1031 Private Placement Products:
An Explanation of DSTs & 1031 Energy Products
Moderator
Dan Cullen – Partner Bryan Cave LLP
PanelistsBill Winn – PresidentPassco
Keith Lampi – Sr Vice PresidentInland Private Capital Corporation
Mark Petersen –Sandlapper Securities
DST Structures – tax issues
• §1031(a)(2)(D) prohibits acquiring partnership interests in like-kind exchanges
• §1031(a)(2)(E) prohibits acquiring certificates of trust or beneficial interests in like-kind exchanges
• If properly structured, TIC interest and DST interest are “like-kind” to direct fee ownership
DST Structures – tax issues
• Fixed Investment Trust:– Trustee must not have power to vary the
investment• Treas. Reg. § 301.7701-4• Case law and Rulings--
– Chase National Bank, 122 F.2d 540 (CA-2, 1941)– North American Bond Trust, 122 F.2d 545 (CA-2,
1941)– Rev. Rul. 75 – 192– Rev. Rul. 78 – 371
DST Structures – tax issues
• If trustee engaged in prohibited activities trust would be treated as business entity, not investment trust– If treated as business entity trust would be treated
as partnership and beneficial interest would not qualify as replacement property in a like-kind exchange
• DST has limited application for some structures; but may be highly useful for others depending upon the underlying asset
DST – Acquisition Structure
DelawareStatutory Trust
DST
Tenants
Seller
Properties
Holdings LLCSponsor/Depositor
SponsorAffiliate
Master Lessee
Investors
Lender
3A
$X + $Y
3D
Sub Lease
3B
Transferof Properties
3C
MasterLease
3E
Security Interest
1
$X
2
$Y
Trustee
SponsorAffiliateManager
TrustAgreement
TrustAgreement
DST – Post Sale to Investors
DelawareStatutory Trust
DST
Holdings LLCSponsor/Depositor
Properties
SponsorAffiliate
Master Lessee
Investors
Lender
Tenants
Sub LeaseMaster Lease
Class BBeneficialInterest
TrustAgreement
SecuredInterest
Loan
TrusteeSponsorAffiliateManager
TrustAgreement
Current DST Trends:
• DST/TIC demand today?
• Projection for future?
• Structures used?
• Broker Dealer and Rep hot buttons/concerns?
• Underwriting – overcoming front end load, rent growth, going in and exit cap rates, acquisition strategies?
• Fees – to sponsor and BD's?
• Lenders available – Agencies, conduits and banks?
Current DST Trends:
• Loan work-out and restructuring options: • springing the DST to an LLC,• back to a DST after work out?
• TIC roll ups into LLC or UPREIT• use of UPREIT call options
• Investor communications: best practices?
Oil & Gas 1031 Structures:
• Royalty Interests
• Working Interests
• Profits Interests
• Production Payment
• Farm-out Arrangements
New Oil & Gas 1031 Alternatives:
• Salt water disposal wells?
• Other?
Thank You