Delaware Statutory Trusts: A Potential Solution for the Weary Landlord

 

In her recent interview with HFO-TV, Toija explains the basics of Delaware Statutory Trusts, which are gaining some popularity among multifamily owners.

by Toija Beutler, Attorney/Manager, Beutler Exchange Group

After the trauma of the last couple of years, there are a lot of weary landlords. COVID-related issues and new landlord-tenant laws have altered the landscape for these folks. While my recommendation would be to hire a property manager, many just want out of multi-family.

One option might be a Delaware Statutory Trust (DST) purchase. The DST is fractional ownership of real estate. Typical properties might be medical office buildings, apartments, a portfolio of pharmacy properties (RiteAid, CVS), sometimes an Amazon distribution center.  

There are many appealing aspects of the DST. First, sponsor companies find the property, obtain the financing and close on the property. They then sell fractional interests to investors.

1. Passive. DST’s are professionally managed by the sponsor. The investor won’t be getting calls in the middle of the night. They just get their fractional share of the lease income.  
   
   
2. Quality Properties. The regulations require these to be passive investments, so they will be Class A, institutional-grade properties, not “value add.”  
   
   
3. Availability. Whenever the investor’s sale closes, they will have multiple options to choose from within the 45-day identification deadline. And there won’t be bidding wars with other investors wanting in on the deal. 
   
   
4. Debt in Place. Investors who need “replacement debt” to satisfy their 1031 are well served by these properties. The debt is already in place and is non-recourse.
   
   
5. Diversification. The investor can pick perhaps two or three DST’s as replacement properties, diversified by product type and state.  
   
   
6. Real Estate Deductions. The DST interest is real estate and reported as such. Therefore, the investor will continue to write off expenses and take depreciation as they would with any property.
   
   
7. Transfer at Death. DST interests will pass to heirs as would any real estate with a step up in the basis.
   
   
8. Liquidity. The regulations don’t permit a refinance of the property, so pulling cash out during the course of the investment can be seen as a negative. (The Investor has no access to the equity until the property is sold. The average hold period is around seven years.) However, many sponsor companies offer a conversion feature.  A couple years out, the property may be contributed to a real estate investment trust (REIT).  At that point, the investor no longer owns real estate. Instead, they own shares in the REIT, which can be sold (taxable) but provide the desired liquidity.
   
   
9. Securities. While the DST is real estate for 1031 exchanges, they are also a security and must be purchased through a licensed financial advisor. Therefore, the Weary Landlord will need to find a financial advisor specializing in this product.

The DST isn’t suitable for everyone, but it can be a viable option for a Weary Landlord looking to exit active management and remain in real estate.

 

Sold! 12 Units in Canby

 

Click to enlarge

HFO is pleased to announce the sale of the Holladay Apartments in Canby. Congratulations to Adam Smith and the rest of the HFO team!

Sold! 48 Units in Beaverton

Click to enlarge

HFO is pleased to announce the sale of Royal Crest Apartments, 48 units in Beaverton, Oregon. Congratulations to Rob Marton and Greg Frick and the rest of the HFO team!

HFO Multifamily Marketwatch - December 20, 2021

This week: The Oregon legislature has approved additional rent assistance funding and extended the eviction moratorium, and the Portland metro area sets a new record for multifamily sales volume.

Listen to our latest podcast.

Oregon Housing Blog: Additional Oregon Rental Assistance Requests Now Total $248 Million

The Oregon Housing Blog is offering a breakdown of the total amount of money requested by Oregon in additional rental assistance from the federal government. 

Multnomah County has requested roughly $12 million and the City of Portland has requested $47.7 million in additional funds (a total of $59.63 million). Oregon's requests for additional rental assistance now total $248.56 million with 24% of that money requested by Portland and Multnomah County. 

Rental Housing Journal: State Software For Emergency Rental Assistance is Hurting Families

by Deborah Imse, Multifamily NW

State officials continue to applaud themselves for standing up for vulnerable Oregonians amid the pandemic. In a recent op-ed, (“Legislators must protect families facing eviction with special session fix,” Dec. 5,) Sen. Kayse Jama, D-Portland, and Rep. Julie Fahey, D-West Eugene/Junction City, wrote of their proposal, aimed at a legislative special session this month, to extend protections against eviction for tenants waiting for the state to process their applications for rental assistance. But what the legislators should really have focused their attention on is why another failed state software system has left as many as 10,000 Oregon families facing housing instability.

Known as Allita 360, the software for processing rental assistance applications was purchased without a competitive bidding process or stakeholder input. The state has been aware of problems with the software since February when it launched a fund to compensate landlords for missed rent. Yet, it stuck with the software for the May rollout of the Oregon Emergency Rental Assistance Program. As with the landlord fund, the emergency rental assistance program has been plagued by system crashes, ineffective notification processes, and a serious lack of clear communication from administrators. Applications have piled up, leaving renters’ requests for help in limbo for months. And landlords have spent hours — if not days – online, with no assurance that their renters’ applications had even made it into the program.

Read the full article.

Spokane Report: Increasing Density Could Help With High Demand

The Spokesman-Review reports that the Counselors of Real Estate's CRE Consulting Corps released a study this week recommending a regional update to zoning codes to allow for infill, collaboration with community groups, and revising local codes to allow more density. 

Read or download Action Steps to Increase Spokane's Housing Supply. 

Portland Metro Busts Through $3 Billion in Apartment Sales Setting a New Record Year

Two recent apartment sales helped Portland exceed its prior multifamily sales record. The Portland Business Journal reports that the recent sales of these two large properties helped propel sales to a new level:

• 423-unit Seven West in Beaverton (purchased by Graystar) for about $145 million 
• Downtown Portland's 178-unit 10th @ Hoyt (sold by Prometheus Real Estate Group) for about $75 million. 

In Special Session, State Struggles to Get it’s Act Together on Housing Issues

In yesterday’s day-long special session, Oregon legislators bickered among themselves over mask mandate even while attempting to do something constructive over housing issues. In the end they reached agreement on more funding and indefinite eviction extensions until all renters who applied for aid actually receive money from the state. It’s a tall order. Read more in The Oregonian. 

HFO Multifamily Marketwatch – December 13th, 2021

This week we have an update on Oregon Rental Assistance, Market Report for Seattle, and have some highlights from Multi-family NW Rental Survey.

Listen to our latest podcast.

Oregon Moving Rental Fund Check Processing to Out-of-State Contractor

Willamette Week reports that the State of Oregon is in the process of removing local community nonprofits as the distributor of rent relief funds, even though the local groups have awarded more money. Read more.

Sold! 84 Units in Vancouver, Washington

 

Click to enlarge

HFO is pleased to announce the sale of the 84-unit Plaza on Ellsworth Apartments in Vancouver, Washington. Congratulations to brokers Todd Tully, Greg Frick, and the rest of the HFO team!

State of Oregon Sends Checks to Wrong Landlords

Topping off weeks of reporting on the glitchy software and bounced checks comes news that the State of Oregon also sent dozens of checks for tenant rent reimbursement to the wrong landlords. Read more. 

Oregon Legislature Takes Up Rental Issues Today

As Willamette Week reports, the State of Oregon begins a special session today in which they will consider a wide range of housing legislation ranging from additional funding for tenants and landlords to an extension of the eviction moratorium. Read more. 

Sold! 39 Units in Gresham, Oregon

Click to enlarge

HFO is pleased to announce the sale of Pine Wood Commons Apartments in Gresham. This 39-unit property was sold in early December. Congratulations to brokers Greg Frick and Rob Marton and the rest of the HFO team. 

An Update on the Efforts to Save 1031 From the Congressional Axe

HFO-TV: Toija Beutler updates us on efforts to lobby Congress to save 1031 tax exchanges this year.

Multifamily Lending Update

Blake Hering, principal of Gantry, Inc., updates owners on the multifamily lending market for the fall of 2021. The discussion includes lenders' new appetite for tertiary markets and the overall popularity of multifamily investments.

Seattle Housing Policies Lead to gain of only 4,455 Rentals Since 2018

According to a report posted on the Rental Housing Association of Washington website, while Seattle's population grew by about 50,000 people between July 2018 and May 2021, the city added only 4,455 rental housing units. 

This is far below the council's stated goal of 4,500 new units per year to meet a 25-year goal of 112,000 new rental units. 

Meanwhile, the association reports that registrations with the city of rental units decreased by 14.4% from 2018 with 4,858 units lost. "It's anticipated even more rental homes will disappear next year when rental registration reporting is due because 80% of single-family unit registrations will expire in 2021 and 2022."

The Rental Housing Association of Washington places the blame on the city's anti-housing policies, stating that Seattle chose to enact a number of policies that reduced housing creation and drove rental homes off the market, including:

• First in time: which increases property owner risk by forcing them to rent to the first qualified applicant.
• Winter eviction ban: which forces property owners to provide housing for free without any assistance.
• School year eviction ban: which forces property owners to provide housing for free without any assistance.
• De facto rent control: which caps rental rates at 10% under penalty of paying tenant moving fees.
• Long-term COVID-related eviction protections: such as extended defenses to eviction beyond the eviction moratorium, and other contract infringement ordinances.

"These anti-housing policies increase housing costs for renters and reduce the availability of rental housing. They are having the opposite effect of the City Council’s stated intentions, but the results were entirely predictable," the report states.

Oregon Admits: We Sent Bad Checks to Landlords & Renters

The State of Oregon is admitting the incredible story that it sent bad checks to Oregon tenants and landlords.

PORTLAND, Ore. (KATU-TV) — The Oregon Housing and Community Services Department confirmed Monday that hundreds of renters who were approved to get federal funding were given bad checks.

It's unclear how many checks were in the batch but a spokesperson with OHCS says 295 checks have not been cashed out of the batch.

The department says it is working to get in touch with those people.

A spokesperson provided this response to KATU.

"There was an accounting issue with one batch of checks. The checks were missing a digit from the routing number but were still able to be cashed (or reissued). We are reaching out to the affected tenants and landlords individually with information on how to cash the check or get it reissued if needed. Many people were able to cash the checks if the bank verified it through the “Positive Pay” process. We regret the inconvenience this may have caused."

KATU has spoken with one of those people. She says she was approved in July for several thousand dollars in rent assistance. In November, her landlord received a check, but when he went to deposit it, the bank told him the routing number was incorrect.

Now after months of waiting for help, they are continuing to wait. While OHCS says it is working to contact those impacted, no one has reached out to the renter who contacted KATU or her landlord. They were instructed to mail back the check but do not know when they will receive a new one.

The problem comes at a time that the state struggles to figure out how to get more assistance to renters and landlords, as federal funding has dried up. Gov. Kate Brown has called the Legislature back for a special session next Monday to address the issue.

The revelation came at the same time as reporting that Oregon has spent $71 million or nearly 20% of the entire fund on administrative costs. 

$71 Million of $360 Million in Oregon Rental Assistance Goes to "Administration" Costs

KATU-TV Reports that almost 20% of the funds sent to Oregon for rental assistance was used to pay for administrative costs. Learn more.

HFO Multifamily Marketwatch - December 6, 2021

This week: Oregon’s Governor calls for a special session on evictions; property sellers remain in the best position in the last 15 years, and we’ve got an update on the student housing market.

Listen to our latest podcast.

GlobeSt.com: Low Land Supply is Behind the Housing Crisis

By: Kelsi Maree Borland

November 29, 2021 | GlobeSt.com

The housing crisis is among the biggest challenges across the country. Home prices and apartment rents are frequently reaching new records, thanks largely to a housing shortage. While there are several factors at play—from high construction costs to limited labor—the limited availability of developable land is a fundamental challenge. No matter how much it costs to build, you have to have a land site.

“The lack of developable land today is a direct result of the Great Recession when the housing and financial markets crashed,” Noah Breakstone, CEO at BTI Partners, tells GlobeSt.com. “During these years, the development of new residential communities came to a halt for several reasons, including the lack of financing for developers and home buyers and an abundance of discounted inventory due to the wave of foreclosed homes. Today, we are seeing the consequences of a relatively prolonged gap in the acquisition, entitlement, and development of land for new residential communities nearly a decade ago.”

It can take two to four years, depending on the location, to prep ready-to-build land for new development. This includes securing entitlements and permits. “We missed several years of that process so, as a result, we have less developable land available for new construction,” says Breakstone. “This has resulted in a significant national housing deficit.”...

In Oregon, this process has been very slow for a long time, as Dr. Gerard Mildner points out in his article in HFO's December 2021 edition of The Northwest Apartment Investor. (See "The Collapse of Portland's Suburban Housing Production," on page 2).