, no renegotiated debt), which limits how a struggling property can be rescued. The honest framing: a DST trades upside and control for certainty and quiet. For estate planning it can be elegant — hold until death and the step-up in basis can wipe out the deferred gain entirely. Vet the sponsor like your net worth depends on it, because it does.
What happens when the DST sells the property?
You can 1031 again — into another DST or back into a building you manage — or cash out and pay the deferred tax. The deferral chain continues as long as you keep exchanging.
Are DST returns guaranteed?
No. Distributions are projections, not promises, and they can be cut. Sponsor track record, property quality, and debt structure matter far more than the pro forma yield on the brochure.
Can I put only part of my sale proceeds into a DST?
Yes — many sellers split the exchange, buying a smaller building they manage and parking the remainder in a DST. Anything not reinvested is taxable boot.
SHAYA LOWENSTEIN · LYON STAHL INVESTMENT REAL ESTATE · DRE #01942326 · (323) 944-2221