Inside My DST Due Diligence Process

DST due diligence is the research done before a Delaware statutory trust (DST) offering is recommended, checking the sponsor, the property, the debt, and the legal documents. As of October 2026, my offering records cover 76 DST offerings from 38 sponsors, and I have reviewed and passed on 5 of them, with 24 more still under review.

Key takeaways

• Due diligence means checking an offering before anyone puts money in. It covers the people, the property, the loan, and the paperwork.
• My process covers five areas: broker-dealer review, investment manager audit, investment offering review, real estate assessment, and institutional underwriting. Then I keep monitoring after investors are in.
• FINRA expects broker-dealers to do a "reasonable investigation" of private placements. That idea runs through Regulatory Notice 10-22 and Regulatory Notice 23-08.
• Saying no is part of the job. In my offering records as of October 2026, I passed on 5 offerings after review, and 24 were still under review.
• You can run your own checks for free. Look up people on FINRA BrokerCheck, look up the offering's Form D on SEC EDGAR, and read the private placement memorandum.
• No amount of research removes risk. DST distributions are not guaranteed, DSTs are illiquid, and investors can lose their entire investment.

What is DST due diligence?

Let me start with a few plain definitions. I will use these words all through this article.

A 1031 exchange lets you sell investment real estate and buy other "like-kind" real estate while deferring capital gains tax. The rule is in 26 U.S.C. §1031. Deferring tax is not the same as avoiding it. The tax can come due later.

A Delaware statutory trust (DST) is a legal entity that owns real estate. Investors buy beneficial interests in the trust. The IRS explained in Revenue Ruling 2004-86 how a properly structured DST interest can qualify as replacement property in a 1031 exchange. Whether it works for you depends on your facts.

A sponsor is the company that finds the property, buys it, sets up the DST, and manages it. Some people call this the investment manager. I use both terms.

A private placement is a sale of securities that is not registered with the SEC. Most DST offerings are sold this way under Regulation D. That usually means they are open only to accredited investors. The SEC's accredited investor page lists the main tests. For individuals, the tests include a net worth over $1 million, not counting your primary home, or income over $200,000 ($300,000 with a spouse or partner) in each of the last two years.

A private placement memorandum (PPM) is the offering document. It explains the deal, the fees, the risks, and the rules.

Due diligence is the work of checking all of that before you invest. For me, it means checking it before I ever show an offering to a client.

Here is why that matters. A DST is a long-term, hard-to-sell investment. You give up control. The trustee makes the decisions, and the trust's powers are limited by design. Once you are in, you usually cannot get out early. So the time to ask hard questions is before you invest, not after.

Why do broker-dealers have to investigate private placements?

A broker-dealer is a firm registered to buy and sell securities for customers. My securities business runs through Aurora Securities, Inc., member FINRA/SIPC. Baker 1031 Investments is independent of Aurora.

FINRA is the Financial Industry Regulatory Authority. It writes and enforces rules for broker-dealers in the United States.

FINRA has said for years that firms must investigate private placements before they recommend them. Two notices explain this well.

FINRA Regulatory Notice 10-22 (2010)

Regulatory Notice 10-22 came out in April 2010. Its title is "Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings."

The notice reminds firms "of their obligation to conduct a reasonable investigation of the issuer and the securities they recommend" in Regulation D offerings. The issuer is the entity selling the securities. In a DST, that is the trust, set up by the sponsor.

The notice also says a firm "may not rely blindly upon the issuer for information concerning a company." In plain words, you cannot just take the sponsor's word for it. You have to check.

It also talks about red flags. It says "the presence of any 'red flags' also would alert the broker to the need for further inquiry." A red flag is a warning sign. It does not prove something is wrong. It means you need to dig deeper.

Notice 10-22 lists the kinds of things a firm should look at. These include the issuer and its management, its business prospects, its assets, the claims it makes, and how it plans to use the money it raises.

FINRA Regulatory Notice 23-08 (2023)

Regulatory Notice 23-08 came out in May 2023. Its title is "FINRA Reminds Members of Their Obligations When Selling Private Placements."

This notice updates and adds to the older guidance. It says a firm's analysis "should not rely solely upon representations made by the issuer or its affiliates."

It also speaks directly about outside reports. Many firms use reports from third parties. FINRA says the firm "should review the information from these sources with reasonable care," "considering the independence, incentives and qualifications of the third party." It adds: "This is particularly important with regard to third parties hired by the issuer."

That last point matters to me. A report paid for by the sponsor can still be useful. But I read it knowing who paid for it.

What came before: NASD Notice to Members 05-18

DSTs grew out of an older structure called tenants-in-common, or TIC. In 2005, FINRA's predecessor, NASD, issued Notice to Members 05-18. It said TIC interests sold with certain arrangements are generally securities. It also said firms must do a reasonable investigation, and that relying only on the sponsor's statements is not enough.

So the idea is not new. It has been the expectation for about two decades.

What this means for you

These rules apply to broker-dealers. They do not apply to you as an investor. But they give you a good checklist, and it pairs well with my guide to choosing a DST. If a firm is supposed to verify the sponsor, the property, the projections, and the use of proceeds, you can ask how that was done.

You can also ask a simple question: "What did you check, and what did you find?" A good answer should be specific.

What are the five areas of my due diligence process?

My review covers five areas. I partner with outside auditors and reviewers in each area. The review is continuous, not one-time. Here is the quick view before I go deeper.

1. Broker-dealer review. Who is selling this offering, and how was it vetted?
2. Investment manager audit. Who is the sponsor, and what is their record?
3. Investment offering review. What does the PPM actually say about fees, debt, reserves, and exits?
4. Real estate assessment. Is this a good property in a good market with solid tenants?
5. Institutional underwriting. Do the numbers hold up if things go worse than planned?

After that comes the sixth part, which never ends: ongoing monitoring once investors own the interest.

Each area answers a different question. A great building with a weak sponsor is a problem. A strong sponsor with a bad loan is a problem. A clean PPM on a property in an oversupplied market is a problem. I want all five to hold up.

Area 1: What does a broker-dealer review cover?

DST offerings are usually sold through a group of broker-dealers. One firm often acts as the managing broker-dealer, sometimes called the dealer manager. It organizes the selling group and works closely with the sponsor.

My first step is to understand how the offering reached me. I want to know who is involved in selling it, and what review has already been done.

What I check

• The broker-dealer's background. I look up the firms and people involved on FINRA BrokerCheck. I look for disciplinary history, customer complaints, and regulatory actions.
• The firm's relationship to the sponsor. Is the managing broker-dealer owned by or tied to the sponsor? That is not always a problem. But it is a conflict of interest, and it should be disclosed.
• Selling compensation. The PPM shows commissions and other fees paid to the selling group. I want those numbers clear and easy to find.
• Existing due diligence reports. Many offerings have a third-party due diligence report. I read it, and I note who hired the writer.
• The approval path. Aurora Securities, as a broker-dealer, has its own obligations under FINRA rules. I don't treat any other firm's review as a substitute for my own work.

Why it matters

If the selling side has problems, the whole offering deserves more scrutiny. A clean record does not prove an offering is sound. But a bad record is a reason to slow down.

Red flags here

• The people or firms involved have serious, recent, or repeated disciplinary history.
• Ties between the sponsor and the selling firm are not disclosed, or are hard to find.
• Selling compensation is unclear or seems out of line with similar offerings.
• There is pressure to commit before the review is done. Notice 23-08 warns firms not to let an issuer's timeline rush their investigation. I agree.

Area 2: What is an investment manager audit?

The investment manager is the sponsor. In a DST, the sponsor runs nearly everything. They pick the property. They set up the loan. They hire the property manager. They write the reports you get. They decide when to sell.

That makes the sponsor the most important single choice in a DST. So I spend a lot of time here.

Track record and full-cycle results

A full-cycle investment is one that has been bought, held, and sold, with money returned to investors. Full-cycle results show what really happened, not what was projected.

I track more than 1,100 full-cycle 1031 DST investments for performance. That gives me a way to compare what sponsors projected with how deals ended.

I look at questions like these:

• How many programs has this sponsor taken full cycle?
• How did the final results compare to the original projections?
• Did any programs lose money? What happened, and how did the sponsor handle it?
• Did the sponsor cut or suspend distributions? How did they explain it to investors?
• Did holds run much longer than planned?

One bad deal does not rule out a sponsor. Real estate has cycles. I care a lot about how a sponsor acted when things went wrong. Did they tell investors early? Did they put in their own money? Did they explain it clearly?

Financial statements

I review the sponsor's financial statements. I want to know if the sponsor can weather a hard stretch. A sponsor with thin finances may not be able to support a property that needs help.

I look for audited statements when they are available. An audit is a review by an independent accountant. The SEC's investor bulletin on Regulation D suggests asking whether an issuer's financial statements are independently audited. I think that is a good question for any sponsor.

Key people

A sponsor is really a group of people. I want to know who they are and what they have done.

• Who are the leaders, and how long have they worked together?
• Who runs acquisitions, asset management, and property management?
• Has anyone important left recently?
• What do their regulatory and litigation histories show?

Notice 10-22 suggests firms inquire about pending litigation of the issuer or its affiliates. Notice 23-08 calls out the issuer's and management's regulatory and litigation history. I check both.

Conflicts of interest

A conflict of interest is when someone's own gain can pull against yours. In DSTs, some conflicts are normal. The sponsor may earn fees for buying the property, managing it, and selling it. The sponsor may have bought the property first and then sold it into the DST.

Conflicts are not automatically bad. Hidden conflicts are. I want each one disclosed, explained, and priced fairly.

Common things I look for:

• Did the sponsor buy the property and mark up the price before selling it to the DST?
• Does a sponsor affiliate manage the property? How is that fee set?
• Is the sponsor's affiliate also the master tenant? A master lease is a structure where one company leases the whole property from the DST and runs it. If that company is tied to the sponsor, I want to understand the terms.
• Does the sponsor gain from a 721 exchange into its own fund? More on that below.

Why it matters

The PPM is written by the sponsor. Monthly and quarterly reports come from the sponsor. Most of what you learn after you invest comes from the sponsor. You are trusting them for years. Their record, money, people, and conflicts are worth knowing up front.

Area 3: What do I look for in the investment offering review?

This is where I read the PPM closely, along with the trust agreement, the loan documents summary, and any master lease. It is long reading. It is also where many important details live.

Fees and the "load"

The load is the total of upfront costs built into the offering price. It can include selling commissions, dealer manager fees, offering and organization costs, acquisition fees, and financing fees.

A higher load means less of your money goes into the real estate. I add up the total and compare it with similar offerings.

I also look at ongoing fees, like asset management fees and property management fees, and fees at sale, like disposition fees.

Use of proceeds

Use of proceeds means where the money raised actually goes. Notice 10-22 lists use of proceeds as a core area to check. I want to see a clear table: so much to buy the property, so much for reserves, so much for fees. If that table is vague, I ask why.

Debt terms and maturity

Many DSTs use a loan. Some don't. In my offering records as of October 2026, 36 of 76 offerings (47%) were all-cash, with no debt at all.

When there is a loan, I read the key terms:

• Loan-to-value (LTV). This is the loan amount divided by the property value. A $6 million loan on a $10 million property is 60% LTV. Higher LTV can raise returns in good times and raise losses in bad times.
• Interest rate. Is it fixed or floating? A floating rate can rise.
• Interest-only period. Some loans require only interest at first. Payments can jump when principal payments start.
• Maturity date. This is when the loan must be paid off. I compare it with the projected hold. If the loan comes due before the planned sale, the DST may face a refinance. Under Rev. Rul. 2004-86, the trustee cannot renegotiate the loan terms. That is one reason the maturity date matters so much.
• Prepayment penalties. Some loans charge a fee to pay off early. That can affect when the DST can sell.

Reserves

A reserve is cash set aside for repairs, vacancies, or surprises. Because a DST cannot raise new money from investors once it is set up, reserves are a key safety cushion. Rev. Rul. 2004-86 says the trustee cannot accept more contributions.

I look at how big the reserves are, what they can be used for, and what happens if they run out. Many DSTs include a way to convert to a different structure if trouble hits. This is often called a springing LLC. I want to know when and how that happens.

Distributions

A distribution is cash paid to investors from the property's income. The PPM may show a projected rate. In my offering records as of October 2026, the median projected year-one distribution rate was 4.7%, across 71 offerings that published one.

Projected is the key word. Distributions are not guaranteed. They can be cut or stopped. I check whether the projected distribution is paid from property income or partly from reserves. If it depends on reserves, that is a weaker footing.

Exit plan and 721 options

The exit is how the DST ends. Usually the property is sold and investors get their share. Some DSTs offer a 721 exchange instead. That means investors may trade their DST interest for units in an operating partnership of a real estate investment trust (REIT). This is often called an UPREIT. The rule is in 26 U.S.C. §721.

In my offering records as of October 2026:

• 44 offerings (58%) had an optional 721 exit.
• 13 offerings (17%) had a mandatory 721 exit.
• 17 offerings (22%) had no 721 exit.
• 2 were unclear.

A mandatory 721 exit is a big decision. Once you hold REIT operating partnership units, you generally can't do another 1031 exchange with them. I make sure clients know which kind of exit an offering has before they invest. I also look at whether the sponsor gains from moving investors into its own fund, because that is a conflict of interest.

Projected hold

The hold is how long the sponsor plans to own the property. In my records, 10 years was the most common projected hold, found in 31 offerings. A projection is not a promise. Holds can run longer.

Why it matters

The PPM is the legal document that governs your investment. Marketing materials can summarize. The PPM controls. If something in the PPM surprises me, it will surprise a client too, so I want to understand it first.

Area 4: How do I assess the real estate itself?

Now I look at the building, the land, the tenants, and the market. A good structure can't save a weak property for long.

Tenant and lease review

For a property with one or a few tenants, like a net lease store or an industrial building, the tenant is the heart of the deal. A net lease is a lease where the tenant pays most property costs, like taxes, insurance, and upkeep.

I look at:

• Tenant credit. Can the tenant pay the rent? Is it a strong company or a small one?
• Lease length. How many years are left? Does the lease end before the DST plans to sell?
• Rent increases. Does rent rise each year? By how much?
• Who pays what. Who covers the roof, structure, and parking lot?
• Renewal options. Can the tenant leave, or stay at a fixed rent?

For apartments or self-storage, there are many tenants. I look at occupancy, how long tenants stay, recent rent trends, and how much concessions (like a free month) are being offered.

Under Rev. Rul. 2004-86, the trustee cannot renegotiate the lease or sign new leases, except in limited cases. Master lease structures address this. But it means the lease terms at the start matter a great deal.

Market and supply

A property sits in a market. I want to know whether that market is growing or shrinking, and how much new competing space is coming.

Supply is the amount of similar space being built nearby. A wave of new apartments can push rents down for years, even in a growing city. I look at construction pipelines, job growth, population trends, and local rent history.

In my offering records as of October 2026, offerings span 33 states. The most common were Florida (14), Texas (13), North Carolina (8), and Georgia (7). Fast-growing places can also attract a lot of new building. Growth alone does not make an offering good or bad. It does mean supply deserves a careful look.

Third-party reports

Most institutional property deals come with several outside reports. I read each one.

• Appraisal. A licensed appraiser estimates the property's value. I compare it to the purchase price. If the DST is paying well above appraised value, I want to know why.
• Property condition assessment (PCA). An engineer inspects the building and estimates near-term and long-term repair needs. I compare those needs to the reserves.
• Phase I environmental site assessment. This checks for signs of contamination, like old fuel tanks or past industrial use. The EPA's page on All Appropriate Inquiries explains that the ASTM E1527-21 Phase I standard can be used to meet federal requirements. If a Phase I finds a concern, there may be a deeper Phase II test.
• Third-party due diligence report. This is a review of the whole offering by an outside firm. It often covers the sponsor, the property, the PPM, and the projections.

Notice 10-22 tells firms to carefully examine third-party engineering and similar reports. Notice 23-08 says that where a due diligence report "contains inconsistencies or inadequately addresses potential concerns," the firm should dig further. That is how I read them. I look for what the report flags, not just its summary.

Energy and royalty programs

Some net lease offerings in my records are energy royalty programs. These hold mineral and royalty interests in oil and gas wells. For example, one portfolio holds 14 royalty properties with 27 producing wells in Oklahoma's Anadarko Basin and Texas's Permian Basin. Another holds about 1,277 net royalty acres with interests in more than 200 producing wells, roughly 90% natural gas, in the Permian Basin and the Haynesville Shale.

Wells are run by third-party operators. The owner gets a share of production revenue and doesn't pay drilling or operating costs. But production falls over time, and prices move. So I look for an independent reserve or engineering report. Notice 10-22 itself uses energy programs as an example where expert opinions are needed.

Why it matters

The real estate is the thing that earns the income. Fees, structure, and sponsor quality all matter. But if the tenant leaves, the market softens, or the roof fails, investors feel it.

Area 5: What is institutional underwriting?

Underwriting means checking whether the numbers make sense. The sponsor builds a financial model. I test it.

"Institutional" means I try to look at it the way a large, careful buyer would. My background is in applied math and applied statistics, and I spent years in acquisitions and asset management. I have been involved in more than $10 billion of real estate investment activity. That work taught me to question every assumption.

What I test

• Rent growth. Is the model assuming rents rise faster than the market has shown?
• Occupancy. Is it assuming the property stays nearly full the whole time?
• Expenses. Are taxes, insurance, and repairs realistic? Do they match what similar local properties actually pay?
• Exit cap rate. The cap rate is the property's yearly net income divided by its price. A higher exit cap rate means a lower sale price. I check whether the model assumes the property sells at a richer price than it was bought for.
• Debt coverage. The debt service coverage ratio (DSCR) is net income divided by loan payments. A DSCR of 1.0 means income just covers the loan. Lower than that means trouble.
• Break-even occupancy. How empty can the property get before it can't pay its bills?

Notice 10-22 suggests firms test projections against real data and keep a record of stress tests. A stress test asks, "What if things go worse than planned?"

A worked example: why loan maturity matters

These are hypothetical numbers to show the idea. They are not from any real offering.

Say a DST buys a building for $50,000,000. It takes a loan of $27,500,000. That is 55% LTV.

The loan is due in year 7. The sponsor projects a sale in year 10.

Now say values fall 15% by year 7. The building is worth $42,500,000. The loan is still about $27,500,000 if it was interest-only.

New LTV: $27,500,000 ÷ $42,500,000 = about 65%.

Many lenders will not refinance at 65% LTV. If they lend only up to 55%, they would offer about $23,375,000. That leaves a gap of about $4,125,000.

The DST cannot raise new money from investors. So it must use reserves, sell early, or convert to a springing LLC. None of those may be what investors expected.

This is why I compare the loan maturity with the planned hold. And it is why I pay attention to leverage. In my offering records as of October 2026, 16 offerings (21%) had LTV above 50%. Among offerings with debt, the median LTV was about 49%.

A second worked example: debt coverage

Again, these are hypothetical numbers.

Say a property earns $3,000,000 a year in net operating income. Net operating income (NOI) is rent minus operating costs, before loan payments.

Loan payments are $2,200,000 a year.

DSCR = $3,000,000 ÷ $2,200,000 = about 1.36.

Now say income drops 20%. NOI falls to $2,400,000.

New DSCR = $2,400,000 ÷ $2,200,000 = about 1.09.

The loan is still covered, but barely. Little is left for distributions. Some loans have rules, called covenants, that kick in if DSCR falls below a set level. That can trap cash at the property instead of paying investors.

This is the kind of test I run when an offering uses debt.

A third worked example: how fees affect your dollars

Say you invest $100,000. The offering has a total load of 10%. (Hypothetical. Actual loads vary.)

That means about $90,000 goes toward the property and reserves. The other $10,000 pays for selling, organizing, and acquiring the deal.

For you to get back your $100,000 at sale, the property has to make up that $10,000 gap first. That is one reason I compare loads across offerings. It is not the only factor, but it is a real one.

Why it matters

Projections are built by people who want the deal to happen. That is not a criticism. It is just human. Stress tests show how much room for error a deal has. A deal with no room for error worries me.

What happens after investors are in? Ongoing monitoring

Due diligence is continuous, not one-time. After a client invests, I keep watching.

What I watch

• Sponsor reports. I read the periodic reports sponsors send for offerings my clients hold.
• Distribution changes. If a distribution is cut or suspended, I want to know why and what the plan is.
• Occupancy and rent. Are they tracking the plan?
• Loan status. Is the DSCR healthy? Is a maturity coming up?
• Tenant news. For net lease properties, I watch for tenant credit problems or bankruptcy.
• Sponsor news. Leadership changes, lawsuits, or regulatory actions.
• Exit events. When a sale or 721 exchange is coming, I help clients plan the next step with their CPA and qualified intermediary.

A qualified intermediary (QI) is the independent party who holds your sale money during a 1031 exchange, so you don't touch it.

Why it matters

A property can change a lot over a seven- or ten-year hold. Watching closely means I can give clients timely, honest updates. It also feeds back into my sponsor reviews. How a sponsor behaves during a hold is part of their track record.

Due diligence at a glance: what we check, why it matters, red flags

Here is a summary table. It is not every item I look at, but it covers the main ones.

What red flags make me pass on an offering?

I don't pass on an offering because of one small issue. I pass when a problem is serious and can't be resolved, or when several smaller problems add up.

Here are the kinds of things that can lead me to say no:

1. Missing information. Notice 10-22 says an issuer's refusal to provide needed information can itself be a red flag. If a sponsor won't share financial statements, third-party reports, or loan terms, I don't move forward.
2. A loan that doesn't fit the plan. A maturity well before the planned sale, with little room to refinance, puts investors at risk of a forced outcome.
3. Thin reserves. If the property condition report shows big repair needs and the reserves can't cover them, the math doesn't work.
4. Distributions that depend on reserves. Paying investors from reserves instead of income can hide weak property performance.
5. A rosy model. If the deal only works with rent growth, occupancy, and exit prices well above what the market shows, the room for error is too small.
6. Undisclosed or poorly explained conflicts. I can live with disclosed, fairly priced conflicts. I can't recommend hidden ones.
7. Unresolved third-party concerns. If an appraisal, PCA, Phase I, or due diligence report raises an issue and nobody addresses it, that's a problem.
8. Sponsor history that worries me. Serious lawsuits, regulatory actions, or a pattern of poor communication with investors in past programs.
9. Pressure to skip steps. A tight deadline is not a reason to cut the review short.

None of these red flags proves an offering is bad. They are reasons to ask more questions. If the answers don't resolve the concern, I pass.

What my data shows

My offering records as of October 2026 cover 76 DST offerings from 38 sponsors. Here is how they break down by status.

(Shares are rounded, so they may not add to exactly 100%.)

Two numbers stand out to me.

First, 24 offerings, about a third of my records, are still under review. That is not a backlog I'm ashamed of. It reflects how long a careful review takes. Reading the PPM, the loan terms, and every third-party report takes time. So do sponsor calls and stress tests. I would rather take that time than rush.

Second, I passed on 5 offerings after review. If you leave out the 24 still under review, I have reached a decision on 52 offerings. Passing on 5 of those 52 means I said no to roughly 1 in 10. A review that never says no isn't really a review.

Here are a few more numbers from the same records that tie directly to due diligence:

• Leverage: 36 of 76 offerings (47%) were all-cash. 16 (21%) had LTV above 50%. The median LTV among leveraged offerings was about 49%. Debt is one of the first things I check, because it changes the risk so much.
• 721 exits: 13 offerings (17%) had a mandatory 721 exit. That is a meaningful share. Investors should know about it before they sign.
• Projected distributions: The median projected year-one distribution rate was 4.7%, with a range of 4.0% to 9.0% across 71 offerings that published one. A rate at the high end of that range is a reason to look harder at where the cash comes from, not a reason to get excited.
• Property types: Multifamily made up 31 offerings (41%), industrial 18 (24%), and net lease 15 (20%, including energy royalty programs). Self-storage had 5, retail 4, and medical office 3. Each type has its own risks, so the real estate assessment changes with the property.
• Size and minimums: The median offering size was about $65 million of total capitalization. The median minimum investment was $100,000. Minimums ranged from $25,000 to $500,000, and 21 offerings (28%) started at $25,000.
• Hold periods: 10 years was the most common projected hold, in 31 offerings. A long hold makes loan maturity and reserves even more important.

How can you check a DST offering yourself? A step-by-step guide

You don't need to be a broker-dealer to do your own homework. Here are steps anyone can take. Most are free.

Step 1: Look up the people on FINRA BrokerCheck

Go to brokercheck.finra.org. Search for the person and firm recommending the offering. BrokerCheck shows employment history, licenses, and any disclosed violations or complaints. You can also search the managing broker-dealer named in the PPM.

Read any disclosures. Some are minor or old. Others are serious. If you are unsure what something means, ask about it directly.

Step 2: Find the Form D on SEC EDGAR

Form D is a short notice that companies file with the SEC when they sell securities under Regulation D. Investor.gov describes it as "a brief notice that includes basic information about the company and the offering."

The SEC's investor bulletin says issuers must file Form D within 15 days of their first sale. It also says a missing Form D may be a red flag.

To search, go to SEC EDGAR full-text search. Type the name of the DST, which is usually in the PPM. You can filter by form type to find Form D. The filing lists people tied to the offering and the offering size.

Remember, Form D is not SEC approval. The SEC does not review or endorse private placements. Be wary of anyone who says otherwise.

Step 3: Read the PPM, especially these sections

The PPM is long. You don't have to read every word on the first pass. Start with these:

• Risk factors. This section lists what can go wrong. Read it slowly.
• Estimated use of proceeds. See how much goes to the property, to reserves, and to fees.
• Compensation and fees. See what the sponsor and its affiliates earn, now and later.
• Conflicts of interest. See who is on both sides of any deal.
• Financing. Find the loan amount, rate, and maturity date.
• Prior performance. Look at the sponsor's past programs.
• Exit and 721 terms. See whether a 721 exchange is optional, mandatory, or not offered.

Step 4: Ask for the third-party reports

Ask whether there is an appraisal, a property condition assessment, a Phase I, and a third-party due diligence report. Ask who paid for each. Ask whether any concerns were raised and how they were handled.

Step 5: Ask the questions the SEC suggests

The SEC's investor bulletin on private placements suggests questions like these:

• Are the financial statements independently audited?
• Are the claims and projections reasonable?
• What experience does the management team have?
• How will the money be used?
• Are you comfortable holding this investment for a long time, and could you afford to lose all of it?

Step 6: Check the fit with your 1031 timeline

A 1031 exchange has deadlines, and they shape how I build your 1031 exchange plan. You generally have 45 days after selling to identify replacement property and 180 days to close, as set out in 26 U.S.C. §1031(a)(3). The 180 days can be cut short by your tax return due date, unless you get an extension.

Don't let the deadline rush your review. Start your research before you sell, if you can. Because DST properties are usually already acquired, closing can often take two to three business days once paperwork, funding, and approvals are complete. That speed is helpful, but it doesn't replace the review.

Step 7: Talk to your own advisors

I'm not a tax advisor or an attorney. Before you invest, confirm the tax and legal details with your CPA, your attorney, and your qualified intermediary. They can tell you whether a DST fits your exchange and your situation.

How does my review compare with doing it alone?

Some investors do all their own research. Some rely on a firm. Most do a mix. Here is a fair comparison.

I don't think you should rely on me blindly either. That is the same lesson FINRA teaches firms about issuers. Ask me what I checked. Ask me what I didn't like. When I review offerings with a client, I explain why I'm considering each one, what I like, and where I have reservations.

Mistakes to avoid

Here are mistakes I see people make when they look at DST offerings.

Chasing the highest projected distribution

A higher projected rate can mean more risk, more debt, or a weaker tenant. In my records, projected year-one rates ranged from 4.0% to 9.0%. Look at what's behind the number before you compare.

Skipping the debt section

Many people focus on the property and skip the loan. But the loan can decide the outcome. Check the LTV, the rate, and especially the maturity date.

Ignoring the exit terms

Not knowing whether a 721 exit is mandatory can surprise you later. Once you hold REIT operating partnership units, you generally can't do another 1031 exchange with them.

Trusting a report without knowing who paid for it

A sponsor-paid report can be accurate. But as FINRA says in Notice 23-08, independence, incentives, and qualifications matter. Ask.

Letting the 45-day clock rush you

The identification deadline is real. But choosing a weak offering to meet a deadline can cost more than the tax you deferred. Start early. Consider identifying backup properties, as your QI and CPA advise.

Treating past results as a promise

Track records matter. They are not guarantees. Markets change. Teams change. Use the past as one input, not the answer.

Putting too much in one offering

A single DST usually holds one property or a small portfolio. Some investors spread money across several DSTs, different property types, and different sponsors. Whether that makes sense for you depends on your goals and your advisors' input.

Forgetting about liquidity

DSTs are illiquid. You usually can't sell early, and if you can, it may be at a loss. Only invest money you won't need for the full hold, and longer.

What due diligence can't do

I want to be honest about limits.

Due diligence reduces surprises. It does not remove risk. A careful review can't predict a recession, a tenant bankruptcy, a spike in interest rates, or a natural disaster. It can't promise that a sale price will match the projection.

DST interests can qualify as replacement property in a 1031 exchange, but the tax result depends on your facts and on meeting all the rules. Distributions are not guaranteed. You may lose some or all of your investment. You have limited control. Most DSTs are offered only to accredited investors.

What due diligence can do is help you go in with clear eyes. You know the people, the property, the loan, the fees, and the exit. You know the warning signs. And you know someone is still watching after you invest.

Frequently asked questions

What is due diligence on a DST?

It's the research done before investing to check the sponsor, the property, the loan, the fees, and the legal documents. For me, it covers five areas plus ongoing monitoring. The goal is to find problems before money goes in.

Does FINRA require broker-dealers to investigate DST offerings?

Yes. FINRA expects broker-dealers to do a reasonable investigation of private placements they recommend, as explained in Regulatory Notices 10-22 and 23-08. Firms are told not to rely only on what the issuer says.

How can I check the sponsor of a DST myself?

Start with the prior performance and conflicts sections of the PPM. Search the sponsor and its affiliates on SEC EDGAR, and search any brokers involved on FINRA BrokerCheck. Then ask for full-cycle results and audited financial statements.

What is a full-cycle DST investment?

It's a DST that has been bought, held, and sold, with money returned to investors. Full-cycle results show what actually happened, not just what was projected. I track more than 1,100 of them for performance.

Where do I find a DST's Form D?

Use the SEC's EDGAR full-text search at sec.gov/edgar/search. Search the name of the DST and filter for Form D. Issuers generally must file it within 15 days of their first sale.

What are the biggest red flags in a DST offering?

Common ones include a loan that matures before the planned sale, thin reserves, distributions paid from reserves, rosy projections, and conflicts that aren't clearly disclosed. A sponsor's refusal to share information is also a red flag.

Is a third-party due diligence report enough?

Not by itself. FINRA tells firms to review these reports with reasonable care and to consider the writer's independence, incentives, and qualifications. I read the full report and follow up on any concerns it raises.

Why does loan maturity matter so much in a DST?

A DST generally can't renegotiate its loan or raise new money from investors. If the loan comes due when values are down, the DST may struggle to refinance. That can force an early sale or a change in structure.

How many DST offerings do you pass on?

In my offering records as of October 2026, I reviewed and passed on 5 offerings, and 24 were still under review. Of the 52 offerings I had reached a decision on, that is roughly 1 in 10.

Does due diligence make a DST safe?

No. Due diligence reduces surprises but doesn't remove risk. Distributions are not guaranteed, DSTs are illiquid, and you can lose your entire investment.

Do I still need a CPA and attorney if you do due diligence?

Yes. My review is about the investment. Your CPA, attorney, and qualified intermediary should confirm the tax and legal details for your specific exchange.

Sources

• FINRA Regulatory Notice 10-22: Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings
• FINRA Regulatory Notice 23-08: FINRA Reminds Members of Their Obligations When Selling Private Placements
• NASD Notice to Members 05-18: Tenants-in-Common Interests in Real Property Offerings
• FINRA BrokerCheck
• SEC EDGAR Full Text Search
• Investor.gov: Form D
• Investor.gov: Private Placements under Regulation D, Updated Investor Bulletin
• SEC: Accredited Investors
• IRS Revenue Ruling 2004-86
• 26 U.S.C. §1031, Legal Information Institute
• 26 U.S.C. §721, Legal Information Institute
• EPA: Brownfields All Appropriate Inquiries