Overview
A 2020/2023-vintage, 340-unit garden-style multifamily community ("Preston Ridge") on 24.07 acres at 2001 Startown Road, Hickory, North Carolina, comprising 13 four-story wood-frame buildings totaling 326,381 net rentable square feet across one-, two-, and three-bedroom plans averaging 960 SF with 654 parking spaces, 89.12% occupied per the January 8, 2026 rent roll. The Trust acquired the fee interest on January 8, 2026 from an unaffiliated seller for a gross purchase price of $73,082,500 (net $71,300,000 plus a $1,782,500 advisory fee to affiliate Passco Management Services), against a November 21, 2025 as-is appraisal of $73,300,000. The Project is subject to a Master Lease with Passco Preston Ridge MT, LLC, a thinly capitalized affiliate of the Depositor funded with $50,000 cash plus $310,000 and $500,000 notes guaranteed by Passco Companies, and is professionally managed by Fogelman Properties. Total capitalization is $83,565,000, comprising $44,350,000 of Class A equity and a $39,215,000 KeyBank loan under the Fannie Mae DUS program fixed at 5.01% with a seven-year interest-only period and a 30-year amortization schedule, maturing in 2036. Net distributions to Holders are projected at 4.45% in 2026, rising to roughly 5.19% by 2032 before dipping to 4.72% in 2033 as amortization commences and recovering to 5.02% by 2035, over a 10-year hold. The business plan is a Core-Plus strategy combining a recently built, stabilizing asset with a modest capital-improvement program in the Hickory submarket of western North Carolina.
Highlights
The 2020/2023-vintage, 340-unit garden community is among the newest assets of the recent DST cohort, with only six years of effective age, wood-frame construction, and a 1.92-per-unit parking ratio; the recent build materially limits near-term capital expenditure relative to older value-add multifamily and supports a lower-risk operating profile.
The $39,215,000 KeyBank loan under the Fannie Mae DUS program is fixed at 5.01% with seven years of interest-only payments, holding leverage to a conservative 46.93% loan-to-capitalization and roughly 53.5% of the $73,300,000 appraised value; agency execution, a green-spread reduction, and a rate buydown lower the coupon, and the structure defers amortization drag through 2032.
The asset was acquired at $209,706 per unit against a $73,300,000 as-is appraisal that exceeds the $73,082,500 gross purchase price, providing a basis modestly below appraised value and positive leverage over the 5.01% fixed coupon during the interest-only period.
Net distributions to Holders are projected to rise from 4.45% to approximately 5.19% by 2032 on rent growth, with a temporary dip to 4.72% in 2033 when the seven-year interest-only period ends and 30-year amortization begins, before recovering to 5.02%; the 4.81% ten-year average reflects a stabilizing rather than fully stabilized rent roll at 89.12% occupancy.
Day-to-day operations are handled by Fogelman Properties, an experienced third-party multifamily operator, under a Passco-affiliated master lease; the Hickory submarket showed competing-property occupancy of 88.9% to 96.0% and average asking rents near $1,583 per unit, framing the lease-up and rent-growth opportunity against a limited local supply pipeline.
Analysis
Insights
The risk-adjusted profile is that of a recently constructed, stabilizing garden-apartment asset financed conservatively with fixed-rate agency debt, where the capital stack is genuinely low-risk - 46.93% leverage, fixed 5.01%, seven-year interest-only - and the principal variables reside in lease-up execution, the tertiary Hickory submarket, and the affiliated master-tenant structure. The recent vintage and below-appraisal basis are real supports, and the in-place yield provides positive leverage and a reasonable entry yield, but the projected 4.81% ten-year average net distribution is modest, and the amortization-driven dip in 2033 underscores that current cash flow weakens in the back half before any disposition. The thin, Passco-guaranteed master-tenant capitalization, the affiliate advisory-fee gross-up, and a single-asset concentration in a smaller western North Carolina market are the chief frictions, while the conservative leverage and recent construction are the clearest strengths. The investment suits an income-oriented 1031 exchanger comfortable with tertiary-market lease-up risk and a back-loaded, amortization-affected cash-flow profile.
Advantages
The offering pairs a recently built 2020/2023 340-unit garden-apartment community with conservative 46.93% loan-to-capitalization leverage and an agency Fannie Mae DUS loan fixed at 5.01% with seven years interest-only, removing reset risk and deferring amortization while producing positive leverage against the in-place yield. The acquisition basis sits modestly below the $73,300,000 as-is appraisal, recent construction limits near-term capital needs, distributions benefit from depreciation shelter, and the asset is professionally managed by Fogelman under a Passco-affiliated master lease. The diversified one-, two-, and three-bedroom unit mix, the 1.92-per-unit parking ratio, and a stabilizing 89.12% occupancy with assumed Year-1 lease-up to 91.28% provide a credible path to the projected 4.45%-to-5.02% net distribution range over the hold.
Concerns
The Master Tenant is a newly formed Passco affiliate with minimal capital—$50,000 in cash plus $310,000 and $500,000 notes guaranteed by Passco Companies—concentrating master-lease performance and conflict-of-interest risk in a thinly capitalized related party. The net distribution profile is modest and non-linear, dipping from 5.19% in 2032 to 4.72% in 2033 when the interest-only period expires and 30-year amortization begins, so the back half of the hold delivers lower current cash even as gross rents rise. The Project is a single asset in Hickory, a tertiary western North Carolina market with limited liquidity and a smaller demand base than gateway Sunbelt metros, and it is only 89.12% occupied at acquisition, leaving lease-up and the assumed 91.28% Year-1 occupancy and rent-growth assumptions to be proven against five directly competing communities. The purchase price was grossed up by a $1,782,500 advisory fee to an affiliate, and the offering carries a 7.65% selling load, elevating the effective basis above the underlying real estate cost, while the loan balloons in 2036 coincident with the planned disposition, creating refinance-or-sell convergence risk.
