For 20+ years, I worked on the sponsor side of the alternative investments industry. I sold DSTs, non-traded REITs, and BDCs to independent broker-dealers, family offices, and RIAs. Along the way I read a lot of Private Placement Memoranda — from the inside, before they were finalized, back when there were still line-item negotiations about how a fee would be described.
That experience taught me something the marketing brochures don’t: every DST is telling a story about itself in the offering documents, and if you know where to look, the story is usually clearer than the sponsors intend.
Here’s what I read for now, as a client-side advisor at Carmona Wealth — and what I’d suggest you or your advisor look for before committing capital.
1. The sponsor’s track record — and specifically their exits
Every sponsor will highlight assets under management. Fewer will lead with the fund exits. Look for realized outcomes on prior DST programs: did they hold to plan, did they refinance and return capital as projected, did the eventual sale hit the modeled proceeds? A sponsor who has raised billions but never taken a program full-cycle is a very different risk than one with a decade of realized round-trips.
Ask specifically: what has your average investor experienced across the last five programs you’ve wound down? If the answer is vague, that’s the answer.
2. The fee stack — all of it, together
PPMs disclose every fee somewhere. The trouble is they’re rarely disclosed together, so it takes effort to add them up. There are typically at least four layers to look at:
- Offering costs — commissions, marketing, legal, taken off the top of your investment before your capital hits the property
- Acquisition fees — paid to the sponsor for sourcing and closing the deal
- Ongoing asset management fees — typically a percentage of gross revenue or gross assets, paid annually
- Disposition and promote fees — paid at sale, sometimes including a “waterfall” that gives the sponsor a share of upside above a hurdle
Two DSTs holding identical properties can produce very different investor outcomes based on nothing but their fee stacks. This is where reading matters.
3. The underwriting assumptions
Every offering models projected income and appreciation. What you want to look at closely is the assumptions behind those projections, particularly:
- Rent growth — is it in line with market comparables, or well above?
- Occupancy — is stabilized occupancy assumed above the market average?
- Exit cap rate — is the projected sale cap rate lower (more optimistic) than today’s market cap rate? By how much? Why?
- Interest reserve — if the property has debt, how long can it cover a shortfall in operations?
Optimistic assumptions aren’t automatically bad. Optimistic assumptions with no explanation for why they’re justified in this specific property, in this specific market, are a flag.
4. The master lease structure (or lack of one)
Many DSTs use a master lease structure where an operating entity leases the property from the trust and handles day-to-day operations. This structure exists for good regulatory reasons, but it introduces a counterparty: the master tenant.
Look at who the master tenant is, how well capitalized they are, and what happens if they miss a rent payment. In a healthy structure, the answer is simple. In a fragile one, it takes several paragraphs to explain.
5. The debt terms
If the DST is financed, read the loan carefully: term, amortization, interest rate, prepayment penalties, and any refinancing risk within the projected hold period. A well-structured DST usually has debt that matches its hold plan. A DST with a five-year loan and a ten-year hold model is telling you something specific about refinancing risk — whether the offering explicitly says so or not.
What good looks like
A good DST offering is one where the projections make sense given the property, the fee stack is reasonable given the work being done, the debt matches the hold plan, and the sponsor has a real track record of taking similar programs to a successful exit. When those pieces line up, the PPM reads easily. When they don’t, the writing itself starts getting careful — and that’s the tell.
The client-side advantage
The reason I moved to the client side is that this level of scrutiny takes time, and it’s hard to bring to every offering when your job is to sell one of them. Now my job is to bring it to all of them — and to walk clients away from the ones that don’t hold up under it. That’s what independent advice actually looks like when the sponsor doesn’t sign my paycheck.
Dave has spent 25+ years in the alternative investments industry, with senior sales roles at Cantor Fitzgerald, NexPoint, Realty Capital Securities, KBS Capital Markets, and Independent Portfolio Consultants (AXA). He holds a B.A. from Harvard University and an MBA from the University of Pittsburgh.