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