Chapter 6
DST Fees and Costs
Understanding Delaware Statutory Trust Fees, Costs, and Sponsor Compensation.
One of the most important — and often overlooked — aspects of investing in a Delaware Statutory Trust (DST) is the fee structure. Because DSTs involve professional management and sponsorship, they typically carry higher costs than direct real estate ownership. Understanding how these fees work is essential for evaluating the true economics of a DST investment.
Types of Fees Commonly Found in DSTs
DST offerings generally include several layers of compensation:
- Acquisition fees: Charged when the DST purchases the property. These are typically calculated as a percentage of the purchase price.
- Financing fees: Fees related to arranging debt on the property.
- Asset management fees: Ongoing fees paid to the sponsor for managing the DST and overseeing the property. These are often charged annually as a percentage of the property’s value or invested equity.
- Disposition fees: Fees charged when the sponsor eventually sells the underlying property.
- Other fees: Some offerings include additional charges for accounting, legal, reporting, or investor servicing.
How Fees Impact Investor Returns
Because these fees are deducted from the investment, they reduce the amount of capital actually working in the real estate. For example, if an investor contributes $250,000 and the total upfront load is 8%, only $230,000 may be invested in the property itself. This means the property must generate higher returns just to deliver the projected cash flow to the investor.
Why Sponsors Charge These Fees
Sponsors incur significant costs to source, underwrite, finance, and manage institutional-quality properties. They also take on substantial responsibility and risk. The fee structure is designed to compensate them for these efforts and to align their interests with the long-term performance of the investment.
How to Evaluate Fees
When reviewing a DST offering, investors should consider:
- The total upfront load and how it affects invested equity
- The ongoing asset management fee and whether it is reasonable relative to the services provided
- Whether the fee structure creates proper alignment between the sponsor and investors
- How the fees compare to other DST offerings in the same asset class
It is also important to look beyond the headline distribution rate. A DST with a slightly lower projected cash flow but significantly lower fees may ultimately deliver better net returns to the investor.
Which Structure Better Fits Your Investment Goals?
If you would like help understanding and comparing the fee structures of different DST offerings, schedule a consultation or a brief call today by calling (949) 722-1031.
This content is educational and is not tax or legal advice. Please consult your CPA and attorney.
This content is educational and is not tax or legal advice. Please consult your CPA and attorney.
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