Peregrine Private Capitol is happy to be a part of many completed property investment projects such as the ones pictured above.
Historically low interest rates and an aging population continue to drive demand for cash flowing real estate. However, after nearly a decade of holding interest rates near zero, the world is awash in cash. There is far more cash on hand in the global economy than there are safe places to put it.
In keeping interest rates too low, too long, the Fed created sharp increases in asset prices across the board, from stocks to real estate. When long term interest rates rise, these asset prices historically come down. As such, it is a risk for retail investors (you and me) to navigate the coming economic turbulence alone. Hence, the advantage of institutional quality DST (Delaware Statutory Trust) properties.
DST properties as illustrated in some of our recent investment projects are the primary mechanism whereby individual investors with little or no institutional property ownership experience can access the highest quality commercial properties available. This is true of all property classes: multi-family, self-storage, assisted living, medical office buildings, retail, industrial, etc.
Through the mechanism of DST not only do you have access to the same properties that populate portfolios of the nation’s largest banks, insurance companies, university endowments and pension funds but they are managed remotely for you. You go from the “terrible Ts” Tenants, Trash and Toilets to the “mailbox money business.” Cash distributions from property operations inside the trust are made monthly by management to investors.
Furthermore, as rental income, much of this is tax sheltered due to depreciation and interest expense. Therefore, your tax-equivalent yield (TEY) on this income stream is considerably higher.
The dynamic represented by the DST property ownership construct is very much a win-win for retail investors. First, it allows them to trade up to an institutional quality asset (as seen here) which they likely would not be able to access alone and then it relieves them of the incumbent management responsibility.
Finally, out of recognition of our current fully priced asset environment, DSTs also offer retail investors the opportunity to diversify geographically and functionally. To risk stating the obvious, all real estate markets do not appreciate in the same manner and for the same reasons. Exogenous factors, outside the control of most owners, are always at work shaping different environments. Individually it is very difficult to take advantage of such trends. A single asset purchase concentrates, or isolates your investment. The fractional nature of DST ownership does exactly the opposite, it diversifies your equity both geographically and functionally.
In a fully priced market environment, your principal defense against over-paying for a single replacement asset is to diversify over many.