Inland Zero Coupon Utility DST Overview
Inland Zero Coupon Utility DST is a Regulation D, Rule 506(b) private placement sponsored by Inland Private Capital Corporation (IPC) that offers accredited investors up to $39,361,999 in beneficial interests representing 100% ownership of a Delaware statutory trust. The Trust owns The Colonnade, a suburban office campus at 3525, 3535 and 4201 Colonnade Parkway in Birmingham, Alabama, comprising approximately 19.8 acres, a nine-story and a six-story office building totaling roughly 669,438 rentable square feet, and two five-level parking garages (1,933 spaces). The buildings were constructed in 1986 and fully renovated between 2016 and 2018. The Property is 100% leased to Southern Company Services, Inc. (SCS), a wholly-owned subsidiary of The Southern Company (NYSE: SO), a leading energy provider serving roughly nine million customers, under a long-term absolute-net lease running through March 17, 2044 with one 10-year renewal option. This is a "zero coupon" offering: monthly base rent is paid directly to the lender and equals the monthly debt service plus lender fees, so the highly amortizing loan is retired over the lease term and investors receive no current cash distributions. Instead, return is intended to accrue through principal paydown (equity build-up) and any gain on an eventual sale. Located in the Highway 280/I-459 submarket of the Birmingham MSA — Alabama's largest metro — the offering suits 1031-exchange investors who are replacing debt-encumbered relinquished property, do not need current income, can absorb phantom taxable income, and want long-term, credit-tenant-backed real estate held through a passive DST. The minimum investment is $25,000 for Section 1031 exchangers and $100,000 for cash investors; tax-exempt and foreign investors are not eligible.
Highlights
The Property sits along Colonnade Parkway in the established Highway 280/I-459 submarket of Birmingham, Alabama, within a mixed-use neighborhood of office, hotel, residential and street-level retail. Birmingham is the largest metropolitan area in Alabama, with more than 1.1 million residents — over double the next-largest metro — and total MSA employment exceeding 575,000. The regional economy is diversified across financial services, trade, government, manufacturing and healthcare, and is anchored by major employers headquartered in the market, including Regions Financial, Blue Cross-Blue Shield of Alabama and Protective Life. The University of Alabama at Birmingham (UAB), the state's largest public employer, supports more than 28,000 jobs and generates an annual economic impact exceeding $12.1 billion. Alabama has also become a center for automotive and EV manufacturing, with Mercedes-Benz and its suppliers investing heavily in the region. Primary access is via Colonnade Parkway, which carries roughly 12,600 vehicles per day, with regional connectivity through the Highway 280/I-459 corridor.
The Colonnade is a two-building suburban office campus totaling approximately 669,438 rentable square feet across a nine-story and a six-story building on roughly 19.8 acres, complemented by two five-level parking garages and 1,933 total parking spaces. Originally built in 1986, the improvements were fully renovated between 2016 and 2018, and the campus is 100% leased and occupied. The single tenant is Southern Company Services, Inc., a wholly-owned subsidiary of The Southern Company (NYSE: SO), a leading investor-owned energy provider serving approximately nine million customers through subsidiaries including Alabama Power, Georgia Power, Mississippi Power, Southern Power and Southern Company Gas. The lease is an absolute-net structure running through March 17, 2044 with one 10-year renewal option; the tenant is directly responsible for real estate taxes, insurance, and all maintenance, repairs and replacements — including roof, structure and building systems. Current monthly base rent is $799,732.98 and escalates 2.0% each January 1 through the initial term, providing contractual rent growth from a single, credit-oriented occupant.
The offering is highly leveraged and purpose-built around its financing. The Property is subject to an assumed mortgage loan originally sized at $130,020,207 (approximately $129,587,387 outstanding as of October 15, 2025) from a UMB Bank, N.A.-administered lease-backed pass-through trust, carrying a fixed 5.784% interest rate and maturing March 15, 2044. Total capitalization is approximately $168.9 million — $39,361,999 of equity plus roughly $129.6 million of debt — implying a loan-to-cost near 77% and a loan-to-purchase-price of about 84% against the $154,463,808 property price. The loan is fully amortizing: monthly principal-and-interest payments (plus lender fees) equal the monthly base rent, so scheduled rent retires the debt over the lease term rather than funding distributions. The loan is non-recourse to investors, though IPC provided an indemnity/guaranty and an environmental indemnity to the lender. Each $100,000 interest is allocated roughly $329,220 of debt, which can help exchangers replace prior mortgage debt. Prepayment is permitted only in whole and, before December 15, 2043, requires a make-whole premium.
The sponsor is Inland Private Capital Corporation (IPC), part of The Inland Real Estate Group of Companies, one of the nation's largest commercial real estate and finance organizations with more than 55 years of history. Formed in March 2001 specifically to provide Section 1031 replacement properties and multiple-owner real estate investments, IPC had sponsored 325 private placement programs as of June 30, 2025, raising approximately $10.6 billion of equity from more than 28,200 investors across 944 properties and over 82 million square feet, with an aggregate offering price exceeding $19.8 billion. As of that date, 392 assets had been taken full-cycle (sold). IPC affiliates serve as the Signatory Trustee, Asset Manager and Property Manager, handling day-to-day operations, loan payments, reserves and quarterly investor reporting. Notably, IPC's historical portfolio is weighted toward retail, self-storage and multifamily, with only 42 office buildings, and the memorandum discloses that some prior programs experienced tenant bankruptcies, vacancies and rent reductions and did not meet projected results.
The offering is designed as replacement property for investors completing a Section 1031 exchange, allowing deferral of federal and state capital gains on the sale of relinquished real estate. Special tax counsel has opined that acquiring an interest "should" be treated as a direct acquisition of real property for Section 1031 purposes, though no IRS private letter ruling has been sought and each investor's qualification depends on their own facts. The Trust Agreement is structured to meet the parameters of Revenue Ruling 2004-86, which requires that investors have no voting or control rights. The high allocated debt (about $329,220 per $100,000 interest) helps exchangers replace mortgage debt and avoid taxable boot. Because the loan amortizes to zero over the lease term, the intended benefit is equity build-up and potential appreciation captured on an eventual sale of the Property, whose stated objective is to maximize investors' return of capital. In distress, the Trust may convert to a "Springing LLC" (a transfer that should be tax-deferred under Code Section 721), but those replacement LLC interests would no longer qualify for future Section 1031 treatment.
Analysis of Inland Zero Coupon Utility DST
Insights
Read this less as a real-estate investment than as a synthetic zero-coupon bond in a 1031 wrapper: nearly all of the tenant's rent is routed straight to the lender, so the entire payoff is forced debt amortization plus the campus's residual value when the loan retires around 2044. Current income is zero by design — well below the roughly 3.1% current-income average for office DSTs — so investors trade cash flow for mechanical equity build-up and a single back-ended sale.
On price, it is an expensive wrapper: the all-in load runs near 29.9% (an 8.40% selling commission plus an acquisition fee around 21.5% of equity), so a large slice of every dollar is spent before the Trust owns anything, and roughly 77% leverage on cost — about 84% of the ~$154.5M purchase price — means paydown and appreciation must climb back over that markup before an investor is whole. What one is really buying is debt-replacement capacity: about $329,220 of allocated debt per $100,000 invested, useful chiefly to an exchanger covering mortgage boot.
The outcome hinges on one credit and one date. Rent, debt service and lease term are essentially coterminous, so the structure self-liquidates only if Southern Company Services performs through 2044; because the lease sits with the subsidiary and is not guaranteed by The Southern Company (NYSE: SO), and any lease default is also a loan default that invites foreclosure, the margin of safety is thin. Watch renewal posture as the term winds down — this is purpose-built, single-tenant suburban office, the slowest and costliest product to re-lease, into persistent office-sector headwinds.
Two things the marketing underplays. Phantom income rises over time: as the loan amortizes, deductible interest shrinks and taxable income climbs, so the tax bill grows while cash distributions stay at zero throughout the hold. And duration — IPC is a deep sponsor (325 programs, ~$10.6B raised), but its full-cycle exits have averaged roughly a 1.5x equity multiple over a ~6.9-year hold, versus the nearly 20-year commitment asked here, in an asset class where its own office experience is thin.
Verdict: a fit only for an accredited 1031 exchanger who must replace substantial debt, wants no income, has outside cash to cover taxes on phantom gains, and can hold indefinitely and bear a total loss. Income seekers, anyone wanting diversification, and anyone who may need liquidity before 2044 should pass.
Advantages
- Long-term, absolute-net lease to Southern Company Services, Inc., a wholly-owned subsidiary of The Southern Company (NYSE: SO), a large investor-owned utility serving roughly nine million customers, running through March 2044 with a 10-year extension option.
- Truly passive structure: the tenant is responsible for taxes, insurance, and all maintenance and structural repairs, and IPC affiliates handle asset and property management, so investors have no landlord duties.
- Contractual rent growth of 2.0% every January 1 through the initial term from a single, credit-oriented occupant, with 100% current occupancy.
- Zero-coupon design converts nearly all rent into principal paydown, retiring roughly $129.6 million of fixed-rate (5.784%) debt over the lease term and building equity toward an eventual sale.
- High allocated debt of about $329,220 per $100,000 interest makes the offering well-suited to 1031 exchangers replacing highly leveraged relinquished property and needing to cover mortgage boot.
- Fixed-rate, long-term financing matched to the lease insulates the structure from near-term interest-rate and refinancing risk through 2044.
- Experienced sponsor: IPC has sponsored 325 programs, raised approximately $10.6 billion of equity from 28,200+ investors, and taken 392 assets full-cycle as of June 30, 2025.
- Fully renovated (2016-2018) campus in Birmingham, Alabama's largest and economically diverse metro, with a low $25,000 minimum for exchange investors.
Concerns
- No current income: this is a zero-coupon offering, and the Trust expects to make no cash distributions to investors during the entire hold, as all base rent is paid directly to the lender to service and amortize the loan.
- Phantom income: investors are deemed to receive taxable income used to make non-deductible principal payments, so they will likely owe tax with no accompanying cash and must use outside funds to pay it; a loss sale could trigger ordinary income or depreciation recapture without cash proceeds.
- High leverage: the Property carries roughly $129.6 million of debt against a $154.5 million purchase price (about 84% LTV). Any loan default permits foreclosure, which could wipe out investor equity.
- Concentration: a single asset, single tenant (SCS), and single market means no diversification by property type, geography, or tenant, and The Southern Company itself does not guarantee the lease.
- Tenant/re-leasing risk: the campus is specialized office space designed for the tenant; a departure or bankruptcy could require substantial re-leasing costs or force a lower sale price, and any tenant default is also a loan default.
- Illiquidity: interests are restricted, have no public market, and investors must be able to hold indefinitely; they have no voting rights or control over the Trust or Property under Revenue Ruling 2004-86.
- Load and fees: investors pay an 8.40% selling load plus an acquisition fee of roughly $8.45 million (about 21.5% of equity), so the cost of an interest exceeds its pro rata share of the Property's market value and appreciation is required to recover it.
- Exit constraints: whole-loan-only prepayment with a make-whole premium before December 2043, restrictive loan and lease covenants, office-sector headwinds, and legal nonconforming zoning can all complicate a sale; fees are not arm's-length and IPC's office track record is limited.
Inland Zero Coupon Utility DST — Complete Offering Data
Offering & Structure
Investment NameInland Zero Coupon Utility DST
SponsorInland
StructureDelaware Statutory Trust (DST)
Offering Type506(b)
StatusRejected
Last Updated2026-07-13
Size & Availability
Total Offering$168,949,386
Equity$39,361,999
Debt$129,587,387
Available Equity$39,361,999 (100% of equity)
Minimum Investment$25,000
Total Load29.86%
Initial Reserves1.27%
Property
Property TypeOffice
StrategyCore
LocationAL
Market TierTier 3
Income & Projections
Average Yield0.00%
Projected Yields (Y1–Y10)Y1 0.00% · Y2 0.00% · Y3 0.00% · Y4 0.00% · Y5 0.00% · Y6 0.00% · Y7 0.00% · Y8 0.00% · Y9 0.00% · Y10 0.00%
Tax-Adjusted Yield8.83%
Cap Rate Equivalent8.07%
Year 1 NOI$9,756,742
Financing
In-Place LTV76.70% LTV
LenderUMB Bank
Loan TypeFixed
Interest Rate5.784% fixed
Loan Term18 years to 2044
I/O PeriodN/A
AmortizationAmortizing
Y1 DSCRNot Disclosed
Exit
Estimated Hold Period10 years
721 Exchange ExitNone
Benchmarks (vs sector median)
Avg. Income0.00% vs 3.09% market
Growth— vs 27.04% market
Peak0.00% vs 3.64% market
Every data point Baker 1031 tracks for this offering, in one place. Figures are drawn from the offering’s private placement memorandum and sponsor materials unless noted, are summaries for convenience only, and are qualified in their entirety by the PPM. Tap the ⓘ icon next to any label for what it means and how it is calculated.
