NexPoint Small Bay III DST Overview
NexPoint Small Bay III DST is a Regulation D private placement offering Class 1 beneficial interests in a Delaware Statutory Trust to accredited investors seeking replacement property for a Section 1031 exchange. The Trust, sponsored by NexPoint Real Estate Advisors, holds two multi-tenant "small bay" industrial properties through cross-collateralized operating DSTs: the Arapaho Property in Richardson, Texas, within the Dallas-Fort Worth metropolitan area, and the Deerfield Property at 4500-4850 North Powerline Road in Deerfield Beach, Florida, within the Miami-Fort Lauderdale-West Palm Beach metropolitan area. Together the two assets total roughly 509,914 net rentable square feet - approximately 407,669 square feet across the Arapaho Property (about 31.55 acres, buildings originally constructed in 1976-1980) and approximately 102,245 square feet across the Deerfield Property (about 8.253 acres and 43 small bay units, built primarily in 1987-1988 with two buildings from 2017). Both properties were substantially renovated in 2024-2025 and were reported approximately 92% leased (Arapaho) and 95% leased (Deerfield) as of August 31, 2025. Small bay industrial space serves smaller local and regional tenants that need flexible warehouse, flex, and light-distribution suites in dense, infill locations. Each property is master-leased to an affiliated master tenant on an absolute-net basis and managed by a sponsor-affiliated property manager, so investors hold a passive, securitized real estate interest rather than an operating role. The offering seeks to raise up to $50,382,493 of equity alongside a $41,000,000 fixed-rate, interest-only first mortgage, for total capitalization of $91,382,493 and a loan-to-capitalization ratio of 44.87%. The business plan targets monthly distributions, active lease-up and rent growth across the small bay units, and an eventual profitable sale, generally within a five- to ten-year horizon. The structure suits accredited 1031 exchangers who want Sunbelt industrial exposure, monthly income, and hands-off ownership, and who can accept illiquidity and the absence of day-to-day control.
Highlights
The portfolio is concentrated in two of the strongest Sunbelt industrial markets in the country. The Arapaho Property sits in Richardson, Texas, inside the Dallas-Fort Worth MSA - one of the largest and fastest-growing metropolitan economies in the United States, supported by sustained in-migration, corporate relocations, and deep, diversified employment. The Deerfield Property lies at 4500-4850 North Powerline Road in Deerfield Beach, within the Miami-Fort Lauderdale-West Palm Beach MSA, a supply-constrained coastal South Florida market with high barriers to new construction and strong population and household-income growth. Both submarkets are densely populated, infill locations near retail drivers and established warehouse and industrial corridors, where small bay product benefits from limited new supply and above-average tenant demand. The sponsor emphasizes favorable demographics, high replacement costs, and swift lease-up velocity as reasons small bay rents in these metros have tended to outperform larger bulk-industrial product on a rent-growth basis.
The two assets are institutional-quality, recently repositioned small bay industrial parks. The Arapaho Property offers roughly 407,669 net rentable square feet across a large multi-building campus on approximately 31.55 acres in Richardson, while the Deerfield Property adds approximately 102,245 net rentable square feet across 43 small bay units on approximately 8.253 acres in Deerfield Beach. Although several buildings date to the late 1970s and 1980s, all improvements underwent significant renovation in 2024-2025, and two Deerfield buildings were built as recently as 2017. Both properties were well-occupied at underwriting - approximately 92% leased at Arapaho and approximately 95% leased at Deerfield as of August 31, 2025 - reflecting durable demand for flexible warehouse and light-distribution suites. The multi-tenant format spreads income across a granular roster of smaller tenants rather than a single credit, reducing dependence on any one occupant, and the small-suite configuration supports frequent mark-to-market rent increases as leases roll. Day-to-day operations are handled by the affiliated property manager under each absolute-net master lease.
The offering is moderately leveraged and locked into fixed-rate, interest-only debt. The operating trusts obtained a single $41,000,000 first-mortgage loan from Argentic Real Estate Finance IV, LLC, cross-collateralized by both properties, at a fixed interest rate of 5.708% per annum. The loan carries a ten-year term, is interest-only for its entire term, and matures September 6, 2035; it is non-recourse to investors subject to customary "bad-boy" carve-out guaranties provided at the sponsor level. Against $50,382,493 of maximum equity, total capitalization is $91,382,493, producing a conservative loan-to-capitalization ratio of 44.87%. Because the loan is interest-only, none of the principal amortizes during the hold, which supports higher current cash flow but leaves the full $41,000,000 balance outstanding at maturity. The lender also required funding of multiple reserves from loan proceeds - including tax, insurance, required-repairs, roof-repair, capital-expense, working-capital, and security-deposit reserves - intended to cushion near-term capital and operating needs.
The offering is sponsored by NexPoint Real Estate Advisors, the real estate arm of NexPoint, a Dallas-based alternative investment platform. NexPoint and its affiliates reported approximately $16.5 billion in fee-earning assets under management as of June 30, 2025, and have completed more than $21.5 billion in gross real estate acquisitions since the beginning of 2012 across publicly traded REITs, real estate private placements, Section 1031 exchange programs, closed-end and interval funds, and a business development company. The Trust and its two operating DSTs are managed by NexPoint-affiliated managers led by senior members of the sponsor's management team, and the securities are distributed by affiliated managing broker-dealer NexPoint Securities, Inc. on a best-efforts basis. Property-level operations are handled by an affiliated property manager under the master leases, giving investors a vertically integrated sponsor that controls acquisition, financing, asset management, and disposition. This scale and integration are central to the business plan, though they also concentrate reliance on a single sponsor and create the affiliate conflicts of interest described in the memorandum.
The Trust is structured to qualify as replacement property for investors completing a Section 1031 like-kind exchange, allowing accredited owners to defer capital-gains and depreciation-recapture taxes on relinquished real estate by acquiring beneficial interests in the DST. The Delaware Statutory Trust format is designed so that trustee powers remain consistent with IRS Revenue Ruling 2004-86, and each investor receives a fractional, undivided interest treated as direct ownership of real estate for exchange purposes. Investors also receive potential pass-through depreciation that can shelter a portion of the monthly distributions. In addition, the memorandum grants the sponsor-affiliated "Exchange Entity" a right - but not an obligation - to require beneficial owners to exchange their interests for units in the Exchange Entity or to have their interests purchased for cash. This provides a potential future exit and, in an UPREIT-style unit exchange, may allow continued tax deferral, though any cash purchase or conversion could be a taxable event and the timing is at the sponsor's discretion.
Analysis of NexPoint Small Bay III DST
Insights
For a 1031 exchanger, NexPoint Small Bay III fits an investor who wants Sunbelt industrial exposure and monthly income in a fully passive, tax-deferred wrapper, and who is comfortable trading control and liquidity for that convenience. The risk/return profile is best characterized as a moderately leveraged, income-plus-growth industrial play rather than a bond-like net-lease deal: unlike single-tenant, long-lease DSTs, cash flow here depends on continually leasing and re-leasing a granular base of smaller tenants across roughly 509,914 square feet, so realized returns will hinge on execution of the lease-up and rent-growth business plan rather than one credit's guaranty. The projected distribution path - starting near 4.62% and rising toward roughly 6.01% over a five- to ten-year hold - is explicitly back-weighted, meaning early yield is modest and total return leans on rent growth and a profitable exit rather than day-one income.
Several structural features deserve close attention. First, the fixed 5.708%, ten-year, interest-only loan is investor-friendly on rate certainty but front-loads a refinancing decision: with no amortization, the full $41,000,000 must be refinanced or covered by sale proceeds at the September 2035 maturity, and the exit cap rate at that time is the single biggest swing factor in outcomes. Second, the load matters: 9.35% of equity in offering costs plus a $1,434,000 facilitation fee, combined with lender and trust reserves, is why the $91,382,493 total capitalization sits well above the $78,000,000 aggregate appraised value - the properties must appreciate meaningfully just to close that spread before investors see a gain, so the exchanger is effectively paying for tax deferral and passivity with an upfront premium. Third, the master-lease mechanics let the affiliated master tenants defer Additional and Supplemental Rent, and those master tenants are capitalized only by modest demand notes ($1.3 million and $650,000) from Holdings; investors should watch whether operating cash flow actually covers distributions or whether reserves and demand-note fundings are doing the work.
Key items to monitor over the hold: occupancy versus the roughly 92%/95% going-in assumptions and whether renovated space leases at projected rents; small bay tenant rollover and collection trends in both metros; South Florida insurance and hurricane costs at Deerfield; and progress toward the loan maturity and eventual sale. Relative to a single-tenant net-lease DST, this offering carries more operational and tenant-rollover risk but more organic rent-growth upside, and its two-market footprint offers modestly better diversification than a one-property deal while still being highly concentrated. Compared with all-cash DSTs, the 44.87% leverage amplifies both distribution yield and downside. Overall, it is a reasonable fit for a growth-oriented, tax-motivated accredited investor with a long horizon and no liquidity needs, and a poor fit for anyone prioritizing capital preservation, current-income certainty, or the ability to exit on their own timeline. Diligence should center on the reasonableness of the rent-growth and exit-cap assumptions, the size of the load, and the degree to which projected distributions are supported by in-place operations versus reserves.
Advantages
- Turnkey 1031 replacement property: accredited exchangers can place proceeds into a fully structured DST with a stated minimum of $100,000 of equity (a 0.198% interest, plus $81,377 of allocated debt), preserving tax deferral without sourcing, financing, or managing real estate directly.
- Sunbelt industrial exposure across two high-growth metros - Dallas-Fort Worth and South Florida (Miami-Fort Lauderdale-West Palm Beach) - rather than a single market, providing some geographic diversification within one offering.
- Small bay, multi-tenant format: income is spread across a granular roster of smaller tenants rather than one credit, and short-duration small-suite leases allow frequent mark-to-market rent increases as demand grows.
- Strong going-in occupancy: approximately 92% leased at Arapaho and 95% leased at Deerfield as of August 31, 2025, on assets substantially renovated in 2024-2025.
- Moderate, fixed-rate leverage: a $41,000,000 loan at a fixed 5.708% for a full ten-year, interest-only term (maturing September 6, 2035) locks in financing cost, avoids interest-rate reset risk during the hold, and keeps loan-to-capitalization at a conservative 44.87%.
- Monthly income with projected growth: distributions are targeted monthly, projected to start near 4.62% and increase toward roughly 6.01% per annum over the hold as rents grow and lease-up completes.
- Passive, absolute-net master-lease structure managed by an affiliated property manager, so investors bear no operating responsibilities.
- Experienced, vertically integrated sponsor: NexPoint reports approximately $16.5 billion of fee-earning AUM and more than $21.5 billion of gross real estate acquisitions since 2012.
- Potential future liquidity and continued deferral through the sponsor's Exchange Right (exchange of interests for Exchange Entity units or cash).
Concerns
- Illiquidity: there is no public market for the interests, transfer is restricted, and investors must have no need for liquidity; the DST cannot be readily sold, and holders may wait years for a disposition that is entirely at the manager's discretion.
- No control or voting rights: under DST prohibited-transaction limitations, beneficial owners cannot direct operations, refinancing, leasing, or sale decisions, and cannot compel a sale.
- Concentration: the portfolio holds only two properties in two metros, so a downturn, natural disaster, or tenant problem in Dallas-Fort Worth or South Florida would materially affect returns. The Deerfield asset carries explicit hurricane and windstorm exposure noted in the risk factors.
- Master-tenant dependence and thin capitalization: cash flow depends on affiliated master tenants that are newly formed and hold no substantial assets beyond their leaseholds, capitalized only by demand notes from Holdings ($1,300,000 for Arapaho, $650,000 for Deerfield). Master tenants may defer Additional and Supplemental Rent, and if Holdings fails to fund a demand note the trust may never receive accrued rent.
- Leverage and balloon risk: the loan is interest-only with no amortization, so the entire $41,000,000 comes due at the September 6, 2035 maturity, creating refinancing or forced-sale risk, and the loan is cross-collateralized across both properties.
- Fees and load: total offering expenses and commissions equal $4,710,763, or 9.35% of equity (up to 6.0% selling commission, 1.5% managing broker-dealer fee, and 1.25% marketing/due-diligence), plus a $1,434,000 facilitation fee to the sponsor - costs that dilute invested capital.
- Purchase price above appraised value: aggregate offering capitalization of $91,382,493 is well above the properties' aggregate "as is" appraised value of $78,000,000, so investors pay a premium over underlying real estate value at the outset.
- Distributions are not guaranteed: they are projections, may be supported in part by reserves rather than operations, and can be reduced or suspended; projected rates may not be achieved.
- Sponsor reliance and conflicts: the sponsor and its affiliates serve as manager, master-tenant owner, property manager, managing broker-dealer, and facilitation-fee recipient, creating numerous conflicts of interest.
- Tax risk: 1031 and DST treatment rely on an opinion of counsel (no IRS ruling); an IRS challenge, a springing-LLC conversion, or exercise of the Exchange Right for cash could jeopardize deferral or trigger a taxable event.
- Small bay tenant risk: smaller tenants and shorter leases mean higher rollover, turnover, re-leasing, and collection risk, and occupancy could fall below underwriting assumptions.
NexPoint Small Bay III DST — Complete Offering Data
Offering & Structure
Investment NameNexPoint Small Bay III DST
SponsorNexPoint
StructureDelaware Statutory Trust (DST)
StatusAvailable
Last Updated2026-08-10
Size & Availability
Total Offering$91,382,493
Equity$50,382,493
Debt$41,000,000
Available Equity$24,000,000 (47.6% of equity)
Minimum Investment$100,000
Total Load9.35%
Initial Reserves2.12%
Property
Property TypeIndustrial
StrategyValue-Add
LocationFL, TX
Market TierTier 1
Income & Projections
Average Yield5.36%
Projected Yields (Y1–Y10)Y1 4.62% · Y2 4.66% · Y3 4.79% · Y4 5.11% · Y5 5.19% · Y6 5.34% · Y7 5.62% · Y8 5.99% · Y9 6.23% · Y10 6.01%
Tax-Adjusted Yield11.46%
Cap Rate Equivalent8.40%
Financing
In-Place LTV44.87% LTV
LenderArgentic Real Estate Finance 2 LLC
Loan TypeFixed
Interest Rate5.708% (Fixed)
Loan Term10 years
I/O Period10 years
AmortizationN/A
Y1 DSCR2.04x
Exit
Estimated Hold Period10 years
721 Exchange ExitOptional
Benchmarks (vs sector median)
Avg. Income5.36% vs 5.33% market — Meets Average
Growth34.85% vs 15.09% market — Above Average
Peak6.23% vs 5.80% market — Meets Average
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.
