Delaware Statutory Trust (DST)
A legal entity used in commercial real estate to hold investment property, commonly used as a replacement property vehicle in 1031 exchanges. DSTs allow individual investors to acquire fractional interests in institutional-quality properties while qualifying for tax-deferred exchange treatment. The trust structure provides passive ownership with no management responsibilities. DST investors receive their pro-rata share of income, appreciation, and depreciation benefits. Sponsors typically structure DSTs with non-recourse financing and long-term holds.
Related Terms
1031 Exchange
A tax-deferral strategy under Section 1031 of the Internal Revenue Code that allows an investor to sell a commercial property and reinvest the proceeds into a like-kind replacement property while deferring capital gains taxes. The exchange must follow strict timelines: the replacement property must be identified within 45 days and the transaction must close within 180 days of the original sale. A qualified intermediary must hold the proceeds between transactions. 1031 exchanges are one of the most powerful wealth-building tools in commercial real estate, allowing investors to compound returns by deferring taxes across successive transactions.
Non-Recourse
A loan structure where the lender's remedies in case of default are limited to the collateral property, and the borrower has no personal liability for any deficiency. Non-recourse loans are standard for CMBS, life company, and agency lending. They typically include "bad boy" carve-outs that make the loan recourse for fraud, misrepresentation, or environmental issues.
Permanent Financing
Long-term debt (5-30 years) secured by stabilized commercial real estate, underwritten primarily on current cash flow. Permanent loans offer lower rates than transitional financing and are available from life companies, banks, agencies, and CMBS lenders. They are the typical "take-out" financing after construction or bridge loans.
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