1031 DST Digest by Kay Properties & Investments

Helping Educate Delaware Statutory Trust (DST) Investors Nationwide

1031 DST DIGEST Inside You Will Find:

Two Gifts For The Price Of One: How To 1031 Exchange For Your Grandchildren’s Future And Enjoy More Time With Them Today PAGE 08

What Is A DST 1031 Exchange? PAGE 34

How To Create a

Diversified DST Portfolio

PAGE 42

Get Your Free 1031 Exchange Investment Book & Free Exchange Listings!

Article Title

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1031 DST Digest

Recognizing the 1031 Exchange Help us celebrate the 100-year anniversary of capital creation, debt reduction, and virtuous economic opportunities

he year 2021 marked the 100-year anniversary of Section 1031 like‐kind exchanges in the Internal Revenue Code, and an important milestone for real estate investors across the country. Under this 100-year-old law, real estate investors can defer taxes on capital gains, reposition real estate portfolios, create a tool for transferring wealth across generations, and help create more quality time for enjoying life and spending time with heirs. Now over the past century, countless investors have leveraged the positive impact of 1031 exchanges as an important vehicle to create a better life for themselves and their heirs. But Kay Properties & Investments recognizes that there is something much more... virtuous about the historic 1031 exchange vehicle because it positively impacts the American economy by:

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Increasing capital investment in - and reducing debt on - replacement properties.

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Improving the marketability of highly illiquid commercial real estate, which opens up investment opportunities to non-institutional investors.

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Increasing the ability of investors to redeploy capital to other uses and/or geographic areas in order to upgrade and expand the productivity of buildings and facilities that help create jobs.

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Therefore, this edition of the 1031 Digest is dedicated to the history of the 1031 exchange and to all the real estate investors who understand the bigger role 1031 exchange plays in not just preserving wealth for future generations but also in generating economic growth for the entire country.

Inside you will find what makes Delaware Statutory Trust 1031 investments so popular, how cash investors are being drawn to the potential of DST 1031s investments, and how having an industry leading DST 1031 Exchange specialty firm at your fingertips can be a huge advantage for any investor. As always, the entire Kay Properties team is available to answer any and all questions you may have. Thank you and happy reading.

Dwight Kay Editor of the 1031 Digest and Founder/CEO of Kay Properties & Investments

All DST properties shown are regulation D Rule 506(c) offerings. All offerings are subject to availability. There can be no assurance that any DST properties and offerings shown will be available for purchase. Disclaimer: This material is not to be considered tax or legal advice. Please speak with your own CPA and attorney for all tax and legal advice prior to considering an investment. All real estate and DST properties contain risk. Please read the full Private Placement Memorandum prior to considering an investment. Please do not invest in real estate or DST properties if you cannot afford to lose your entire principal amount invested.This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, FNEX Capital, and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.

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Contents Chapter One: Why Do Investors Choose Delaware Statutory Trusts?

08 | Two Gifts for the Price of One

22 | Real Estate DSTs — A Haven in a 1031 Tax-Change Storm?

25 | As the Pandemic Recedes, Where Will the Real Estate Investment Opportunities Be?

Chapter Two: The Basics

34 | What is a DST 1031 Exchange? 38 | Why You Should Consider Deferring Your Capital Gains Taxes

42 | How to Create a Diversified DST Portfolio

Chapter Three: Avoiding Risk

66 | A Risk-Averse Approach to Real Estate Investing 68 | The Importance of Due Diligence for DST 1031 Investments

Chapter Four: How to Manage Debt in Real Estate Investments

80| How To Guard Against The Pitfalls Of Financing Used In DSTs

83 | How Real Estate Investors Can Use

Delaware Statutory Trust (DST) Properties to Replace Debt in a 1031 Exchange

44 4

1031 DST Digest

Placeholder Kay Properties & Investments operates one of the nation’s largest syndicated 1031 exchange property marketplaces in the country with offices in Seattle, San Francisco, Los Angeles, Boston, New York City, and Washington, D.C. The Kay Properties team is made of seasoned and hyper-specialized Delaware Statutory Trust 1031 Exchange experts who collectively have more than 150 years of experience. As a result, Kay Properties has participated in over $30 billion of DST offerings.

1031 DST DIGEST

Risks & Disclosures •

All DST properties are subject to availability. There can be no assurance that any DST property shown will be available for investment.

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DST properties are only available to accredited investors (generally defined as a having a net worth of greater than $1 million dollars and/or an entity owned entirely by accredited individuals or having gross assets of over $5 million dollars – please speak with your CPA and attorney to determine if you and your investing entity are considered accredited prior to considering an investment).

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Please note the following specific risks involved in real estate investments and DST investments which include but are not limited to: tenant vacancies, softening rental rates, landlord concessions, physical obsolescence, environmental risk, condemnation, declining market values and illiquidity. Please read the entire Private Placement Memorandum for a full discussion of risks involved prior to investing.

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This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, FNEX Capital and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.

•

All real estate contains risk. Please read the full Private Placement Memorandum for a discussion of each properties business plan and risk factors. There are no guarantees for projected cash flow and/ or appreciation. Please do not invest in real estate offerings if you cannot afford to lose your entire investment principal.

•

The information herein has been prepared for informational purposes only and does not constitute an offer to sell or solicitation to purchase securities. Such offers are only made through the Private Placement Memorandum describing the investment.

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The Internal Revenue Code of 1986, as amended, including IRC Section 1031, IRC Section 1033 and IRC Section 721 contains complex tax concepts. You should consult your legal or tax professional regarding the specifics of your particular situation prior to considering an investment.

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This material is not to be interpreted as tax or legal advice. Please consult with your own tax and legal advisors for advice/guidance regarding your particular situation.

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There are risks associated with investing in Delaware Statutory Trusts (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity.

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Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Investors should read the entire PPM carefully, including the “Risk Factors” section of the PPM before investing.

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Expected cash flows and returns may not be realized and a loss of invested capital is possible.

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Past performance is not indicative of future returns.

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Securities offered through FNEX Capital, Member FINRA/SIPC. FNEX Capital and Kay Properties are separate entities.

Publisher: Kay Properties & Investments Editor: Dwight Kay Subscriptions / Issue Requests: Info@kpi1031.com - 866.805.2844 General Inquiries / Ads: info@kpi1031.com Printed in the U.S.A. Send address changes to info@kpi1031. com. Copyright 2018-2022 by Kay Properties & Investments. For an annual subscription, contact info@kpi1031.com All DST properties shown are regulation D Rule 506(c) offerings. All offerings are subject to availability. There can be no assurance that any DST properties and offerings shown will be available for purchase. Disclaimer: This material is not to be considered tax or legal advice. Please speak with your own CPA and attorney for all tax and legal advice prior to considering an investment. All real estate and DST properties contain risk. Please read the full Private Placement Memorandum prior to considering an investment. Please do not invest in real estate or DST properties if you cannot afford to lose your entire principal amount invested. This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties and Investments, LLC, FNEX Capital and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment.

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Chapter | 1

1031 DST Digest

Why Do Investors Choose Delaware Statutory Trusts?

“Thanks for all the help and guidance into the world of the Delaware Statutory Trust.The assistance helped me make decisions which will affect my legacy for my children,and my philanthropy for the years to come. Thanks to Betty and Orrin, I didn’t wind up with just one [property], but with some real estate which might fuel some of my larger dreams. The education is invaluable. I hope to see you more frequently.” Dr. Paul E., Ed.D. - Washington, D.C These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment.

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Two Gifts For The Price Of One: Even more valuable than wealth is time. Delaware Statutory Trust 1031 Exchanges can help investors transfer wealth, defer taxes, and create more quality time to enjoy the best things in life!

By Jason Salmon, Senior Vice President & Managing Director of Real Estate Analytics

any people believe that the best thing about a Delaware Statutory Trust 1031 exchange is the relatively immediate benefits of the exchange. For example, a 1031 exchange into DST properties allows real estate investors to defer capital gains taxes, potentially preserve equity, and even reposition a real estate portfolio through the ability to exchange into multiple diversified* properties. However, what many people (including experienced investors) may not realize is that the real brilliance of using a DST 1031 Exchange is its ability to preserve wealth across generations while also helping investors create more free time to 8

1031 DST Digest

travel, learn new skills, or spend with their heirs... What Are The Rules Of 1031 Exchanges and How Does a DST Fit In? Before looking at how DST properties can help investors preserve wealth while also freeing up more quality time to enjoy life, each investor should be thoroughly familiar with the rules of 1031 Exchanges and how Delaware Statutory Trusts fit in. Basically, the IRS insists that five rules me bet: 1031 Exchange Rule #1: The Exchange Must Be Set Up Before A Sale Occurs.

Key Takeaway: Many people think

that a 1031 exchange is just a special account they can set up after they have transferred the proceeds from the sale of their old investment property. However, in order to defer capital gains under section 1031 of the Internal Revenue Code, an actual “exchange” must be created through a Qualified Intermediary (“QI”). Once the exchange has been created, the taxpayer enters into an Exchange Agreement with a QI for the sale of the property before it is transferred. The Exchange Agreement stipulates that the QI agrees to acquire the old investment property from the taxpayer and transfer the property to the new buyer, and acquires the replacement property for the

1031 DST Digest

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Two Gifts for the Price of One

taxpayer to complete the exchange. In this manner, the investor never touches any money throughout the exchange, and satisfies an important rule of 1031 Exchanges. 1031 Exchange Rule #2: The Exchange Must Be For Like-Kind Property

Key Takeaway: For real property transactions (rental houses, farmland, office buildings, strip malls, etc.) the “like-kind” requirement does not mean selling and buying the exact same type of property. The term “like-kind” refers to the essence or character of the property rather than its grade or class. While the IRS is very broad in its definition of the like-kindness of real estate, they are very picky when it comes to insisting that the property be held for business or investment purposes. 1031 Exchange Rule #3: The Exchange Property Must Be Of Equal Or Greater Value

Key Takeaway: The general rule for complete tax deferral in a 1031 exchange is to buy replacement property with a value that is equal to or greater than the fair market value of the relinquished property and to reinvest all of the net cash received at the closing of the relinquished property into the replacement property. 1031 Exchange Rule #4: The Investor Has 45 Days To Identify A New Property

Key Takeaway: The first 45 calendar days after closing on the sale of an 10

1031 DST Digest

investment property intended for a 1031 exchange is known as the “identification window.” This is when an investor needs to identify potential replacement properties to buy. Specifically, investors have 45 days to identify as many as three likekind properties to buy. You can identify four or more properties if you choose, but their combined value cannot exceed 200% of the sale price of the original property. Properties must be identified in a signed, written document that must be delivered to a QI. 1031 Exchange Rule #5: The Property Owner Has 180 Days Following The Sale To Complete The Exchange

Key Takeaway: In all 1031 Exchanges, investors must complete their exchange within 6 months or no more than 180 days. Regardless of the type of exchange, the 180Day Rule always applies. How 1031 Exchanges Help Build Wealth Across Generations By following these very straightforward rules, the 1031 Exchange benefits the investor and potentially the investor’s heirs by deferring capital gains taxes on the sale of the investment property(ies). That’s why real estate has long been a popular asset used to build generational family wealth. One of the key tax advantages to passing real estate property to heirs is that those recipients benefit from a step-up in basis. That step-up basis is much like hitting the reset button on a

property’s current market value. Further, that step-up in value alone can represent a huge windfall for anyone who inherits a property that has seen even modest appreciation. Consider a matriarch who bought an apartment building in the 1980s for $1 million. Thanks to careful maintenance and upkeep, along with a good location, that property is now worth $10 million. If the owner were to sell, she would face a hefty tax on the capital gain. Instead, the owner decides to put that property in her will to be inherited equally by her grandchildren. The grandchildren also inherit that stepup to the current appraised value at the time of their grandmother’s death, allowing them to avoid paying tax on that gain. Is it any wonder that a recent report by CNBC revealed that between 2016 and 2019, more than 10 percent of all real estate transactions involved a 1031 exchange and why many professional tax professionals believe that the 1031 exchange is one of the best ways to preserve wealth for future generations? Still, because of the compressed timelines associated with 1031 exchanges, investors often encounter significant problems completing their 1031 Exchanges, including:

✔ Finding suitable replacement

property within the mandated time frame

✔ Finding the resources to perform the necessary due diligence on the property

1031 DST Digest

✔ Securing bank financing to

replace the amount of debt on the original property

✔ Identifying an appropriate property within 45 days

✔ Successfully closing on the purchase within 180 days

✔ In addition, many of the

like-kind exchanges would most likely be sole-ownership properties that would require the owner to be a hands-on owner, eliminating the opportunity for passive ownership.

How Does A Delaware Statutory Trust Fit Into A 1031 Exchange and Estate Planning? Helping solve the above 1031 challenges is where the Delaware Statutory Trust comes into play.

A Delaware Statutory Trust (DST) is an entity that is used to hold title to investment real estate. In some ways, this is similar to how a Limited Liability Company (LLC) can hold title to real estate; however, unlike an LLC, a DST 1031 property qualifies as a “like kind” exchange replacement property for a 1031 exchange under the Internal Revenue Code Section 2004-86. A 1031 Exchange DST entity can be used to hold title to a wide variety of properties; however, a typical DST 1031 Exchange property is a triple net (NNN) leased retail or office property or a multifamily apartment building. A triple net leased property is a property in which the tenant is usually responsible for property taxes, maintenance costs, and insurance.

Much like a REIT (Real Estate Investment Trust), individuals who 1031 exchange into a DST may hold title to multiple properties at one time. In this way, each investor owns a “beneficial interest” in the trust which, in turn, owns the underlying property assets. This DST interest entitles the investor to his or her pro-rata share of income and appreciation in the DST’s assets while avoiding active management responsibilities. As outlined in the Internal Revenue Service code 1031, if real estate investors structure the sale of a piece of investment property as a DST 1031 Exchange, they are able to sell the property and use all of the profits to purchase new investment property. By using all proceeds to

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Two Gifts for the Price of One

purchase replacement property(ies) of at least equal value to the property sold, investors can defer 100% of the capital gains tax and other taxes that would otherwise be paid to the government. The key takeaway here is that a DST ownership not only qualifies as a “like-kind” asset for a 1031 exchange, it also offers the same benefit of a step-up in basis as a 1031 exchange while also providing some additional generational benefits that other ownership structures don’t. Chief among those advantages are the ability for the investor to sell their investment real estate and utilize 1031 exchange into DSTs to defer capital gains taxes, greater flexibility in being able to pass DST ownership to multiple heirs, ease of transferring title and no active management responsibilities for heirs to assume. The shared beneficial interest structure of DSTs allows an owner to easily divide shares up any way they like. For example, an investor owns 30 units in an apartment DST and 50 units in a DST portfolio of Dollar General, FedEx and Amazon net lease properties. The individual wants to leave the DST investments to his two grown children. He can choose to give the apartment DST to one child and the Dollar General, FedEx and Amazon DST to the other child, or he can divide up the shares within each DST to give some of each to both children. For investors who want to divide ownership more precisely by percentage of value, DST asset 12

1031 DST Digest

managers have the ability to create an estimation of value for the date of the demise. In comparison, carving up ownership for heirs in a wholly owned property can be difficult and even contentious. You can’t give the roof to one child or grandchild, and the walls to another and the doors to a third. It’s all or nothing. Some heirs may want to sell, while others don’t. If they all agree to sell, then they also have to agree on when to sell and at what price. In some cases, that process can drag on for years. During that time, the heirs also need to assume the management responsibilities for that property or pay someone else to do it. That process gets even more complicated the more heirs who are involved. DSTs are commonly used in 1031 Exchanges as a means to defer capital gains taxes. Yet the tax advantages of the fractional ownership structure also can be passed onto future generations to help build family wealth. The bottom line is that DSTs can be carved up and passed to heirs in any number of different ways as long as those wishes are outlined in the investor’s will and/or succession

plan. The transfer of ownership to family, as well as non-family members, is a simple administration function. For more information on how DSTs can be used in estate and tax planning strategies, it is always wise to consult with your tax and legal advisors. For a look at the types of DST properties investors are using for estate planning purposes please visit the Kay Properties marketplace at www.1031dstdigest. com. Also, Kay Properties encourages its clients who are investing in DST 1031s as part of their estate planning, to involve as many immediate family members especially direct heirs - in the process as possible. This includes describing the specific types of real estate assets and why these assets were selected, the importance of diversification, and the potential benefits and associated risks of investing in real estate. This direct involvement not only educates future heirs about the specific details surrounding the DST investment strategy, it also teaches them the importance of deferring capital gains taxes and how real estate can be the most powerful tool for building wealth. In short, investors are not only

Chapter 1: Why Do Investors Choose Delaware Statutory Trusts?

transferring wealth, they are also transferring knowledge and wisdom. This reveals another, more hidden but equally valuable benefit of DST 1031 Exchanges, namely creating opportunities to spend more time with family members and heirs. Creating More Leisure Time to Spend with Heirs In addition to the tax deferral and estate planning benefits of DST 1031 Exchanges, there is another powerful benefit investors discover upon investing in DSTs: they have more free time! Because DSTs remove the responsibility of active management responsibilities, and provide investors monthly income potential, investors are able to create more time for leisure. This gift of time is considered by many to be the most valuable asset available to humanity. More leisure time allows investors to get more involved with their heirs, or pursue new activities like traveling, learning new hobbies, improving their health, or even discovering love. Why Investors Choose DST 1031 Exchanges: ✔ Inventory: By working with a DST 1031 Exchange

expert advisory firm like Kay Properties, the investor is assured of multiple suitable real estate properties for 1031 Identification. ✔ Low minimum investment: DSTs typically have a minimum investment of $100,000 for 1031 exchangers and $50,000 for cash investors. ✔ Passive management: The DST structure takes management responsibility for the property(s) out of the hands of investors and places it into the hands of a trustee. The passive nature of the real estate investment structure allows investors more quality time to travel or to spend time with their heirs. ✔ Cash distribution potential: The rental income generated from the DST properties is distributed on a monthly basis directly to the investor’s bank account via ACH.

execute any loan guarantees or indemnities, given their purely passive relationship to the DST and its real estate. ✔ Liability protection: The DST “wrapper” shields the exchanger/ investor from any liabilities with respect to the property. ✔ Helps Preserve Wealth Across Multiple Generations: Because the DST 1031 Exchange defers all the taxes associated with the sale of real estate, this wealth can continue to grow over years. In addition, upon the death of the owner, heir of the estate receives a stepped-up basis eliminating the accumulated capital gains taxes. That’s why 1031 Exchanges, including Delaware Statutory Trusts, create a brilliant strategy to preserve intergenerational wealth.

✔ Potential diversification: Instead of having all your eggs in one basket, DSTs allow investors to diversify both geographically and across multiple asset classes. ✔ Non-recourse loans: DST investors are not required to

*Diversification does not guarantee profits or protect against losses. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC..

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Press Release

Kay Properties & Investments Announces a Successful Return for Investors in a Custom Orange Park, FL Multifamily DST Property That Goes Full Cycle* Kay Properties announces that another custom multifamily offering has gone full cycle after selling for $41.3 million and posting solid returns for Kay Properties clients*

Torrance, CA

ay Properties & Investments, a nationally recognized expert advisory firm in Delaware Statutory Trust 1031 investments and which operates the www.1031dstdigest. com marketplace for DST investments from over 25 DST sponsor companies, announced it had successfully brought one of its custom Kay Properties DST offerings full cycle on behalf of multiple 1031 exchange and cash investors. “Full Cycle” is the term used to describe a Delaware Statutory Trust property that is purchased and then sold on behalf of a group of accredited investors after a period of time. 14

1031 DST Digest

According to Dwight Kay, founder and CEO of Kay Properties & Investments, the property, the Alexander Pointe Apartments DST, sold for $41.3 million on behalf of a group of DST accredited investors who, for those investors that closed simultaneously on the DST investment the same day that the property was purchased, realized a 231.9 percent total return on their investments, or a 35.09 percent annualized return from their DST 1031 investment*. “We are proud to have provided another successful custom DST investment opportunity to our clients that resulted in a solid full-cycle return. While past performance does not guarantee or indicate the likelihood of future

results, this particular investment is a great example of how Kay Properties clients have access to Custom DST offerings working with Kay Properties. It was made available to Kay Properties clients on www.1031dstdigest. com as a Custom DST in 2017 and successfully went full cycle in September 2021. The positive return marks a significant victory for our investors and another successful outcome for the entire Kay Properties team during this recordbreaking year*,” said Kay. Kay explained that Kay Properties & Investments offered this custom DST to 1031 exchange and direct cash investors which comprised a 244,376 square-foot 234-unit apartment community in 2017 *Past performance is not a guarantee of future results.

1031 DST Digest

Alexander Pointe Apartments in Orange Park, Florida

for an investment cost of $20.4 million. The property included a large swimming pool, fitness center, clubhouse, business center, pet park, and provided tenants with large one - two - and three-bedroom units. Chay Lapin, president and DST specialist with Kay Properties & Investments, explained that the combination of great location with high barriers to entry and an attractive price point per unit made the Alexander Pointe Apartments DST a particularly attractive investment for Kay Properties. “We originally acquired Alexander Pointe Apartments five years ago because we saw there a great opportunity for a stable, value-add investment that had good core real *Past performance is not a guarantee of future results.

estate value. Like all of our Delaware Statutory Trust investments found on www.1031dstdigest.com, Alexander Pointe Apartments DST was carefully vetted by the Kay Properties team of due diligence and analytics experts before we made it available as a custom DST to our Kay Properties investment family. Our team concluded the property’s rents were below market, the units had been recently renovated, it was in a supply constrained submarket with great access to schools, shopping centers, and medical facilities, and presented a potentially viable upside DST investment option for our investors*,” said Lapin. Lapin explained that this full cycle investment is particularly

rewarding because it represents a significant win for Kay Properties & Investments investors, delivering a double-digit Internal Rate of Return (IRR)*. “We prepared a successful value-add investment strategy, and were able to deliver to our investors a tremendous IRR of over 25 percent. * While past performance is certainly no guarantee of future results, and any real estate investment comes with risks, we were pleased to successfully go full cycle and deliver upside results on behalf of our clients,” said Lapin.

Jason Salmon, Senior Vice President with Kay Properties & Investments, commented that this particular investment was an outstanding

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Full Cycle Multifamily

example of how an expert DST 1031 Exchange advisory firm can potentially bring real value to accredited investors*. “Alexander Pointe Apartments DST is a terrific example of a Delaware Statutory Trust real estate offering that was managed in accordance with the business plan. Our investors were more than satisfied with the results*,” said Salmon. Betty Friant, who also is a DST 1031 specialist and oversees the Kay Properties & Investments Washington, D.C. office, explained that the Alexander Pointe Apartments DST was a typical investment opportunity that accredited investors can find on Kay

Properties & Investments website*. “The power of the Kay Properties platform is really a valuable portal for accredited investors to investigate DST 1031 Exchange properties and all-cash/debt-free investments. Thousands of accredited investors, like those who benefited from the Alexander Pointe Apartments DST investment, have registered for an account and received valuable access to the marketplace of Delaware Statutory Trust offerings from over 25 different DST sponsor companies. In addition, they are also able to access custom Delaware Statutory Trust offerings that are only available to clients that work with Kay Properties. It really is a powerful platform, and this

latest full cycle investment is a great example of its usefulness to accredited investors,” Said Friant. Kay Properties & Investments posted another record breaking year of successfully completing DST 1031 investments after closing $610 million of equity placed on the Kay Properties online real estate investment marketplace in 2021, which represented a solid increase over the $408 million of equity invested in 2020.

*No representation is made that any DST investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred on future offerings. Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment. *Diversification does not guarantee profits or protect against losses. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

1031 DST Digest

Real Estate Investment Opportunity Investment Highlights ✔ 9.25% Annualized Distribution Potential* ✔ Monthly Payments via ACH* ✔ Minimum Investment $50,000

9.25% Annualized

Distribution Potential* with monthly payments via ACH*

✔ Projected Hold Period: 4 Years

LEARN MORE

✔ Available for IRAs and 401ks

www.1031dstdigest.com/fund

✔ Accredited investors only

866.805.2844

FOR INVESTORS SEEKING: ✔ MONTHLY INCOME POTENTIAL

✔ ALTERNATIVE TO INCREDIBLY ✔ ALTERNATIVE TO STOCK LOW RETURNS AT THE BANK MARKET VOLATILITY

*The Debentures will bear non-compounded interest at the annual rate of 9.25% per annum (365-day year basis) on the outstanding principal, payable monthly on between the twentieth and twenty fifth day of the following month. An investment in the Debentures will begin accruing interest upon acceptance and closing of the Investor’s Subscription Agreement.There is a risk Investors may not receive distributions, along with a risk of loss of principal invested.

This Offering is made only to Accredited Investors per Regulation D, Rule 506c. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods.There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

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Six Reasons To Sell The Income Property You Love…And How To Avoid Taxes When You Do DST 1031 Exchanges can simplify your life and help you defer taxes.

By Jason Salmon, Senior Vice President & Managing Director of Real Estate Analytics and the Kay Properties & Investments Team

any investors recoil at the thought of selling a piece of investment property. And they usually have a good reason, whether it’s missing out on future appreciation, having to pay a massive tax bill, or some other factor. Yet it can often make good sense to sell your property, thanks to a real estate investment alternative that simplifies your life and lets you defer the taxes via a 1031 exchange. Let’s take a look at six reasons you might want to consider selling and reinvesting in this alternative… Reason #1: You’re Sick And Tired Of Having To Actively Manage Your Real Estate. Let’s face it, managing your real estate is often a real hassle. You have to keep your eye on the ball 24 hours a day, seven days a week. And dealing with tenants, toilets and trash just gets old after a while. Sometimes even the sound of a ringing phone can fill you with dread. 18

1031 DST Digest

Sure, you can use a property management company to handle many of the details, but they come with their own set of hassles and can cost you a big chunk of your rental income. But imagine if you could continue investing in real estate while eliminating all those hassles and costs. The good news is you can. How? By investing in a carefully selected portfolio of income-producing investment real estate that you don’t have to manage or have someone else manage. Instead, you can just relax and enjoy your life while somebody else does all the worrying and deals with all the hassles. I’ll tell you more about the alternative that lets you do that in a moment, but first let’s look at… Reason #2: You Can Take Advantage Of Passive Real Estate Investing For Continued Income With No Management Responsibilities When you invest in real estate the way I’m going to show you, you’ll be

a true passive investor. You quite literally won’t have a single responsibility when it comes to managing your property, nor will you have to worry about any of the day-to-day hassles. They’re now somebody else’s problem. And that means you’ll have more time and more energy for your family, your friends and your hobbies. Better yet, you’ll feel better thanks to the reduced stress and you’ll be more fun to be around. Reason #3: You Can Realize The Value Of Your Real Estate Now Instead Of Later. Many investors I talk to like the idea of selling their investment property and realizing its value. However, they don’t want to pay the taxes, nor do they want to spend the time and effort needed to find a new piece of property to roll their money into. Those are two of the things that make DST investing in a portfolio of real estate so attractive. You don’t have to spend a lot of time searching for a new property — it’s all done

Chapter 1: Why Do Investors Choose Delaware Statutory Trusts?

Maybe you like the prospects for a certain type of real estate — but thought it was out of reach because of the size of the required investment. But now, with DST ownership, you can get a piece of just about any type of real estate investment you like, no matter how big.

for you. Better yet, by reinvesting your money with a tax-deferred 1031 exchange, you can move on with your life. Reason #4: You Can Quickly And Easily Become More Diversified* Imagine if you could easily spread your real estate investments into different types and sizes of property in variety of geographical areas. You’d have instant diversification which many investors value, especially in these uncertain times. That’s the nice thing about DST real estate investments. They're standalone real estate investments in a variety of places. And we’ll help you choose the properties that works best for you. Reason #5: You Get The Opportunity To Invest In Larger Real Estate Deals One of the nicest things about DST ownership of real estate is that you can, if you wish, get pieces of larger real estate deals than you do now.

Reason #6: You Can Use A 1031 Exchange To Defer The Taxes When You Sell Your Property Occasionally, the tax code actually makes sense. And one of those occasions is with 1031 exchanges, which allows you to sell a property at a hefty profit and defer the taxes when you move your money into a “like-kind” property. Most investors consider “like-kind” to be an imposing limitation, but the fact is, the rules are less rigid than you might think. For example, moving from an apartment building into a piece of raw land might not seem a “like-kind” exchange, but the rules allow it. However, there are time limitations that must be followed to the letter. For example, you have to identify a replacement property within 45 days of the day you sell your property. And you have to close on a new real estate investment within 180 days of selling your property.

IRS’s rules, and that your transaction is completed on time. Find the properties that fit your investment objectives Kay Properties & Investments specializes in 1031 exchanges. And we’ll work with you to find the property or properties that fit your objectives as an investor. We also offer you the opportunity to make DST investments in these properties. This real estate allows you to invest passively without any of the responsibilities of active management. It also lets you diversify your real estate portfolio far beyond what you’re doing now. And you can defer the taxes on any properties you sell. Please contact Kay Properties to get a better understanding of how you can utilize the 1031 exchange to get all these benefits and more. For more information on how 1031 exchanges work and your available investment options, please visit www.1031dstdigest.com. When you register, you’ll receive a free book on 1031 exchanges and DST properties. You’ll also find valuable information as you decide what the right strategy is for your specific 1031 exchange.

It generally makes sense to work with a specialist in 1031 exchanges to make sure you stay within the

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Press Release

Custom Kay Properties DST Offering in Tampa Bay, FL Goes Full Cycle on Behalf of Investors Custom DST delivers a 131.42% total return for investors*

Torrance, CA

ay Properties and Investments today announced that one of their custom 1031 exchange Delaware Statutory Trust – DST offerings has gone full cycle and was sold on behalf of investors. The offering was a multi-tenant office property located in the Tampa, FL area and was made available exclusively to Kay Properties clients in 2017. The offering generated a total return of 131.42% for the 1031 exchange and direct cash investors*. This DST offering was a custom 1031 DST offering made available only to Kay Properties clients who were accredited investors under Regulation D Rule 506(c). Dwight Kay, CEO and Founder of Kay Properties commented, “We are extremely pleased with 20

1031 DST Digest

the opportunity to provide these returns for our investors in light of the COVID-19 pandemic and the headwinds facing multi-tenant office properties. The investment was opportunistic in nature as we were able to generate a risk-adjusted return for our investors without utilizing leverage. The offering was a debt free DST and we are proud to say that the returns have proven on this offering to be superior to many leveraged DSTs that were available during the same time period*. Many of the 1031 investors involved in this DST offering decided to complete another 1031 exchange investment with Kay Properties via the www.1031dstdigest.com marketplace for 1031 exchange offerings and we are thankful for the opportunity to be of service to them and their families.”

Chay Lapin, Senior Vice President of Kay Properties commented, “Our property located in the Tampa, Florida MSA allowed our investors to be in a debt free position to mitigate risk and have potential for upside at the same time. We are very pleased to provide our investors a positive total return on their investment, especially during a global pandemic. During the beginning of the global crisis and economic issues the investors were able to sleep at night knowing at the end of the day they were debt-free and should the various world events affect their property there was no risk of lender foreclosure.” Jason Salmon, Senior Vice President and Managing Director of Real Estate Analytics added, “I’m pleased that our investors were able to participate in a real estate deal that *Past performance is not a guarantee of future results.

1031 DST Digest

resulted in a profitable sale with monthly income along the way. Most of our clients in this DST investment offering had invested in multiple DSTs with multiple DST sponsor companies as part of a diversified* strategy, and similarly in this case, the clients opted to 1031 exchange their sale proceeds into additional DST real estate.” Betty Friant, Senior Vice President of Kay Properties concluded, “This lends even more credence to our

recommendation that if investors are debt free when they sell a property in a 1031 Exchange, they should try to remain debt free. It takes a big layer of risk out of the equation when investing in real estate as it’s extremely hard to lose a property to foreclosure if there is no bank involved! In addition to DST 1031 properties that have leverage associated with them, Kay Properties also has a number of debt free DST properties

available in asset classes such as multifamily, industrial distribution centers, medical office, and retail/ pharmacy. Investors can see our current offerings by creating a free account at www.1031dstdigest.com our online marketplace for 1031 exchange offerings or by calling 866.805.2844.”

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Real Estate DSTs: A Haven in a 1031 Tax-Change Storm? In the face of the tax policy uncertainty, the question is how to think about current real estate investments and future investment plans.

By Chay Lapin, President of Kay Properties & Investments, LLC

ashington-watchers, including many of us in the real estate industry, are waiting to see if and how federal policymakers change the tax treatment of capital gains and 1031 like-kind exchanges this year.

the Biden Administration’s proposed budget for the coming fiscal year would significantly curtail them by limiting the amount of capital gains from investment property sales that could be deferred to $500,000 per year for individuals and $1 million per year for married couples.

The capital gains tax rate affects the flow of capital into every investment class, including but not just real estate. Operating companies and operators of hard assets including real estate count on capital and liquidity to be productive. I’m hopeful the current capital gains tax rate will be maintained versus raised as has been proposed.

1031 exchanges allow property investors to defer capital gains and other tax on investment gains when they reinvest the proceeds into other like-kind properties, which means they must be held for investment or business purposes (meaning you cannot 1031-exchange into a home that you will utilize as your primary residence). Today there is no limit on the amount of capital gains from the sale of investment real estate that can be deferred using 1031 exchanges.

Meantime, while no one is suggesting that 1031 exchanges of investment property be eliminated, 22

1031 DST Digest

Should You Sell Investment Property Now? In the face of the tax policy uncertainty, the question is how to think about current real estate investments and future investment plans. First and foremost, the times call for calm. The fact is, real estate has been an attractive alternative investment class and it may continue to be - there are virtually always appealing investment opportunities, be they short or long term. Second, with regard to any change in the capital gains tax rate, it would likely affect all asset classes - not just real estate - so any impact likely would be proportionate, or relatively so. If you’re holding investment property, should you sell? That’s a

1031 DST Digest

question on the minds of many now. It depends. If you think you’ve realized the full upside potential of the investment and you need the proceeds, it may make sense for you to sell, depending on your personal financial goals and your liquidity. In contrast, if you’re waiting on an important milestone in your investment’s life, such as some significant improvements to be made, rent increases to be fully realized, or the signing of a major tenant, it may make sense to hold the investment longer. Everyone’s situation is different … there is no single right answer. You’ll have to weigh the fundamentals, including the potential for further appreciation and cash flow from the real estate, versus any immediate change in the tax consequences. Consult your tax and legal advisor, to be sure.

How To Invest In Real Estate Given Possible Limits On 1031 Exchanges The flipside question of “Do I sell now?” is “How to invest in real estate?” in the current environment. If the use of 1031 exchanges becomes limited, one real estate ownership structure likely to be even more attractive is the Delaware Statutory Trust (DST). DSTs are a form of fractional ownership that can be a great way to make passive investments in real estate and achieve diversification across multiple assets. DSTs also happen to be 1031-exchange eligible. In other words, you can sell another investment property and reinvest the proceeds into one or more DSTs in order to defer capital gains tax on

the prior gain, and you can sell DST investments and exchange into other investment properties, with capital gains tax deferred, in the future. DST interests can be divided to be relatively modest investment amounts, so corresponding future gains, if there are gains, would likely be below any thresholds that may be set to qualify for 1031 treatment under the tax code. Similarly, each individual property held in a DST may be sold at different points in time over a number of years, so if an investor diversifies their exchange dollars into small enough allocations, gains in any one year would potentially not exceed whatever limit may be imposed in order to qualify for 1031 treatment. Many individuals, married couples and family offices invest in real estate DSTs already. Others are looking at the investment type now for the first time as a potential haven

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Article Title

in a tax-policy storm. Here’s an example of how a DST investment could work as part of a 1031 taxdeferral strategy right now: Lisa has a $5,000,000 apartment property that she decides to sell in 2021. There is a $2,000,000 gain on the sale. She invests the $5,000,000 in 10 different DST investments in $500,000 increments, thus deferring capital gains tax on the original gain. The investments also set her up to potentially defer taxes on future gains, since gains from DSTs are 1031-exchange eligible. In making the new DST investments, she diversifies her portfolio across different property

types and geographies. She also inquires about the holding periods for each of the investments, determining there’s a reasonable likelihood they will be liquidated, with potential gains realized, in different tax years. So she will be in the potential position - in the future - of remaining below any new federal tax cap on the amount of gain that can be deferred in any one year through 1031 exchanges.

applies to the timing of investment property sales, and decisions about how to invest proceeds or cash in commercial and multifamily real estate going forward. Personally, I’m no less excited about real estate investing today than I was last year, and just as excited as I expect to be next year. The appeal of real estate as an investment class is likely to remain. The challenge, as always, is to make the most of opportunities.

There’s no such thing as a crystal ball, so no way to know what Congress will or won’t do this year on tax policy. It’s left to us, including investment property owners and investors, to stay calm and make the best decisions today given what we know now. That

1031 DST Digest

Chapter 1: Why Do Investors Choose Delaware Statutory Trusts?

As the Pandemic Recedes, Where Will the Real Estate Investment Opportunities Be? Some sectors of real estate are emerging from the pandemic in much better shape than others. Investors thinking about real estate need to know where to look. By Dwight Kay, Founder & CEO of Kay Properties & Investments

As Seen In:

he COVID-19 pandemic has been kinder to some real estate asset classes than others. Proactive investors can take advantage of opportunities with the potential to build wealth and generate income from investment real estate, particularly taxadvantaged investments. Not all investment real estate asset classes are created equal. Some pose much more inherent risk than others. These include hotels, oil- and gas-related properties, and senior care facilities. These three property types carry much greater risk for different reasons, with the pandemic offering the most recent proof of

their volatility. Best they be avoided as a general matter unless investors are extremely comfortable with the potential loss of their principal invested. The pandemic has been kinder to some real estate asset classes than others: Industrial properties, particularly those that are occupied by logistics and shipping companies or serve as distribution hubs themselves, have performed especially well as the long-term trend toward e-commerce accelerated. (Many people who previously had resisted home delivery of goods and services embraced the concept during the

pandemic.) Increased demand for delivery is expected to have positive implications for industrial real estate for years to come. Multifamily properties also have performed relatively well during the pandemic - notwithstanding eviction moratoriums - thanks to help for tenants in the form of direct aid and rental payment assistance, as well as forbearance from landlords. As the federal eviction moratorium winds down, multifamily assets may get a new boost as some units turn over. Office and retail properties have been a mixed bag during the pandemic, with suburban office

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1031 DST Digest

Chapter 1: Why Do Investors Choose Delaware Statutory Trusts?

prices rising in 2021 over 2020, while downtown office property prices declined year over year, according to second-quarter sales price data from Real Capital Analytics. Meanwhile, retail property prices as a class have stabilized in 2021, with some sectors (such as net-leased assets) outperforming the retail market as a whole.

Options for Investing in Income Properties There are multiple ways to invest in income properties as the pandemic recedes. You can buy the stock of real estate investment trusts (REITs), purchase assets outright yourself and manage them daily, or invest in Delaware Statutory Trusts (DSTs) as a direct investment or turnkey 1031 exchange solution. All have their potential advantages and drawbacks. With public REITs you get a high level of liquidity but little diversity from the broader stock market, as REITs tend to rise and fall with equity markets. You also have to pay capital gains tax on any REIT share gains, which can create tax liabilities of 40% or more. Sole, direct ownership of investment real estate is another way to tap the market’s potential to generate income and appreciation. But while

many people are initially enamored of being a landlord, the real-world headaches of tenants, toilets and trash are enough to dampen the enthusiasm of even the most exuberant investors. Plus having all your eggs in one basket provides no diversification. With Delaware Statutory Trusts, investors in many ways have the potential to experience the best of both worlds: Direct real estate ownership of diverse assets without the hassles and stresses of being a landlord. DSTs can hold title to all manner of investment real estate, with investors passively participating. There is the potential to generate income (positive cash flow) and appreciation — just like with sole, direct ownership. There also are other tax advantages of real estate investment, including depreciation deductions to help shelter income. And DSTs are 1031-exchange eligible, unlike many other real estate co-investment structures, which means that any capital gains on the sale of assets can be deferred if the proceeds are reinvested into other income properties … which may help investors build wealth. DSTs have relatively low minimum investment amounts — typically $100,000. Many investors own

shares of multiple DSTs as a diversification strategy. Some DSTs are structured as all-cash Delaware Statutory Trusts whereby there is no risk of a lender foreclosure, and others are structured with nonrecourse long-term fixedrate financing for those investors seeking a leveraged DST offering. To learn more about DSTs, visit www.1031dstdigest.com.

Where Is the Real Estate Market Headed? What lasting impacts will the pandemic have on the investment real estate market? My crystal ball is in the shop (Please forgive me!) and some of the impacts remain to be seen, including on the downtown office sector. But, regardless, real estate is likely to remain an attractive asset class for many investors interested in diversification and the pursuit of income and appreciation. (As always, diversification does not guarantee profits or protect against losses, and income and appreciation are never guaranteed with any investments.) The key is to identify attractive opportunities, fully vet them, and consider the tax implications of the various real estate investment structures, which have implications for returns.

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Press Release

Kay Properties is Pleased to Announce Another Successful Return for Investors in a Custom, Debt-Free DST That Goes Full Cycle Kay Properties announced another DST offering exclusively through Kay has gone full cycle to post solid returns for investors as the Delaware Statutory Trust offering in Tacoma, WA has sold for $9.9 million

Torrance, CA

ay Properties, the nation’s leading Delaware Statutory Trust 1031 advisory specialist firm, had successfully brought one of its custom debtfree DST investments full cycle on behalf of a group of accredited investors. “Full Cycle” is the term used to describe a Delaware Statutory Trust property that is purchased and then sold on behalf of a group of accredited investors after a period of time. According to Dwight Kay, Founder & CEO of Kay Properties, the property, Tacoma Data Center DST, sold for $9.9 million on behalf of a group of DST accredited inves28

1031 DST Digest

tors who, for those investors that closed simultaneously on the DST investment the same day that the property was purchased, realized a 117.5 percent total return on their investments. “We are proud to have provided another successful DST investment opportunity to our clients that resulted in a full-cycle return. While past performance does not guarantee or indicate the likelihood of future results, this particular investment is a great example of how Kay Properties does everything it can to find investments that have a lower risk profile and are resilient to pandemics and recessions,” said Kay.

As a result, investors were provided uninterrupted monthly distributions throughout the hold period and throughout the COVID-19 pandemic. “This is noteworthy because many DST offerings by other firms were not able to provide investors distributions during the pandemic. In this case, investor distributions were uninterrupted as the investment performed exactly as projected in the Private Placement Memorandum (PPM). We were able to provide our investors with a full cycle liquidity event and profitable sale all while maintaining the lowrisk profile of an all-cash/debt-free investment,” said Kay. *Past performance is not a guarantee of future results.

Chapter 1: Why Do Investors Choose Delaware Statutory Trusts?

According to Chay Lapin, President of Kay Properties, the Debt Free Tacoma Data Center DST was acquired in 2019 for a total investment cost of $8.3 million via direct cash investors. “When we acquired the Tacoma Data Center DST in 2019, it was 100 percent leased to a Fortune 500 company. It was a mission critical data center facility that housed data center operations for the company’s entire West Coast operations. The

three-story, 22,000 -square-foot building sat on 7,320 square-feet of land and was located in the Greater Seattle-Tacoma region, a steadily growing data center market and tax-free state. It is a terrific example of a DST real estate offering that was managed in accordance with our carefully structured business plan. Our investors are very satisfied with the results*.

of the original investors reinvested into other debt-free DST investments offered through Kay. In recent years, DSTs have become a popular choice for exchangers looking to reinvest sales proceeds into net-leased properties that can potentially provide a steady stream of income without property management responsibilities.

Following the successful sale of the Tacoma Data Center DST, many

*Past performance is not a guarantee of future results. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

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Article Title

Example Offering

Houston Multifamily DST Investment Opportunity for 1031 Exchange and Direct Investors

Investment Highlights: ✔ Class A new construction (2020) multifamily ✔ Located in Montrose, considered to be Houston’s most walkable neighborhood ✔ 100% occupied as of January 2022 ✔ Income tax-free state of Texas ✔ Available for 1031 exchange and direct cash investments ✔ Flow-through of tax shelters for investors ✔ Interior Amenities include quartz countertops, full-size washer and dryer units, stainless steel appliances, stainless steel hardware, 8-foot doors, 42-inch soaking tubs, frameless showers, smart entry, and thermostat, high-end interior finishes

✔ Community amenities include pet-friendly, dog run, secured access control, garage parking, elevator ✔ Located 3.5 miles from University of St. Thomas, Rice University, Sam Houston State University, and many other schools ✔ Largest employers include Chevron, Shell, NASA, ExxonMobil, H-E-B, Houston Methodist, and more ✔ 3 Miles from The Toyota Center, George R. Brown Convention Center, Houston City Hall, Moonstruck Drive-In, Minute Maid Park, The Museum of Fine Arts, Houston Museum of Natural Science, and Children’s Museum of Houston

This offering is an example of a Regulation D, Rule 506(c) Delaware Statutory Trust offering. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

1031 DST Digest

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Chapter | 2

1031 DST Digest

The Basics

“What I like about Dwight is that he knows how to explain hard-to-understand financial concepts. He seems to like to teach his clients and uses excellent analogies to do this very effectively. I would recommend Dwight because in addition to removing the veil of complexity associated with 1031s, he is friendly, professional and prompt.” Sabina T. - West Hartford, CT These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment.

www.1031dstdigest.com | 866.805.2844

What is a DST 1031 Exchange? Discover the often overlooked benefits of the Delaware Statutory Trust and 1031 Exchange laws, and how you can take advantage of them for your real estate investing strategies.

By Matt McFarland, Vice President, & Thomas Wall, Associate, Kay Properties & Investments

he Kay Properties team recently participated in an investment property industry trade show, and were pleased to see so many people stopping by our booth asking about Delaware Statutory Trust 1031 exchanges. However, because we found ourselves answering the same questions again and again from some very experienced investment property owners, we thought it might be a good idea to write about the three most commonly asked questions we heard that relate to DST 1031 Exchanges, including: 1. What Is A Delaware Statutory Trust And What Are The Associated Risks? 34

1031 DST Digest

2. What can a Delaware Statutory Trust do for me? 3. Do I have to have a Delaware address to invest in a Delaware Statutory Trust? First, of course you don’t have to live in Delaware to invest in a “Delaware Statutory Trust.” Delaware was the state where the law defining a DST and its structure was created, and what’s so special about this real estate investment vehicle is that it’s blessed by the IRS to qualify as “like-kind” investment property for the purposes of a 1031 exchange. Internal Revenue Code (IRC) Section 1031 allows investors to postpone paying tax on the gain

of a relinquished property by reinvesting the proceeds in similar property as part of a qualifying likekind exchange.

What is a Delaware Statutory Trust? A Delaware Statutory Trust is a real estate ownership structure that allows multiple investors to each hold an undivided beneficial interest in the holdings of the trust. The term “beneficial interest” means that investors hold a percentage of the ownership, and no single owner can claim exclusive ownership over any specific aspect of the real estate. The laws of DSTs allow the trust to hold title to one or more investment properties that can

1031 DST Digest

include commercial, multifamily, net lease, retail, office, industrial, self-storage, etc.

Potential Benefits of a Delaware Statutory Trust 1. Eliminating the day-today headaches of property management

Many participant investors in DST 1031 properties are at or near retirement and are tired of the hassles that real estate ownership and management often bring. They are tired of the proverbial “3 T’s” of multifamily residential real estate: tenants, toilets, and trash, and just want to move away from actively managing properties. The DST 1031 property provides a 100 percent passive ownership structure, allowing investors to enjoy retirement, grandkids, travel, and leisure, as well as to focus on other things they are more passionate about instead of property management headaches. Obviously, as with all forms of real estate investments, there is an underlying level of risk that investors should be aware of including things like economic downturns, vacancies, tenant repairs, etc. 2. Tax deferral using the 1031 exchange

Many of our clients have wanted to sell their apartments, rentals, and commercial properties for years but haven’t been able to find a property to exchange into and just can’t stomach the tax bill after adding up

federal capital gains tax, state capital gains tax, depreciation recapture tax and the Medicare surtax. The DST 1031 property solution can potentially provide investors an ability to move from an active to a passive role of real estate ownership on a tax-deferred basis while still potentially receiving passive income. Also, because a 1031 exchange has very tight timelines (45 days to identify exchange property and 180 days to complete the exchange), DST investors can close quickly and complete their exchanges within 3 to five days as opposed to having to wait 30, 60, 90 days to purchase another outside property. Investors are strongly encouraged to consult their CPA and tax attorney regarding the potential tax advantages as well as risks associated with any DST 1031 Exchange properties. Furthermore, investors are encouraged to read the entire Private Placement Memorandum (PPM) for a full discussion of the risks and business plan of each offering. 3. Increased cash flow potential

Many investors of real estate may be unhappy with the amount of cash flow they are receiving due to recent eviction moratoriums, under-market rent structure, multiple vacancies and/or that the raw or vacant land is sitting idle and unproductive. DST 1031 Exchange properties provide an opportunity for investors to potentially increase their cash flow on their real estate holdings via a tax deferred 1031

exchange. This potential passive cash flow can come about from regular monthly payments from their DST 1031 investments. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. 4. Portfolio diversification* by geography and property types

Often, 1031 investors are selling a property that comprises a substantial amount of their net worth. They want to reduce their potential risk and instead of buying one property (such as another apartment building) or a singleNNN building (such as a Walgreens or Taco Bell) they decide that investing into a diversified portfolio of DST 1031 properties with multiple locations, asset classes (property types) and tenants is a better fit for their goals and objectives. Still, investors should also understand that diversification does not guarantee profits or protect against losses.

What Properties Can Be Used In a 1031 Exchange? If you are interested in selling your investment real estate, the phrase “1031 exchange” has certainly come up once or twice in your research, as an outright sale (“cashing out”) can trigger large tax consequences. The capital gains, medicare surcharge, and depreciation recapture taxes can create a serious dent in the return you expected to earn from the sale

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What is a DST 1031 Exchange?

be part of your real estate. A 1031 exchange is a process by which an investor can defer the taxes they would pay upon sale of their investment property. It is important to understand how the 1031 exchange can be utilized. A 1031 exchange may be performed if the property sold and the following property or properties purchased are both considered investment property. Investment properties are those that are used for business or investment purposes. Raw land, land with mineral rights, multifamily, and commercial real estate can all qualify as “likekind” for the purposes of a 1031 exchange. Any property that falls outside that definition would not qualify. A primary residence or any property in which one stays more than two weeks in a year is NOT considered an investment property. Again, an investment property must be exchanged for another investment property. Properties can only be exchanged if they are used for investment purposes like residential rentals, multifamily, condominiums for rent, commercial, industrial, retail etc. Furthermore, there are many 1031 exchange alternatives one may consider. A Delaware Statutory

Trust (DST) is a great example. With DST real estate, an investor is able to exchange into properties and own a “beneficial interest” in the real estate. Instead of investing the entirety of the proceeds into another property, one for one, an individual is able to invest in multiple pieces of property as a fractional and passive owner. Under the DST structure, fractional real estate ownership is still considered eligible for 1031 exchange. This is a helpful way to potentially diversify into a portfolio of properties, thereby buffering the risk of having “all your eggs in one basket” by buying a single property. Utilizing the DST structure, one can own a beneficial interest of multiple properties with the opportunity for several geographic locations as well as with various asset managers running each real estate investment as part of a diversified 1031 solution into DSTs. These are illustrative examples of 1031 DST offerings. Future available 1031 DST offerings and tenants may be different. Diversification does not guarantee profits or protect against losses.

following are examples of properties that do not qualify for tax-deferred exchange treatment: ✔ Stock in trade or other property held primarily for sale (i.e. property held by a developer, “flipper” or other dealer) ✔ Securities or other evidences of indebtedness or interest ✔ Stocks, bonds, or notes ✔ Certificates of trust or beneficial interests ✔ Interests in a partnership ✔ Choses in action (rights to receive money or other property by judicial proceeding) ✔ Foreign real property for U.S. real property ✔ Goodwill of one business for goodwill of another business

Finally, the IRS clearly specifies that some real property held primarily for sale does not qualify for tax deferral under section 1031.The

1031 DST Digest

Steps to DST 1031 Exchange Owner (Exchanger) decides to sell Investment Property & notifies a Qualified Intermediary (aka QI or Accommodator) of exchange prior to the close of the sale.

Proceeds from sale are transferred to Qualified Intermediary.

Exchanger Identifies Replacement Property (ies) within 45 days of sale and notifies Ql.

Funds are transferred to seller of Replacement Property (ies). Exchanger has 180 days to close of new Property(ies).

SALE DATE DAY 0 45-day period to identify replacement property(ies).

MUST IDENTIFY BY DAY 45

MUST CLOSE BY DAY 180

Exchanger must close on replacement investment property(ies) within 180 days of the closing date of the property that was sold.

This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. www.1031dstdigest.com | 866.805.2844

Why You Should Consider Deferring Your Capital Gains Taxes

By Jason Salmon, Senior Vice President & Managing Director of Real Estate Analytics

The Basics If you own investment real estate that means a rental condo or home, apartment building, a commercial building, raw or vacant land or otherwise - you do not have to pay taxes when you sell the property. Uncle Sam has had section 1031 of the Internal Revenue Code in place since 1921. Also known as a 1031 exchange, this provision allows a seller of property held for investment or business purposes to “replace” their “relinquished” property in a “like-kind” exchange. Implications of paying taxes: In certain cases, taxes on highly appreciated real estate in high-tax states can pack a pretty mean punch; potentially around 50%. This is comprised of taxes for long-term capital gains (up to 20%), depre38

1031 DST Digest

ciation recapture tax (25%), the net investment income tax (NIIT) that was embedded in the Affordable Care Act (3.8%), and state tax (from 0-13.3% depending on the state you live in). By the numbers: As an example, if you owned an investment property valued at $1 million that was yielding an annual return of 5%, and when you sold the property and paid the taxes (let’s say 50% for illustrative purposes), you would have been left with only $500,000. You would have to go considerably higher up the risk spectrum to receive a 10% return in order to receive the same $50,000 of projected income for the year. Many would say, that from a financial standpoint, it is wise to exchange your property, defer your taxes and

keep your full $1 million working for you.

Death & Taxes In a 1031 exchange, the real estate basis is being carried forward. It will continue to do so with all subsequent exchanges. When a property owner passes away, their beneficiaries receive a stepped-up basis. This can prove to be quite advantageous when considering estate planning as the capital gains taxes are eliminated. –Message to the reader– I realize that some of the terms and content in the first part of this article may seem technical. Notwithstanding, if you own investment real estate, this is important.

Chapter 2: The Basics

Your CPA and attorney will be familiar with the jargon and with the subject matter. If they are not, find another CPA and/or attorney.

Maximizing Value Many private real estate investors have a buy and hold approach; and this conventional wisdom is a sound strategy. If we look to the institutional real estate investment model (that followed by university endowments, pension funds, foreign governments and real estate investment trusts), the exit is a vital part of how a deal is underwritten. It is tremendously important to seek to sell an asset when opportunity presents itself. Having the ability to monetize your asset and get a potential premium in the marketplace makes sense, especially when a tool as valuable as the 1031 exchange can play a part in taking real estate investing to the next level. Options: There are several directions to go for real estate investors in a 1031 exchange. One way is to find an asset with active management responsibilities - that means tenants, toilets and trash. If an investor wants a handson property with day-to-day landlord responsibilities, this would be the appropriate way to go. Another is a passive real estate investment - a net-leased asset, specifically NNN (triple-net) real estate passes through taxes, insurance and property maintenance expenses to the tenant that occupies the property. These types of investments can

be attractive, but the investor must be sophisticated and understand the space (i.e., lease negotiations for renewals, how inflation affects value, financing implications, etc.). There are also truly passive real estate investments that allow those in 1031 exchanges (as well as those wishing to make a direct cash investment) to own a fractional interest in a large institutional asset or portfolio of assets. Utilizing this strategy allows an investor to diversify* across multiple asset classes, geographies and asset managers. The structure that is often used for this model is a Delaware Statutory Trust or DST.

In Summary The 1031 exchange is a fantastic tool that many real estate investors have employed for years. It is used for $100,000 transactions; it is used for $100,000,000 transactions - and everything in between. The process can be quite straightforward with the guidance of a professional that has expertise in the space. This topic will be expanded upon in future articles with the hope that you will gain insight on how to make the most of your real estate investments.

www.1031dstdigest.com | 866.805.2844

4 Reasons DSTs Are GROWING In Popularity Deferral of Capital Gains Tax: This is the primary reason why real estate investors use 1031 exchanges. After selling a real estate property, investing in a like-kind property allows the owner to defer capital gains tax. One DST benefit that has caught the industry’s attention is its prepackaged structure. This allows investors to close DST business deals in potentially as little as 3-5 business days. This time frame easily fits within the mandatory 45-day identification deadline and 180-day closing deadline.

Potentially Increased Cash Flow When conducting a 1031 exchange, property owners calculate the cash-on-cash return they receive from their current property. In many cases, today’s investment property values have outpaced rental increases, potentially resulting in trapped equity that can be unlocked and redeployed in other alternative investments. These potential benefits are gaining notice from the real estate community and driving up its demand.

Increased Diversification Real estate owners often have a large amount of equity in a single property. However, many investors have become increasingly wary of placing all of their capital in one property. This is the real estate equivalent of placing all of one’s retirement savings in a single stock. DST properties provide investors the option to acquire several portions of many different properties. Diversifying a real estate portfolio by selecting properties in various businesses and locations reduces, but does not eliminate, the risk of investment loss.

Passive ownership Investing in a DST allows you to transfer everyday management tasks to the property’s tenant. This allows DST owners to redirect this time towards family and other passions, while still potentially reaping the benefits of the investment.

Past performance does not guarantee future results and DST investments may result in a complete loss of investor principal. This is an example of the experience of one of our clients and may not be representative of the experience of other clients. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment *Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, potential returns and potential appreciation are not guaranteed. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. Securities offered through FNEX Capital, member FINRA, SIPC.

1031 DST Digest

8% Preferred Return* Debt-Free

MULTIFAMILY INCOME FUND 28, LLC

Offering*

The Multifamily Income Fund 28, LLC is focused on acquiring and actively managing a diversified portfolio of debt-free multifamily assets across multiple U.S. markets that have value-add potential through physical renovations and/or operational improvements.

INVESTMENT HIGHLIGHTS: ✔ All-Cash/Debt-Free ✔ 8% Preferred Return* ✔ Targeted Monthly Distributions ✔ Offering Size: $100,000,000 ✔ Minimum Investment: $100,000 ✔ Accredited Investors Only - Regulation D, Rule 506c

PRIMARY GOALS AND OBJECTIVES: ✔

Preservation of capital

✔

Tax advantages flow through to investors to provide shelter to potential income stream.

✔

Capital appreciation

✔

Current monthly distributions

✔

8% preferred return*

✔

Assemble a portfolio of primarily AllCash/Debt-Free Multifamily real estate

✔

Accredited Investors Only - Regulation D Rule 506c offering

✔

Diversification

For more details or to request a copy of the Private Placement Memorandum Please visit www.1031dstdigest.com/multifamily call 866.805.2844 or email info@kpi1031.com *Diversification does not guarantee profits or protect against losses. *Preferred return is not guaranteed and is subject to available cash flow. This offering is available to Accredited investors only and made available under Regulation D Rule 506c. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the PPM). Please read the entire PPM paying special attention to the risk section prior investing. This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties, LLC, FNEX Capital, and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. This material is not intended as tax or legal advice. There are material risks associated with investing in real estate, Limited Liability Company owned (LLC) properties, LLC interests, promissory notes, and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and net leased properties, short term leases associated with net leased properties after the primary lease term has decreased, financing risks, potential adverse tax consequences, general economic risks including the effects of pandemics and civil unrest, development risks and long hold periods. Diversification does not guarantee profits or protect against losses. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns, potential tax benefits and potential appreciation are not guaranteed. Preferred return is not guaranteed and is subject to available cash flow. Please view the PPM for further details. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances Securities offered through FNEX Capital, member FINRA, SIPC.

www.1031dstdigest.com | 866.805.2844

How To Create a Diversified DST Portfolio The idea of diversification is to create a real estate portfolio that includes multiple types of assets and geographic regions. Learn how DST 1031 properties can potentially create a diversified portfolio.

By Jason Salmon, Senior Vice President & Managing Director of Real Estate Analytics

iversification* is one of the basic building blocks to any investment portfolio strategy. It’s the simple concept of not wanting to put all of your eggs in one basket. Diversification across asset types helps to avoid concentration risk – and potentially a basket full of broken eggs. Diversification also has the potential to create other positives, such as achieving a potentially higher overall blended return for a portfolio and smoothing out the natural cyclical ups and down that can occur within sectors.

$1 million to invest in a 1031 Exchange, it can be difficult to find even one property to buy at that price, let alone multiple properties. In comparison, the fractional ownership structure of DSTs gives investors a variety of choices to diversify that $1 million into multiple investment properties. Because DSTs are a passive investment structure with no day-to-day management responsibilities, an individual can easily build a diverse portfolio that contains multiple DSTs without adding any additional work or time commitment.

choose assets with vastly different characteristics. For example, that investor could invest in a Walgreen’s, a FedEx distribution center, a portfolio of Tractor Supply stores or a portfolio of Amazon distribution facilities. The fractional ownership structure allows the investor to stretch his/her dollars across multiple assets. In addition, DSTs offer an efficient closing process that makes it easy to execute their 1031 Exchange, even across multiple investments, all within the allowed time period and often much sooner as DSTs can typically be closed within 3-5 days.

Real estate is an alternative asset that is often used to diversify investment portfolios. Investors also can create diversification within those real estate allocations to achieve some of the same positive results. DSTs are ideally suited to build portfolio diversification. For example, if an investor has

Regardless of whether an investor has $200,000 or $25 million to invest in DSTs, it is very easy to build a diverse DST portfolio. An investor with $200,000 could split that investment into four DSTs at $50,000 each. Even for an investor who only wants to invest in NNN properties, he or she can still

The majority of individuals who are investing in DSTs are buying multiple DSTs. That being said, everyone is unique in how they choose to diversify investment holdings, and there are many different ways to achieve diversification and a balanced potential income stream. Some

1031 DST Digest

Chapter 2: The Basics

examples include: ✔ Property type: Kay Properties offers investors a variety of property types on the www.1031dstdigest.com marketplace with options that include apartments, multifamily, industrial, manufactured housing, selfstorage and NNN assets. ✔ Geographic: DST properties are available across the country in different regions and markets, including primary, secondary and tertiary cities. ✔ Resilient or “recessionary resistant” types of uses.

Think industrial e-commerce distribution facilities or essential dialysis treatment centers. ✔ Single asset versus portfolio deals: Portfolio deals are not necessarily better or worse than a single asset DST, but a portfolio DST does offer an additional layer of diversification. ✔ Credit quality of the tenant(s), including investment grade and non-rated tenants. There is no one single solution or strategy for creating a balanced DST portfolio and avoiding some of the pitfalls associated with

concentration risk. Every investor is different. Some do like to keep things simple with fewer holdings or investing only in one type of property. However, one of the qualities that attract investors to DSTs in the first place is the ability to easily invest across multiple DSTs – even if they don’t have a large amount of capital to invest. It is important for investors to work with their Kay Properties team members to find deals that make sense for their unique situation and build a diversified portfolio that aligns with their overall investment goals, risk tolerances and objectives.

www.1031dstdigest.com | 866.805.2844

Press Release

Kay Properties & Investments Helps Accredited Investor 1031 Exchange Into 15 Different Delaware Statutory Trust Investments within 30 Days High net-worth investor decides to relinquish a portion of his rental property portfolio in a succession of sales before entering into multiple DST 1031 Exchanges to help achieve diversification, nonactive management, and potential monthly income

Torrance, CA

ay Properties & Investments successfully helped a high-net-worth client complete 15 Delaware Statutory Trust (DST) investments following the sale of five multifamily properties within a short period of time. “This particular client leveraged the full potential of Kay Properties' unique real estate platform that combines extensive client education, a robust menu of diversified DST investment options, and deep market contacts across the country. We spent more than a year working closely with him until he was comfortable with us and the DST 1031 Exchange investment model. After conducting literally years of research on the subject, he decided that DST investments provide an investment strategy that fit his own goals and objectives

1031 DST Digest

better than active ownership/ management of rental properties,” said Dwight Kay, Founder and CEO of Kay Properties. Kay also explained that this type of transaction illustrates the growing popularity of DST 1031 Exchanges among real estate investors. “As DST 1031 Exchange and investments experts, Kay Properties & Investment representatives speak with hundreds of investors each week who want to know more about DST investment opportunities,” said Kay. After completing his first DST 1031 Exchange several years ago, the client recognized the level of expertise Kay Properties provided throughout the entire exchange process, and how readily available the entire Kay Properties team was to answer questions or provide advice.

“He first started to learn about DST investments through educational material we shared with him. Then, he started to conduct his own research and really got comfortable with how DST 1031 Exchanges work. He kept asking me questions, and I was always there for him with answers. Plus, he really got to the point several years ago where he didn’t want to be a landlord anymore. He was proud of himself for having built such a portfolio during his younger years, but he just reached a point in his life where he wanted to start selling some of his investment properties,” said Jason Salmon, Senior Vice President and Managing Director of Real Estate Analytics with Kay Properties & Investments. Because the investor had already completed at least one DST 1031 Exchange and was comfortable with the investment vehicle, Salmon

1031 DST Digest

explained he now wanted to slowly liquidate his real estate portfolio. The investor, along with his CPA and attorneys worked closely with Salmon and Kay Properties DST experts to create a very detailed plan that included anticipated closing times on the relinquished properties, timelines for finding and vetting replacement properties that fit within the investors very specific parameters, and creating a workflow that coordinated all the necessary paperwork and signatures so that everything was organized and every

closing went smoothly.

regions.

“Some sales overlapped with each other, and so it became a cadence one after the other, after the other, after the other, after the other. We are in constant contact and we really immerse ourselves into finding just the right DST property or properties that fit perfectly into his investment model,” said Salmon.

“The gentleman is very, very comfortable with DSTs at this point, and is very pleased with the diversification, passive ownership, and potential monthly income stream that he has been able to accomplish. I believe his intention is to not buy any more rental real estate, and continue to move into DST investments on a systematic basis,” said Salmon.

The investor, Salmon explained, invested in distribution, net lease, self-storage, medical, and multifamily across multiple geographic

These examples are the experiences of a few of our clients and may not represent the experiences of others. Past performance does not guarantee or indicate the likelihood of future results. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

www.1031dstdigest.com | 866.805.2844

Article Title

LEARN MORE ABOUT

Kay Properties & Investments operates one of the nation’s largest syndicated 1031 exchange property marketplaces in the country with offices in Seattle, San Francisco, Los Angeles, Boston, New York City, and Washington, D.C. The Kay Properties team is comprised of seasoned and hyper-specialized Delaware Statutory Trust 1031 Exchange experts who collectively have more than 150 years of experience. As a result, Kay Properties has participated in over $30 billion of DST offerings. 46

1031 DST Digest

Chapter 2: The Basics

Press Release

Kay Properties & Investments, Which Operates an Online 1031 Exchange and Real Estate Investment Marketplace, Announces Another Record Year After Placing $610 Million of Equity from Accredited Investors in 2021 This continued record growth represents a 49.5% percent increase over previous year’s $408 million in equity placements

Torrance, CA

orrance, CA-based Kay Properties, which operates one of the nation’s largest 1031 exchange property and real estate investment marketplaces, announced recently it had posted another record year after successfully placing $610 million in equity for accredited investors participating in 1031 exchanges and direct cash investments. Founded by CEO Dwight Kay, Kay Properties & Investments is considered one of the most experienced and knowledgeable investment firms in the country specializing in Delaware Statutory Trust (DST) and private equity real estate invest-

ments. The firm was established in 2010 with the emphasis on providing real estate investment options to high-net-worth clients looking for passive real estate ownership. In addition, Kay Properties believes it has created one of the largest 1031 exchange and real estate investment online marketplaces in the country that generates some of the largest DST 1031 investment volume in the United States. In 2021, for example, Kay Properties clients participated in thousands of transactions, and the $610 million of equity invested through the Kay Properties platform was invested in more than $8 billion of real estate offerings totaling approximately 50 million

square feet of multifamily, manufactured housing, single tenant net lease, industrial, self-storage and medical properties nationwide.

Unparalleled Online 1031 Exchange Real Estate Marketplace Platform “The www.kpi1031.com online marketplace has truly become a best-in-class robust platform connecting high-net-worth investors with quality real estate offerings as well as a place for real estate sponsors and operators to connect with tens of thousands of high-net-worth investors seeking to deploy capital

www.1031dstdigest.com | 866.805.2844

Article Title

into real estate offerings. We think the platform creates a perfect match for all sides of the 1031 exchange and real estate investment equation. This success over the years comes from hard work and dedication to our clients and team members as well as ultimately, beyond anything else, from the Lord,” said Dwight Kay, Founder & CEO of Kay Properties & Investments. Kay explained that most investments made on the Kay Properties platform are for DST 1031 Exchange replacement properties followed by a growing number of cash investments into real estate funds and other vehicles. DST investments are an allowable option 48

1031 DST Digest

for replacement properties for investors who have recently sold other real estate assets and are seeking to defer taxation on their gains, enter a passive management structure, and potentially broaden their geographic and real estate asset diversification* by reinvesting the proceeds in qualifying properties. So-called “like-kind exchanges” are allowable under U.S. Internal Revenue Code Section 1031 and DST investments have grown in popularity among accredited investors over the past decade. “While it is true that a large amount of people investing through the www.kpi1031.com marketplace are seeking like-kind exchange

properties, it is also true that the platform attracts many high-networth investors who are interested in participating in the offerings on the company’s marketplace with direct cash investments, a trend that we are seeing growing tremendously,” stated Kay.

Remarkable Year for Delaware Statutory Trust 1031 Exchange Investors According to Kay, 2021 was a remarkable year for both Kay Prop-

Chapter 2: The Basics

erties and the entire 1031 exchange property market, including DSTs. “Investment properties have gone through significant changes over recent years, and in many cases, owners have been faced with challenges they have never seen before, including the COVID-19 pandemic. For property owners who were motivated to sell during 2021 and were facing capital gains, reinvesting the proceeds via a 1031 exchange into qualifying properties including DSTs allowed them to not only defer capital gains taxes but also become part of a diversification* strategy with the potential for appreciation and monthly income*,” explained Kay.

Client-Centric and Emphasis on Educating Investors 2021 also extended and reinforced the established success of the Kay Properties business model that emphasizes both client relations and DST education. “When I started Kay Properties, I had a vision of creating a hyper-client-centric business model that emphasized the utilization of tax efficiencies afforded to investors through the 1031 exchange and real

estate investments and potentially reduced risk for investors through a fully-integrated real estate investment platform. This platform includes a growing team of DST 1031 experts and back-end support specialists that provide Kay clients deal sourcing, due diligence, transaction coordination, investor relations, in-house accounting, legal, finance and asset analysis. We also support potential investors through exclusive educational programs that are presented in an effort to keep investors fully informed of opportunities and potential risks that they must be aware of. The model has worked out well, and the year-end results of 2021 proves this out,” said Kay, Founder and CEO.

on behalf of all of our thousands of investors, team members and industry sponsor partners to, God willing, continue this great path forward in 2022 and many years to follow,” said Kay. Investors can view current offerings on the Kay Properties online marketplace. Please visit www.1031dstdigest.com to register.

The result has been that Kay Properties has assisted thousands of high-net-worth investors across the country successfully complete 1031 exchange and direct investments, into real estate opportunities via the Kay online real estate marketplace at www.kpi1031.com. “We also would like to thank all of our loyal and many times repeat investors from over the years as well as the numerous DST sponsor companies and other real estate operators with whom we have worked closely. We will continue to work tirelessly

www.1031dstdigest.com | 866.805.2844

Learn More About the Kay Properties Educational Platform Online or in person, Kay Properties wants you to learn everything about Delaware Statutory Trust 1031 Exchanges.

ay Properties & Investments believes firmly in education. In fact, many have said that no one in the country does more to educate accredited investors, and anyone interested in DST Investments for their 1031 exchange, than Kay Properties does. With a comprehensive platform of educational options, Kay Properties is considered by many nationwide to be the preeminent authority and expert in DST 1031 Exchanges and investment strategies.

WEBINARS AND EVENTS TOPICS INCLUDE: ✔ Delaware Statutory Trust (DST) 1031 Exchange Replacement Properties – What are they and how do they work? ✔ Triple Net (NNN) Leased Properties ✔ Section 1031 Exchange Property Options ✔ Section 1033 Exchange – DST Properties for 1033 Exchanges ✔ Reasons to Consider All-Cash/Debt-Free DSTs for your 1031 Exchange ✔ The Section 721 Exchange “UPREIT” ✔ Real Estate Demographics ✔ Real Estate Asset Classes ✔ DST Sponsor Companies ✔ DST Properties as a Direct Cash Investment ✔ Why Investors Choose DST Properties Over NNN Properties

✔ Webinars

✔ Diversification using DST 1031 Exchange Properties

✔ Conference Calls

✔ DST Vs TIC – What are the differences?

✔ Seminars ✔ Blog ✔ Podcast ✔ Consultation Interested in learning more about DST 1031 Exchanges? Each week, Kay Properties founder and CEO, Dwight Kay and the Kay Properties team of DST experts, regularly host educational webinars and special events to help investors understand the 1031 exchange process and the many nuances of Delaware Statutory Trust properties. 50

1031 DST Digest

Chapter 2: The Basics

DST 1031 CONFERENCE CALLS In addition to our regularly scheduled webinars, each Friday at 11 a.m. PST/2 p.m. EST Kay Properties also hosts an interactive live conference call where one of our DST 1031 Exchange experts will be going over pertinent topics related to DST 1031 properties. Some of the topics we will be discussing include: ✔ The 1031 Exchange process ✔ Reasons why investors choose DST properties as their 1031 replacement property ✔ Delaware Statutory Trust Sponsor Companies – In-depth analysis and review of the many different DST sponsor companies in the 1031 DST industry that Kay Properties has raised capital for over the years. ✔ The potential pros and cons of real estate, 1031 exchanges and DST properties ✔ What to look for when considering a DST ✔ Which DST properties and asset classes to completely avoid due to out of control risk factors and lack of prior performance ✔ What kind of leverage is available in today’s DST marketplace ✔ All-Cash/Debt Free DST properties – Available for 1031 exchange and direct cash investments for those investors not wanting the risk of lender foreclosure

1031 EXCHANGE DELAWARE STATUTORY TRUST SEMINARS AND WORKSHOPS Each month, Kay Properties & Investments holds dinner events where accredited investors can learn more about the DST 1031 marketplace. These events have allowed accredited investors to meet some of the most knowledgeable DST 1031 Exchange experts in the entire country as they discuss important subjects like: ✔ Delaware Statutory Trust Sponsor Companies and Offerings - How the investments work and what to be aware of when considering a DST 1031 Exchange ✔ The potential pros and cons of 1031 exchanges and DST investment offerings ✔ What to look for when considering a 1031 exchange or DST investment. ✔ Which DST properties, tenants and asset classes to avoid at all cost ✔ And more…

Seminar locations include: •

Pasadena, CA

•

Portland, OR

•

Los Angeles, CA

•

Baltimore, MD

•

Newport Beach, CA

•

Washington, DC

•

San Diego, CA

•

Fairfax, VA

•

Phoenix, AZ

•

Raleigh, NC

•

Las Vegas, NV

•

Atlanta, GA

•

New York, NY

•

Dallas, TX

•

Paramus, NJ

•

Austin, TX

•

Long Island, NY

•

Denver, CO

•

Philadelphia, PA

•

Miami, FL

•

Chicago, IL

•

W. Palm Beach, FL

•

San Francisco, CA

•

Tampa, FL

•

Seattle, WA www.1031dstdigest.com | 866.805.2844

Kay’s Learning Platform

VISIT OUR BLOG – A GREAT RESOURCE FOR LEARNING MORE ABOUT DST TRENDS, RECENT DST 1031 TRANSACTIONS, AND INSIGHTS FROM DST 1031 EXCHANGE EXPERTS Kay Properties has a complete library of relevant articles that are both searchable and chock-full of exclusive, valuable information. Visit www.1031dstdigest.com/ blog to register for the very latest trends in the Delaware Statutory Trust 1031 exchange industry. Some of the topics you may want to explore include: ✔ How Real Estate Investors Can Use Delaware Statutory Trust (DST) Properties to Replace Debt in a 1031 Exchange ✔ Real Estate DSTs — A Haven in a 1031 TaxChange Storm? ✔ Thoughts on the Senior Care DST asset classes Caveat Emptor - Buyers Beware of Senior Care DSTs ✔ Potential Pitfalls of NNN Properties and a Savvy Alternative ✔ What is a DST Sponsor Company? ✔ Select a DST 1031 Expert and Avoid the Four Stages of 1031 Exchange Grief ✔ Retirement Planning? Don’t Forget About Investment Real Estate ✔ Why Real Estate Income Funds Have Distinct Potential Benefits for Investors

LISTEN TO OUR EXPANDING LIBRARY OF PODCAST EPISODES Kay Properties has created an ever-growing library of informative podcast episodes that can be streamed directly from your computer or smartphone with just a click of a button. These podcasts are unique in that they allow anyone to listen to an in-depth conversation of the many recurring themes and nuances of the DST investment process. This page also allows you to share, download, fast forward, and pause the recording for easy listening convenience. Current topics include: ✔ A Look at the Overall DST 1031 Market and Why It’s Growing in Popularity ✔ What are Some of the Risks Associated with DST 1031 Exchanges? ✔ Just What is the 200% Identification Rule for 1031 exchanges? ✔ An Exclusive Interview with various DST Sponsor Companies

For More Information Call 866.805.2844 or Visit www.1031dstdigest.com *Diversification does not guarantee profits or protect against losses. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

1031 DST Digest

Get Your Free 1031 Exchange Investment Book & Free Exchange Listings! ONE-ON-ONE ADVISORY SESSION WITH DST 1031 EXPERTS Finally, in addition to a full educational Delaware Statutory Trust platform for potential investors to review, Kay Properties also provides clients the opportunity to participate in a one-on-one advisory consultation with one of our DST 1031 experts. This session allows our experts to review most people’s specific 1031 scenarios based on their particular parameters. Investors have found this incredibly beneficial when trying to ascertain if a DST 1031 investment makes sense for their particular situation as the Kay Properties team has been involved in over $30 billion dollars of DST investments and has worked with thousands of investors nationwide.

To Schedule A One-onOne Consultation Visit www.1031dstdigest.com All properties are available to accredited investors only (Accredited investors are defined under SEC Rule 506 of Regulation D. Generally, an investor is deemed accredited if their net worth is greater than $1,000,000 exclusive of their primary residence and/or their annual income exceeds $200,000 for the current and past two years – please speak with your CPA and attorney to determine if you and your investing entity are considered accredited prior to considering an investment). All real estate contains risk. Please read the full private placement memorandum for a discussion of each property’s business plan and risk factors. There are no guarantees for projected cash flow and/ or appreciation. Please do not invest in real estate offerings if you cannot afford to lose your entire investment principal. Securities offered through registered representatives of FNEX Capital,, Member FINRA/SIPC.. Diversification does not guarantee profits or protect against losses.

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Article Title

EXPERIENCE SPEAKS FOR ITSELF

I appreciate very much your assistance in making the purchases. I hope to do more business with you in the future... R.N. – Thurston County, WA

My experience working with Kay Properties & Investments LLC was extremely easy and rewarding B.R. – Mammoth Lakes, CA

I have worked with many commercial real estate professionals but Dwight is by far the best. S.D. – Rolling Hills Estates, CA

I’ve really enjoyed working with Orrin and Chay. They have a tremendous knowledge of all the intricacies of 1031 exchanges... B.G. – Manhattan Beach, CA

We very much appreciated the knowledge, professionalism and assistance you gave us over the past months... M.E. – Westchester County, NY

I really liked how [Chay] or Orrin always were quick to get back to me when I had a question. L.R. – Vernal, UT

I am very pleased with the investment that I made with your support and answering of questions S.R. – Henderson, NV

Dwight patiently educated and guided me to an informed decision leading to an easy, smooth, and successful 1031 Exchange DST purchase. R.L. – Chicago, IL Great team work! B.U. – Louisville, KY

You have been wonderful in helping us, and a good source of information on commercial real estate. E.T. – Broomfield, CO

We are grateful to all of you and look forward to a long and successful relationship with you. J.M. – San Diego, CA Thank you for making this all happen! We are happy customers!!! D. and S. B. – San Diego, CA

I cannot tell you how much we appreciated working with you; you made a really complicated situation much easier to manage. P.C. – Humphreys County, TN I did business with Kay Properties on two occasions... and was very satisfied. I would strongly recommend Kay. B.S. – Beaufort county, NC

Betty Friant is a true professional. I would definitely work with her again! R.S. – Savannah, GA

These testimonials may not be representative of the experience of other clients.

ABOUT KAY PROPERTIES

ABOUTKayKAY PROPERTIES and WWW.KPI1031.COM Properties is a national Delaware Statutory Trust (DST) investment firm. The Properties Kay Properties online investment platform Trust provides access to the firm. marketplace of DST from over 25 Kay is a national Delaware Statutory (DST) investment different sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsor The www.kpi1031.com platform access the marketplace DSTs from over 25 different companies, full due diligence andprovides vetting on eachto DST (typically 20-40of DST) and a DST secondary market. Kay sponsor companies, custom DSTs only available to Kay clients, independent advice on DST sponsorin all 50 Properties team members collectively have over 150 years of real estate experience, are licensed companies, full due diligencein and vetting on each DST1031 (typically 20-40 DSTs) and a DST secondary states, and have participated over $30 billion of DST investments. market. Kay Properties team members collectively have over 115 years of real estate experience, licensed in all 50 states, and have participated in over 15 Billion of DST 1031 investments. 54are 1031 DST Digest

1031 DST Digest I highly recommend Betty and her (Kay Properties) team! B.E. – Boston, MA

We are very happy with our monthly paycheck and the knowledge that we are...in good markets with strong tenants. D.A. – Severna Park, MD

...Will look forward to doing more in the future and have been passing on your info to people who might have an interest in doing [a DST]. J. and D. E. – Maple Glen, PA I want to thank you for the amazing service you have provided in my 1031 DST purchase. C. E. – Dayton, MD

My 1031 exchange went smoothly and I have been pleased with the results. D.N. – Virginia Beach, VA

The due diligence you and your company do is above and beyond. F.U. – Port Charlotte, FL

LEARN MORE: LEARN MORE:

Betty Friant did a tremendous job of assisting us with the DST process. R.D. – Maryland

These are just a few of the many client testimonials we've received over the years.

GOOD NEWS TRAVELS FAST!

www.1031dstdigest.com WWW.KPI1031.COM

855.899.4597

This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your material does notrisks constitute an offer to investing sell nor a in solicitation of securities an offer toincluding buy any security. Such offers cangeneral be made only by the confidential Private situation.This There are material associated with real estate illiquidity, vacancies, market conditions and competiPlacement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section tion, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your tax consequences, general economic development risks and long holdsecurities periods. There is ailliquidity, risk of loss of the entire investment principal. Past perforsituation. There are material risksrisks, associated with investing in real estate including vacancies, general market conditions and competition, mance islack notofa operating guaranteehistory, of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax FNEX Capital, member general FINRA, SIPC.,These testimonials mayrisks notand be representative of the experience other clients. performance doesPast notperformance guarantee or consequences, economic risks, development long hold periods. There is a risk ofofloss of the entirePast investment principal. notlikelihood a guarantee of future results. Potential flow, returns for andtheir potential appreciation arespeak not guaranteed. Securitiesand offered through Growth indicateisthe of future results. These clientscash were notpotential compensated testimonials. Please with your attorney CPA before Capital Services, member FINRA, SIPC, Office of Supervisory Jurisdiction located at 2093 Philadelphia Pike, Suite 4196 Claymont, DE 19703. Cove considering an investment. Capital Investments, LLC and Growth Capital Services are unaffiliated entities. These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment. www.1031dstdigest.com | 866.805.2844

Article Title

10 Reasons Why Clients Choose To Work With Kay Properties as They Purchase DST 1031 Investments So, you’re ready to sell your property and make a 1031 exchange into a DST property. You can almost taste the retirement piña coladas and feel the gentle wind of the golf course on your face. Aside from finding the right Qualified Intermediary to help you make the exchange, you want to find a firm you can trust to help you find DST properties so that you can enjoy retirement. Here’s why hundreds of DST 1031 investors have chosen Kay Properties & Investments over the years:

Kay Properties Is Hyper-Specialized In DST 1031s

DSTs are what we do! We live and breathe DSTs. Other firms also offer financial planning, insurance, mutual funds, oil and gas, etc. making them generalists instead of specialists. At Kay Properties, we focus on DSTs, giving you the peace of mind that we understand and can help you with every element of a DST 1031 Exchange. Consider it like going to a specialist for a knee or hip replacement instead of a general practice doctor.

Kay Properties Has An Experienced Team Of DST 1031 Professionals

We have team members licensed in all 50 states, Washington, D.C. and the U.S. Virgin Islands. We have offices in Los Angeles, San Diego, San Francisco, Seattle, Boston, New York City, and Washington, D.C. over 150 years of collective real estate experience, and over $30 billion of DST participation. No matter if you live near one of our offices or not, we have representatives who would be happy to meet with you. We’re always just a phone call away.

Kay Properties Is Picky With Its DST Properties

Kay Properties has access to on-market DST properties from almost all of the sponsor companies and asset managers in the DST 1031 space. However, we reject certain properties that do not pass our robust due diligence due to high risk, high fees, and lack of previous performance. This is more than just broker dealer due diligence – although we have that too. We do our own due diligence, and our team has analyzed over $30 billion dollars of DST properties. Many of our competitors will still offer these properties to you that we’ve rejected – so be vigilant and always understand the risks.

Kay Properties Has Access To Off-Market DST Properties

These exclusive DST properties are only available to our clients. These Kay Properties client-only DST offerings often have a dramatically lower fee structure than standard DSTs. Lower fees means more of your hard-earned dollars in the ground and working for you as opposed to in the financial planner and DST sponsor companies pockets!

1031 DST Digest

Kay Properties Values Integrity First

We will not sell the higher risk asset classes such as hotels, senior care, and oil and gas…even if they pay a higher fee to us. We will not use our clients as guinea pigs just to make a few extra bucks.

Kay Properties Has A Large Inventory Of DST Properties

We typically have at least 30 to 45 DST offerings at any given time. You can check out our DST property menu to see what offerings are available and have passed our DST due diligence analysis. Just call a representative, share your situation, and ask to see our menu, or register on our website to get a free list of our DST 1031 properties.

Kay Properties Mystery Shops Each And Every DST Property Offered

We believe we are one of the few firms that actually sends someone out to inspect every DST property we offer to clients – even portfolio DSTs with 10 to 25 properties. We make sure every DST property we offer has been inspected not just on paper (although our analysts love doing this) but in person as well.

Kay Properties Has Access To Leveraged DSTs For Debt Replacement

We have access to DSTs that typically have a 40% to 65% loan-to-offering value. These DST properties have nonrecourse loans in place and are able to be closed on typically within 3-5 business days for those investors needing to replace debt in their 1031 exchanges as well as those that want to increase their potential tax efficiencies by buying more real estate and increasing their basis.

Kay Properties Has Access To All-Cash/ Debt-Free DSTs

If you’re an investor who doesn’t want the risk of lender foreclosure, this one is especially important to you. At Kay Properties, we offer many all-cash/debt-free DST properties. Not many groups have access to a wide variety of debt free DST properties like Kay Properties does. Call one of our representatives to discuss your situation and what debt free DST investments we have available.

Kay Properties Walks The Walk

Our team members are proud to be personally invested in multiple DSTs as part of our investment strategy. We don’t just assist others, we personally invest in DSTs ourselves and can give you advice based on personal experience.

www.1031dstdigest.com | 866.805.2844

Article Title

At A Glance: Name: Betty Friant Title: Senior Vice President Company: Kay Properties & Investments Located: Kay Properties Washington, D.C. Office Years with company: 6 Years Years in Real Estate Industry: 29 Years Real estate organizations / affiliations: CCIM 58

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Chapter 2: The Basics

Executive Women in Business: Betty Friant Recently, Betty Friant, CCIM and Senior Vice President with Kay Properties, was interviewed by the Mid-Atlantic Real Estate Journal as one of its featured Executive Women in Business. Below is a summary of their interview with Betty.

Torrance, CA

Recognized By The:

Q: Tell us how and when you began your career in the profession you are in? A: Well, I’ve always had an interest in business. Both of my parents were entrepreneurs and owned restaurants and other small businesses in our little hometown of Winchester, Virginia. I have two sisters, one older and one younger, and we always were motivated to work. Whenever we wanted money, we didn’t just get an allowance, we went to work in the restaurant. So, I grew up working and grew up surrounded by a business environment. Ever since I can remember, the world of business has been a fascination to me. Then I became attracted to real estate because I just thought

how fascinating it would be to own multiple homes or rental properties. Then the idea of being able to help people build equity struck me as a great career direction. So, I started to pursue a career of selling real estate. But then I thought, my gosh, commercial real estate would be so much more interesting than residential real estate because it’s all about business. So, I moved my career toward commercial real estate sales. Q: What was your greatest professional accomplishment in 2021? A: I think the greatest professional accomplishment this year has been managing people’s expectations in what really has been one of the

best real estate cycles in my history. I’ve been in real estate since 1979, so I’ve seen the market soar and the market crash, but this is the busiest time I can think of. So, managing clients’ expectations on what they can purchase in this kind of a market is really important. I mean, if you are selling at the peak of the market, and you’re going to do a 1031 exchange, you’re also going to be buying at the peak of the market. So reminding people that there are no guarantees in real estate, and reminding them that real estate is not a static investment – like putting money in an FDIC insured bank account. There are risks involved with any real estate transaction, and yes, there can be rewards. But, trying

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Executive Women in Business

to remind people about where we are in the market cycle while at the same time helping them find the best properties at reasonable prices is really all about managing expectations. Q: What was your most notable project, deal or transaction in 2021? A: If I had to identify one specific deal, it would be my recent involvement with advising an entire family on several large DST investments. What happened was they owned like $30 million to $40 million worth of real estate and decided they didn’t want to be landlords anymore. So, they divested themselves of their real estate properties and wanted to turn them into DST investments. The entire Kay Properties team and I helped educate them on how to turn their portfolio into DSTs which would allow them to diversify into many different asset classes, tenants, geography, and even different companies. Together, these different DSTs would allow them to have a portfolio that would be generating monthly income for them without having to participate in active management. They can now go off and do some of the things that they love to do. Now, I’ll touch base with them occasionally to see how everything’s going for them, and they’ll start sharing with me about where they are in the world or what they’re doing or how excited they are about some aspect of their life. It’s gratifying to know I helped them create the opportunity to have more leisure time to really 60

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enjoy life when they didn’t before. Q: Who has been the strongest influence on your career? A: In my most recent career, I would have to give all the kudos to Dwight Kay, the founder of Kay Properties. What he does with our company and how he nurtures and builds and grows people within the company is so impressive. For sure he’s done that with me as well. Now, I’ve been successful in commercial real estate, but Dwight pushed me in ways that I didn’t think I was ready to do. Speaking to large crowds of people and always pushing myself and everybody at Kay Properties to reach just a little bit further than we’re comfortable with, and making everyone a little better every day. Most definitely, Dwight Kay has been the biggest influence in my current career. Q: What unique qualities and/or personality traits do you think makes you so successful in your profession? A: Everybody approaches their profession so differently, but for me, my focus has always been emphasizing education. Sometimes I feel like people will just want me to tell them what to do. And I say, “No, I’m not going to do that. I want you to know that when you see a form coming through and it asks you a question, I want you to understand what that’s all about. I don’t want you to just sign it and move on.”

So I think the thing that makes me unique is my emphasis on educating my clients and really making my clients learn. And if they learn and then they decide the DST investment route is not for them, that’s fine. We’re okay with that. But I think the fact that I take such care to make sure my clients really understand what they’re doing and make sure they have access to every form information relating to DST 1031s that is available for them and know that our team is there for them whenever they need us, I think is very special and very different. I just really care for my clients and want to teach them all I can. Q: Do you feel being a woman is an advantage, disadvantage, or no advantage in today’s business world, and why? A: Yes, I think it’s an advantage for me to be a woman. I say that mainly because the commercial real estate industry is an industry where there are not a lot of women in this industry – at any level, let alone a senior vide president level. I feel it is an advantage because people aren’t so threatened perhaps when a woman approaches them, and they understand that my entire goal is to educate them not sell them. I’m not intimidating or threatening, and when they realize that I really know my stuff and recognize that I really know what I’m talking about, and they recognize my CCIM designation (which by the way is

Chapter 2: The Basics

very important to me because it demonstrates my commitment to my own continuing education) they become more receptive to my presentation. They recognize that I can maybe help them by providing some good advice or even teach them important questions they should ask their own CPAs and attorneys and financial counselors. Then I become a trusted advisor or a trusted resource without being a threat or overpowering or pushy. Q: What inspiring word of advice would you give to a young woman about to go into the field of commercial real estate or your allied field? A: I would say to find somebody else who’s in real estate and talk

to them; ask them questions. I guarantee almost any real estate professional would love to provide advice to a young person just starting out. Because if you like the real estate business – I mean new home sales, commercial real estate or whatever else it might be – reaching out and talking to someone in the industry can be incredibly rewarding for both parties. I will guarantee you that almost any commercial real estate professional will give you time, take you to coffee, and help you decide what direction might be a good one for you to pursue. This is especially true for anybody who is looking to start a new career. They should take advantage of the people who have been there before, because as I said, we’re all willing to share what we’ve

done and it might resonate with that person, and just might help them get a really good step forward toward starting a new career. Q: What outside activities do you enjoy during you free time? A: I just love to walk in the woods because I live in one of the most beautiful parts of the world – the Northern Shenandoah Valley of Virginia. The Shenandoah River is not far from where I am, and I love being down there by the river. I also recently learned to play “Pickleball” and am so hooked. It’s so much fun! But more than anything, I love to get together with friends and family because that’s the most important thing in the world to me.

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Seven DST 1031 Exchange Terms Every Real Estate Investor Should Know Understanding terms like IOI and PPM can help investors be better informed

By Betty Friant, Senior Vice President, Kay Properties & Investments

ecoming a serious 1031 Exchange real estate investor can involve a significant learning curve. For example, there are many investment terms that every investor should know and understand in order to better understand the nuances surrounding 1031 Exchange real estate investments and help find success as an investor. Therefore, Kay Properties thought it would be a good idea to present some of the most important investment terms that all Delaware Statutory Trust 1031 Exchange investors should know. Knowing and understanding these acronyms will help in placing you on a path of success in the investment world. You might want to keep this list of the alphabet soup of acronyms handy as you research the world of investment real estate.

1031 DST Digest

DST (Delaware Statutory Trust): This term stands for “Delaware Statutory Trust” which is an entity that is used to hold title to investment real estate. A DST is also a powerful real estate planning tool because it allows “beneficial interest” ownership where multiple investors can share ownership of a single property or an entire portfolio of properties. A DST is often paired with the 1031 Exchange. Pairing these two entities together allows for individual investors to diversify* their investment dollars into multiple properties and potentially mitigate concentration risk of over-concentration in their investment properties. This can potentially be accomplished by investing in DSTs with properties in different geographies, in many of the asset classes, and with various property managers, asset managers, and sponsoring companies.

PPM (Private Placement Memorandum): Anytime an investor is involved with a private or public investment vehicle, a Private Placement Memorandum (PPM) will be involved. A PPM is a document that divulges everything an investor needs to know before investing in a Regulation D Offering. The PPM is very beneficial to an investor as it details the investment opportunity, disclaims legal liabilities, and explains the risk of losses. All real estate investors are strongly advised to carefully read the PPM and consult their tax attorney or CPA prior to investing.

NNN (Triple Net Lease): Anytime you see three N’s in a row when referring to real estate, it will invariably be referring to the concept of triple net lease investing. This is a lease agreement where the tenant promises to pay all expenses of the property. This includes real estate taxes, building insurance, and maintenance. Typically, these are expenses of the landlord. However, in a NNN lease agreement, the tenant pays these expenses along with rent and utility fees. Tenants generally pay a lower rent charge by taking on these additional expenses. Triple net leases have become popular as they have the potential to provide low-risk steady income to investors.

1031 (IRC Section 1031): Section 1031 is probably one of the most familiar passages in the Internal Revenue Code (IRC). These numbers refer to an IRS provision that allows individuals to defer tax on qualifying exchanges of like-kind real estate. To utilize this tax strategy investors must take certain steps when selling and buying real estate. The replacement real estate must be like-kind, tax must be paid on any boot in the year of the exchange, and replacement real estate must be identified within 45 days and acquired within 180 days to utilize the 1031 exchange.

QI (Qualified Intermediary): The letters “QI” typically refer to a Qualified Intermediary. The Qualified Intermediary is an accommodator or facilitator that works as an entity that facilities 1031 tax-deferred exchanges. They act like the glue that puts the buyer and seller of property together into the form of a 1031 Exchange. A QI is an individual who enters into a written agreement with the taxpayer of a property. The QI acquires the relinquished property from the taxpayer, transfers the relinquished property to the buyer, acquires the replacement property from the seller, or transfers the replacement property to the taxpayer.

IOI (Indication of Interest): When real estate investors become interested in a particular real estate asset or portfolio, they will usually request more information on the property in question. In many cases, the seller will provide a document called an Indication of Interest (IOI). An IOI is an informal proposal that is non-binding and designed to provide the investor more information on the investment. For example, IOI’s typically include property details like leasing data, square footage, and market overview. An IOI might also include due diligence plans, aerial photos, and site maps. Finally, the IOI will typically include information about the sponsoring seller of the real estate asset.

721 UPREIT (Umbrella Partnership Real Estate Investment Trust): An umbrella partnership real estate investment trust (UPREIT) uses the 721 Exchange as opposed to the 1031 Exchange to contribute a DST to a REITs operating partnership (OP) on a tax deferred basis in exchange for OP units. As such an UPREIT is subject to the Internal Revenue Code (IRC) Section 721 exchange. This is one possible exit strategy for DSTs. Investors are often provided a choice as to whether they would like to participate in the UPREIT using the 721 exchange, or go their own way using the 1031 exchange into more Delaware Statutory Trust investments or into another property they would manage on their own. If they opt for a Section 721 exchange into an UPREIT, the property owner can receive the value of the property in the form of UPREIT units. Although the Section 721 exchanges into an UPREIT are not taxable, the REIT taxation rules apply. Besides utilizing DSTs for tax deferments or gains, investors can also consider opting for an UPREIT as it’s another great option for those wanting to sell their property, be it individual or commercial property owners. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

www.1031dstdigest.com | 866.805.2844

Chapter | 3

1031 DST Digest

Avoiding Risk

“I have worked with Jason for almost 5 years now. I have worked in CRE for my entire career in NYC. I am so thrilled with the due diligence they do on all deals and many do not stand up to Kay qualifications for their clients. I am in multiple DSTs thru them and everyone has performed as expected or better. I truly believe this is a product of the due diligence. I have seen properties from other brokers that I asked Kay about. They do not offer them due to not passing Kay due diligence requirements. I recently did my first swap and the DST annually performed better than expected and on the sale had incredible returns. I would not work with anyone else ever. Thank you Jason.” Krystal R. - Cape Coral, FL These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment.

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A Risk-Averse Approach to Real Estate Investing You can invest in income property in a decidedly defensive way. Here are four conservative strategies to minimize risk while you pursue income and appreciation from investment real estate.

By Dwight Kay, CEO & Founder, Kay Properties and Investments, LLC

he highest profile professional real estate developers and investors are typically those who have won big or lost big — they made their names taking oversized risks that in some cases paid off handsomely and in other cases crashed and burned. But real estate investing isn’t just for highfliers with nothing to lose. In fact, quite the opposite is true. Investors can take a decidedly defensive approach to building wealth through real estate investing, especially given the favorable tax treatment that rewards many aspects of real estate investment. (Consult your tax adviser to learn more.) To be sure, all investments carry risk, be they stocks, bonds or hard assets like real estate, but some investment strategies are less risky than others. 66

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As Seen In:

I’ve taken a generally conservative approach to real estate investing with much success. These strategies are hallmarks of my approach. They’ve helped mitigate the risks of real estate ownership and investment while maximizing the potential to achieve income (positive cash flow), shelter income from tax, and realize asset-value appreciation. Tip #1: Avoid recession-prone, highly volatile real estate asset classes

Some asset types have demonstrated that they are much higher risk and recession-prone than others. These include hotel and lodging properties, senior housing in most of its forms, and real estate used in the production of oil and gas. Avoid these properties. Hospitality, for example, has been hit hard by all three recessions since 2000. In 2010, following the Great

Recession, U.S. hotels considered distressed by Real Capital Analytics approached 2,500 properties with total debt of $40 billion. Many investors in these properties never recovered even their principal — they lost everything. More recently, we’ve seen historic disruptions by the COVID-19 pandemic as travel both for business and leisure ground to a halt. (Marriott, as one example, had the worst quarter of its entire company history during the pandemic.) Senior care is another sore spot, with senior housing, assisted living, long-term care facilities and nursing homes all subject to regulations that increase the risk and stability of owning and operating them. And that was even before the pandemic layered onto these types of properties the challenges of a particularly vulnerable population during a catastrophic public health crisis.

Chapter 3: Avoiding Risk

Also volatile are properties used for the production of oil and gas. Drilling and royalties from energy production are uncertain at best and highly volatile at worst. If an oil well doesn’t produce as expected despite the best due diligence, the underlying asset value can nosedive. Fluctuating oil prices from supply and demand shocks can have the same effect. Buyer beware. Tip #2: Don’t load up on debt

It sounds contrarian and it is, actually, because it can be easy to borrow against real estate. People frequently do it to minimize their equity investment and load up on properties. But while many advisers tout the benefits of leverage, we tout the risk of leverage. Many of our clients don’t want to increase their risk profile, and since they’ve often already paid off properties — their homes and sometimes investment properties — they don’t want to go back into debt especially at a stage of life where they want to lower their potential risk and not increase it. It’s understandable. Fortunately, there are no-leverage real estate investments available, including debt-free Delaware Statutory Trusts (DSTs). With the pandemic hovering all over the world and real estate subject to uncertainty and potential distress, a debt-free strategy can be attractive. One thing’s for sure: With private real estate offerings that are debt free

with no long-term mortgages encumbering the property, there’s no risk of lender foreclosure. This isn’t to say all debt is bad; it isn’t. But a defensive real estate investment strategy makes limited or no use of debt a priority in an effort to mitigate risk. Tip #3: Don’t put all your eggs in one basket

Before the pandemic it was typical to see high-net-worth investors, acting independently, purchase their own properties. Post-pandemic, many investors have decided that the health crisis and economic headwinds are just too great for them to justify putting all their eggs in one basket — that is, a property or properties that they own solely. It’s a timeless defensive strategy to diversify real estate investment capital into multiple properties in multiple geographic locations in multiple asset classes and with multiple tenants. This can be accomplished easily through a range of DST, tenant-in-common (TIC) or limited liability corporation (LLC) investments, though the tax treatment of these structures is different. Although diversification does not guarantee profits or protection against losses, many investors are realizing that it’s just as prudent to diversify their real estate portfolios as it is to diversify their stock portfolios. For example, instead of

purchasing one 100-unit property in Nashville, an investor can diversify his or her capital across 5,000 multifamily units in 15 different multifamily communities in nine different states, using DSTs. Or instead of purchasing one net lease pharmacy building for $5 million, an investor can diversify his or her capital across 12 different single-tenant net lease properties consisting of pharmacies, e-commerce industrial distribution facilities, discount stores, dialysis clinics, auto parts stores and more. Tip #4: Co-invest with others who have similar goals and appetites for risk

It’s not mutually exclusive to be a private equity real estate investor and a co-investor — you can be both at the same time. DSTs, TICs, LLCs and qualified opportunity zone funds are among the vehicles you can co-invest in alongside others with similar goals and tolerance for risk. Plus, co-investing is inherently a more defensive play than investing solo and tying up the majority of your net worth in one single asset in one single market. At the end of the day, you can be a defensive real estate investor by taking multiple steps to mitigate risk while pursuing a real estate investing strategy with the potential to produce monthly income and long-term appreciation.

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The Importance of Due Diligence for DST 1031 Investments Because DSTs are complex real estate securities, due diligence can help investors understand the nature of a deal, the risks involved, and whether the investment is a fit for their portfolio.

By The Kay Properties Team

elaware Statutory Trusts (DSTs) can be an outstanding solution for 1031 Exchange investors, providing the potential for passive income and diversification among professionally managed, institutional-caliber real estate projects. But when viewed as individual securities, their quality can vary dramatically from project-to-project and sponsor-to-sponsor. On top of that, DSTs are complex real estate securities, which is why they are only reserved for accredited investors. Each portfolio has a different real estate risk profile as diverse as the many ways real estate projects may be conceived. But when evaluating DSTs, it’s not just 68

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about the inherent complexity of determining the quality of specific investment properties, their different geographic markets, or sub-sectors. They are also ongoing business operations and different industries that can swing radically from one year to the next. That’s why DST 1031 advisory specialist firms like Kay Properties & Investments encourage all of its investors to be cognizant of the fact that properties with careful due diligence conducted on them could still end up underperforming projections as well as result in a complete loss of invested capital. This is due to a number of items that potentially cannot be foreseen such as economic difficulties, tenant bankruptcies and other greater forc-

es outside of any investor’s control. “Kay Properties emphasizes due diligence almost above any other priority for our clients. Due diligence helps investors and companies understand the nature of a deal, the risks involved, and whether the deal fits with their portfolio. Essentially, undergoing due diligence is like doing “homework” on a potential deal and is essential to informed investment decisions,” said Matt McFarland, vice president and DST specialist with Kay Properties & Investments. Real estate investments and DST properties contain absolutely no guarantees and it is highly prudent for all potential investors to carefully read the Private Placement Memorandum(PPM) paying careful attention to the risk section, prior

to considering an investment. DST advisory firms like Kay Properties & Investments are not able to provide investors with any tax or legal advice, which is why they strongly encourage all investors to speak with their CPA and attorney for all tax and legal advice prior to considering an investment or exchange.

Still, investors often need the careful advice and guidance of professional DST experts to help them perform due diligence. Also, not all due dili-

gence efforts are the same. However, as a leading DST 1031 specialist firm, Kay Properties & Investments has set the highest standards for its due diligence efforts, and as such, it should be a litmus test for investors who are entering the DST 1031 Exchange market.

What is the Due Diligence Process at Kay Properties & Investments? ✔ Asset Class Rejection ✔ Mystery Shopping Properties ✔ 3rd Party Reports and Market Analysis

✔ Sensitivity Analysis and Stress Tests

✔ Cash Flow Assumptions ✔ Lease Audits Asset Class Rejection No matter how much you “crunch the numbers” on high-risk assets it doesn’t change the fact that they are high-risk assets! At Kay Properties, although our competition often continues to offer these high-risk asset classes like oil and gas operations, senior care facilities, and hotels (often because they have higher commissions than the lower risk asset classes), Kay Properties has from the very beginning drawn a line in the sand that no matter how high the projected cash flow is, no matter how great the story of the asset class is, they WILL NOT use their clients as guinea

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Kay Properties Due Diligence

pigs on investments that may be more likely to have large losses in the future. Over the years, we have spoken with many investors who have lost tens of millions of dollars investing in senior care facilities, regional shopping malls, hotels, and oil and gas investments. Kay Properties rejects the previously mentioned asset classes outright. Period!

Mystery Shop Every Property Kay Properties and Investments does something not not many DST advisory firms do, they mystery shop virtually every DST property

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that we have clients invest in. A refreshing piece of due diligence, right? This level of boots on the ground review of the property and its neighborhood practically is unheard of in the DST industry. Few if any other broker-dealers and other registered representatives place the time, money, and energy into seeing virtually each and every DST like Kay Properties does. Reading spreadsheets and crunching the numbers is fine (which Kay Properties analysts love doing) but

without visiting the property, the “due” has not been “done” and the “diligence” has not been “diligent.” At the time of writing this book, the Kay Properties team as well as commissioned independent property inspectors (often the same inspectors that Fannie Mae, Freddie Mac, CMBS Lenders, and other institutional investors commission) are performing property tours on DST properties throughout the country, even if a portfolio has 25 individual properties. Investors should be advised that

Chapter 3: Avoiding Risk

other wealth advisory firms and even CPA’s might say they visit each property. However, what they fail to mention to potential clients is that what they mean by “visiting the property” actually means they are invited once or twice a year by product sponsors to fly out, tour a property and have a nice 1031 exchange educational dinner as a marketing tool by the sponsor. Essentially they will see only one to three percent of the properties they work with per year. Hardly impressive. One of the main areas that differ-

entiates Kay Properties as a DST specialty firm is they take the time, effort and energy to see virtually all of the DST properties they represent.

occupancy, concessions, rental rates, vacancy rates, etc. are inputted into proprietary models which we are able to run baseline tests on, and from there apply negative or positive pressure on them. This allows the Kay Properties firm to ascertain what the worst case scenario for a property is, and from there to understand how likely that scenario is to potentially happen or not. These stress tests provide a sophisticated level of analysis helping the firm further understand potential risks that various scenarios can cause.

Sensitivity Analysis and Stress Tests

Lease Audits

Kay Properties also has proprietary algorithmic models that have been custom designed to take the sponsors’ assumptions about a property and apply pressure to them in an effort to help better understand how certain circumstances will affect their investors. Items like physical

When analyzing a retail, office or industrial DST property, one of the incredibly important steps to focus on is the property’s lease(s). Afterall, the lease on a property can greatly affect that property’s value now and in the future. To completely understand the

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Article Title

property’s lease includes carefully examing what the tenants’ obligations are and what the landlord’s obligations are when it comes to the maintenance, taxes and insurance of the property. Things like is it an Absolute Triple Net (NNN) lease – where the tenant is responsible for ALL main72

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tenance, taxes and insurance; a Triple Net (NNN) lease – where the tenant is not responsible for all of the previously mentioned items, but is responsible for a majority of them; a Double Net (NN) lease – whereby the landlord is typically responsible for the roof and structure of the building or a Gross lease whereby the landlord is responsible for all maintenance, taxes and insurance costs? Does the tenant have any early termination clauses built into the lease? Are there any co-tenancy

clauses built into the lease that could give the tenant an early out if a neighboring tenant were to vacate the building? Does the lease provide for annual rental increases, increases tied to the Consumer Price Index (CPI) or is it a flat lease for the entire term of the lease? Seeking to understand how the property’s lease will potentially affect the property’s value throughout the hold period and upon the eventual exit (sale) of the asset is a critical part of performing due diligence.

Third Party Reports and Market Analysis When performing due diligence on a DST1031 property, it is important to conduct a thorough review of the property’s third-party reports (the property appraisal, environ-

Chapter 3: Avoiding Risk

mental report and property condition report - the inspection) These reports can be reports the lender or sponsor ordered on the property as well as reports provided by commercial real estate research firms such as Costar, REIS, Real Capital Analytics, Axiometrics, etc. and large commercial real estate brokerage research departments. These reports are critical to providing detailed insight into the building and market. Also, items such as comparable sales, comparable lease rates, comparable occupancy rates, market and submarket development and

employment trends and data, physical condition of the asset, projected repairs and improvements needed on an immediate and outgoing basis throughout the projected hold period, property environmental history and concerns, etc. are key ingredients to a thorough due diligence review. In summary: As noted earlier, you can do due diligence on bad deals all day long, but in the end they are still bad deals. It is of utmost importance to be very selective and reject the exotic and high-risk property categories from a top-down approach when it

comes to beginning the due diligence process. Once all of the junk has been rejected, then it is time to dig in and deconstruct a property from a bottom-up approach utilizing mystery shopping, sensitivity analysis and stress tests, lease audits, third-party report reviews and market analysis, etc. Comprehensive DST due diligence is the most critical aspect of property selection, and what separates DST specialists like Kay Properties & Investments from other DST advisors.

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5 Tips to Build a Crisis-Resistant Real Estate Investment Portfolio Knowing which assets are inherently vulnerable to crisis - and how to avoid them - can be valuable information

By Steve Haskell, Vice President of Kay Properties and Investments, LLC

o, you’ve decided to invest in income-producing real estate as a way to diversify* your investment portfolio so all your assets are not correlated to the stock market’s performance. Now how do you plan a real estate portfolio to build wealth and withstand a crisis? We’ve learned a great deal from analyzing the market through crises including 9/11, 2008-2009, and the COVID-19 pandemic. There are no guarantees and certainly no real estate is immune from a crisis, but these five tips may well enhance the likelihood of having your real estate portfolio hold up even through a severe economic shock like the coronavirus crisis. 74

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Tip #1: Diversify By Asset Type And Geography Diversification is a core tenet of building any investment portfolio. Black swan events do take place and can impact any and all investments, crushing some while lifting others. Diversification does not just apply to stocks and bonds. Investors also should diversify their real estate portfolios by asset type, asset class, and geography. An investor can avoid risk of over-concentration by spreading capital across various asset types such as multifamily, office, medical, self-storage, and others. A challenge for many investors is not having the capital required to purchase various properties all over

the country on their own. Additionally, many investors do not have the time and energy required to oversee a diversified real estate portfolio. This is where Delaware Statutory Trust investments can come into play for anyone looking for greater real estate diversification.

Tip #2: Avoid Asset Types That Are Highly Cyclical, Volatile, And Overexposed To Risk While it is true that any disaster can have a negative impact on any real estate sector, it is also true that some industries are simply vulnerable by nature, and therefore are the first to get decimated during a crisis. For example, hospitality, senior care, and oil and gas are notoriously

Chapter 3: Avoiding Risk

volatile sectors when it comes to real estate. The Great Recession had a huge impact on the hotel industry. In October of 2009, Revenue Per Available Hotel Room (RevPAR) declined by 19.1 percent over a 12-month period across the trop 25 markets. Conversely, apartment rents declined by only 7.9 percent during the same period.

costs required to explore in unproven oil fields, investors have the potential to shelter a significant amount of their taxes on the front end of their investment.

However, by nature, these investments are excessively risky. Even if the drilling is successful (which it often is not), something as simple as a dispute between two oil producing countries can send the industry Senior care is another high-risk asset plummeting. The recent dispute class that is particularly vulnerable to between Saudi Arabia and Russia has crises. While COVID-19 dramatical- sent global oil and gas markets down ly sent the senior-housing sector into to $20 (West Texas Intermediate) and $27 (Brent). Since then, the a tailspin, this industry has many additional risks innate to senior care. coronavirus pandemic decreased the demand, lowering prices for a barrel In addition, senior care has a high of oil even further to sub-zero levels. exposure to regulatory risk, which can cause a facility to shut down for As we move into a green economy necessary remediation work, or shut with companies such as Tesla leading down entirely for a large infraction. the effort to alternative energy, no All of this means a potential loss of one can predict how the demand income or even bank foreclosure. for fossil fuel and natural gas will be impacted. Thus, there is significant There is a litany of other elements operational risk intrinsic to oil and that restrict the assets’ ability to reposition itself in a crisis or economic gas, along with its ultra-sensitivity to downturn. Some of these risks are: a both demand side and supply side heavy exposure to litigation, relative- economic and political factors. ly high operating expenses, high staff turnover, nursing shortages, licensing issues, state regulation risk, and potential complications with clients paying with Medicaid, which can prevent landlords from raising rents and increasing revenue.

Another sector with excessive operational risk and vulnerability to political and economic shifts is oil and gas. These investments have been heavily peddled by private broker-dealers to investors in need of tax write-offs. Due to the heavy capital requirements and intangible drilling

Tip #3: Consider Direct Co-Investment Opportunities

Delaware Statutory Trust (DST) investments are a type of direct private placements, which allow high-net-worth investors the opportunity to diversify, generate passive income, and access high quality real estate. In addition, DST investments are managed by professionals in order to provide the investor with a completely passive investment solution combined with monthly

income potential, and significant tax relief. Other benefits of DST 1031 Exchange investments that have a beneficial interest ownership structure is that the investment can close in as little as 3 days, and can include investments with nonrecourse loans for debt replacement and all-cash/ debt-free properties for diversification.

While COVID-19 dramatically sent the senior-housing sector into a tailspin, this industry has many additional risks innate to senior care. Additionally, Delaware Statutory Trust structures provide investors the opportunity to 1031 exchange in and out of their investment, potentially saving up to 40 percent in taxes. However, those who invest in these types of assets must plan on holding them for at least 5-10 years. These are illiquid assets and there is currently no public market for their trading. As with all real estate, there are risks and investors can lose

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Crisis -Resistant Real Estate

money including their principal, which is why diversifying while avoiding the most risky asset classes is important.

Tip #4: Focus On The Fundamentals When it is all said and done, real estate investing comes down to buying property that makes sense for a reasonable price, and enjoying its potential cash flow benefits as well as the potential asset appreciation. Instead of always looking for home runs, portfolios positioned to withstand a crisis typically shoot for singles and doubles — consistent performance over time. When considering a location resilient in a crisis, search for a city with a younger, growing population and multiple economic drivers. In contrast, purchasing a building in a town completely dependent on the local power plant may provide a nice yield, but leaves the investor unreasonably dependent on the success of that sole employer. Proper research is critical. This research includes collecting appraisals, environmental reports, lease audits, inspection reports, surveys of demographic and population data, and title reports, and performing cash flow analysis and financial stress tests on the property. This part of real estate investing can be boring, but making time or

effort to undertake the research is critical to find good deals. Overlooking a sewage spill captured on the environmental survey that took place on the property 15 years ago may significantly impact the selling price down the road. If an investor does not have the time or experience to conduct this level of due diligence, they can potentially pay an advisor to assist or choose an alternative real estate investment where much of the due diligence has already been performed and packaged for the investor. Another example: when considering a commercial property, the tenant is very important. A publicly traded tenant with a strong credit rating significantly decreases the likelihood of tenant bankruptcy. During a crisis, it is important that the lease on the property is backed by a strong balance sheet. This doesn’t assure that the tenant can make good in a crisis, but significantly increases the odds.

Tip #5: Avoid Leveraged Investments If Possible There are many potential benefits of using debt to buy real estate. However, if the goal is to survive a crisis, avoid leveraged investments if possible. The greatest element of risk in a real estate investment is often the

debt. Not only can the debt expense force the property into a cash flow crisis, other bank requirements built into the loan can restrict flexibility and resilience. Banks often incorporate mechanisms that mitigate their own risk but place the property owner in precarious positions. These challenges include prepayment penalties, defeasance, balloon loans, re-tenanting restrictions, and sinister stipulations built into the loan that could result in cash flow sweeps if a tenant leaves the property or restructures its balance sheet … even if they never miss a rent payment! As a property owner attempts to navigate an economic crisis, these elements can act like landmines waiting to blow up the deal. An unleveraged property does not face a restricting debt obligation or balloon payment. It is free to wait out economic cycles, tenant bankruptcy, or random black swan events. As noted, there are no guarantees in real estate. Crises have the potential to impact all asset classes. But adhering to these five tips can greatly enhance the wealth preservation and wealth building power of a real estate portfolio while mitigating potential loss.

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Chapter 3: Avoiding Risk

Press Release

Kay Properties Real Estate Offering Goes Full Cycle on Behalf of Investors Torrance, CA

ay Properties and Investments recently announced that one of their joint venture private placement real estate offerings has gone full cycle. The offering consisted of an opportunity to participate in an Absolute Triple Net Leased (NNN) hospital in the Kansas City Metro Area. The offering generated a 22.27% Return on Investment (ROI)* in approximately 1 year and was made available to accredited

investors under Regulation D Rule 506(c) at 25k minimum investments. Dwight Kay, CEO and Founder of Kay Properties commented, “We are extremely pleased with the opportunity to provide these returns for our investors in such a short time period and look forward to continuing to provide future real estate investments for those in 1031 exchanges as well as direct cash investors.”

*Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. *The Return on Investment (ROI) represents the ratio of total sales proceeds and distributions through the life of the asset over the total initial equity invested, net of fees. The ROI represents a return to an individual investor. No representation is made that any investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

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Chapter | 4

1031 DST Digest

How to Manage Debt in Real Estate Investments

“With my 1031 exchange from an apartment building in Long Beach, CA into 4 DST properties Matthew took the lead. With guidance by Chay...Matthew was always very responsive and resourceful. And easily accessible!...I am happy with the result and confident regarding the performance of my DST investments going forward...the people at Kay Properties, especially Matthew, were always there and helping me to get where I wanted to go. I took on all the debt that I had to replace with just one DST and the rest, which was the bulk of the proceeds, was invested in three debt-free DST’s.... I think every 1031 exchange investor should listen to what they say at Kay Properties with regard to debt-free DST’s. I love being debt-free on 3 DST’s and glad that on the fourth one the loan is nonrecourse...”

Joe B. - Signal Hill, CA These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment.

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How To Guard Against The Pitfalls Of Financing Used In DSTs Investors should be cautious about taking on any additional debt when investing in DSTs.

By Dwight Kay, CEO of Kay Properties and Investments and the Kay Properties Team

nvestors going into a DST investment are often laser focused on the property they are buying. Where is their money going – perhaps it’s an apartment complex in Dallas or a portfolio of dollar stores in the Midwest? Investors often “kick the tires” so to speak looking at factors such as the location, occupancy, rental income and credit quality of the tenants. One question that often gets pushed lower on that checklist is what type of financing the property has in place. Debt on the real estate is an important part of the deal, and unlike a home mortgage, financing is not always structured the same. Kay Properties typically cautions clients to avoid taking on any additional burden of debt when investing in DSTs. Taking on an asset with debt is inherently more risky than acquiring a property with no leverage or debt obligation. Yet it is common

1031 DST Digest

for DST properties to have 10-year financing in place which can potentially help to mitigate 1031 exchange closing risk for investors. In addition, for investors conducting a 1031 Exchange who need to replace debt in the exchange, DSTs are an ideal solution. You don’t have to buy too much debt, and you don’t have to go to a bank to take out a loan or sign personally for that loan. Financing options for commercial real estate properties can span a variety of different structures and terms. When assessing DST investment opportunities, it is important to know whether or not the DST has financing in place, and if so, are there any potential “red flags” associated with that financing. Part of the job of Kay Properties team members when working with investors is making sure that clients are aware that a DST has financing in place, and if so, are there any potential pitfalls that could impact investment performance.

Potential Financing Pitfalls Pre-payment penalties or defeasance costs: A loan might be defeased or paid off prior to the end of the term, such as is the case with a sale. However, some lenders have onerous pre-payment penalties or “yield maintenance” clauses in the loan agreement that protects their financial interests even if the borrower decides to exit the loan early. Foreclosure: If a property underperforms or loses a tenant and is unable to generate enough income to pay its debt service, the lender could foreclose on the property. If that were to occur, investors could lose part or all of their equity investment. For those investors not wanting to face a potential foreclosure and loss of capital the Kay Properties team would advise them to consider debt free DSTs which are also called all cash DSTs. These debt free DSTs don’t have a long-

1031 DST Digest

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Guard Against Pitfalls of Used DSTs

term loan and as such don’t have the risk of foreclosure from a lender making them a lower risk alternative to the typical leveraged DST investments. At any given time, approximately 80-95% of the DST inventory is leveraged with debt so working with Kay Properties provides investors oftentimes with a much larger selection of debt free DST options than is usually available in the marketplace due to the Kay exclusive all cash DSTs that we have curated for our clients. Cross-collateralized debt: Some DST portfolios have financing that is cross-collateralized. Say you buy into a DST investment that includes 15 different net lease properties with different tenants. If one of those properties struggles and the tenant can’t make its monthly rent payment, the lender may have all sorts of clauses and conditions that affect the other 14 properties that are performing due to the one that is not performing. If the loan is cross-collateralized, or effectively tied to the financing on the other 14 properties, one bad property could potentially drag down the whole portfolio and result in major issues for investors on their entire investment. For example, a lender might exercise their right to call for a “cash flow sweep," holding rent from all of the properties until the situation with the problem property

is resolved. Investors do need to be aware of DSTs that are structured with cross-collateralized debt and what that could mean for potential problems if a property or properties underperform. One way to protect yourself if you are considering a diversified net lease DST portfolio that does have cross collateralized debt is to consider it as a piece to an overall diversified* portfolio of completely separate DST offerings. Oftentimes, investors will seek to place all of their 1031 equity into a single diversified net lease portfolio with debt thinking that this provides them plenty of diversification. However, if things don’t work out as planned that investor will have wished they had utilized a diversified DST offering approach whereby their 1031 equity was placed into multiple completely separate DST offerings. Balloon Payments: Some loans are structured with a large balloon payment at the end of the loan term. In most cases, the strategy at the end of the loan term is to sell the property and pay off the loan. What happens if the property is not able to be sold by the end of the loan term? The DST sponsor would have to spring into an LLC and refinance the asset. This poses a problem as it could cause potential tax implications for investors as well as what if there is a credit crunch like there

was in 2009 and financing is not readily available? This would mean the property would be potentially foreclosed on by the lender and investors would likely lose their entire amount invested. As a way to avoid this catastrophe investors should, when at all possible, look to invest in DST investment opportunities that are debt free and have no long-term mortgages encumbering the assets. This debt free strategy is one that those not comfortable with the risk of lender foreclosure would be wise to seek out and employ for their 1031 exchange into DST investments. Debt financing is common in the broader universe of real estate investments. Likewise, an investor may be perfectly comfortable investing in a property that has cross-collateralized debt or pre-payment penalties on a loan. What is important for investors is to know what financing exists on a DST investment in order to avoid any unpleasant surprises. For investors wanting to view available leveraged DST investments as well as all-cash/ debt-free DST investments please register at www.1031dstdigest.com.

1031 DST Digest

Chapter 4: Manage Debt

How Real Estate Investors Can Use Delaware Statutory Trust (DST) Properties to Replace Debt in a 1031 Exchange Because DST properties already have debt prepackaged into the investment, they make the debt replacement component of a 1031 exchange relatively simple to accomplish.

By Alex Madden, Vice President, Kay Properties and Investments, LLC

avvy real estate investors understand the primary reason for selling and buying real estate via 1031 exchange is to defer capital gains tax that would otherwise be due on the sale. By “exchanging” one or more pieces of property for one or more like-kind pieces of equal or great value helps the investor defer capital gains taxes. However, one of the critical requirements that must take place to make any 1031 exchange work in the eyes of the Internal Revenue Service (IRS) and the individual real estate investor is to ensure that some form of debt replacement occurs in the event the relinquished property has been leveraged. Debt replacement practice basically states that when an investor acquires a replacement piece of property in a 1031 exchange, they must incur a level of debt that is equal to or greater than the amount owed on the former

piece of real estate at the time of sale.

A Simple Example Of How A Delaware Statutory Trust 1031 Exchange Can Help In Debt Replacement To illustrate the concept of how a Delaware Statutory Trust 1031 exchange can greatly help solve the debt replacement equation, imagine an investor exchanging a piece of real estate with a net value (sale price minus closing costs) of $2 million. The investor has a mortgage on the property of $750,000. That $750,000 will be paid off at closing and must be replaced as part of the acquisition. In order to complete the exchange, the acquired property must be worth $2 million or more. The investor has several options and may replace that $750,000 mortgage debt or be hit with capital gains taxes:

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Take out another mortgage of $750,000 (or more if the new property costs more than the net sales price.)

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Combine a smaller mortgage of, say, $500,000 plus adding additional cash of at least $250,000 (to equal the original debt figure.)

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Inject $750,000 which in cash which would basically replace the original debt with cash.

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Invest in a Delaware Statutory Trust 1031 exchange that already has built-in debt.

How to Replace Debt using Delaware Statutory Trust 1031 Exchanges DST 1031 Exchanges already have debt prepackaged into the investment, so they make the debt replacement component of a 1031 exchange relatively simple to accomplish. In addition, investors also have greater flexibility because they

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Replace Debt in 1031 Exchange

can put their investment dollars into multiple DSTs with a variety of debt and equity combinations which helps investors achieve their required debt replacement targets. Compare this scenario to an investor who conducts a 1031 exchange with a single property, like an apartment building. Not only would they have to find a replacement investment property within the desired price range, they most likely would also have to bring in their own money to the deal while working against the mandated 180-day timeframe allowed to complete the exchange. Delaware Statutory Trust 1031 exchanges allow investors a much greater choice of replacement

property options with much less effort. One of the things many investors like about Kay Properties & Investments is the firm’s ability to provide investors seeking debt replacement a myriad of choices. Because of the firm’s ability to work with so many different sponsor companies, it provides clients the ability to participate in custom, exclusively available, off-market DST properties as well as those properties that are available to the wider marketplace. This also means that Kay Properties & Investments marketplace features investment opportunities with leverage that span a wide range of debt levels that can accommodate

just about every investor’s particular needs. Also, for investors that don’t have any debt to replace since they owned their previous property free and clear of with no loans, Kay Properties DST marketplace also has debt free DST properties which have no mortgages. So, it is easy for investors to find options that fit their investment objectives and that can match their equity and debt targets. Investors who would like more in-depth details on options relating to how to use DSTs to replace debt in a 1031 exchange can contact Kay Properties & Investments at 866.805.2844 to discuss your options.

1031 DST Digest

Chapter 4: Manage Debt

Press Release

Custom Kay Properties Delaware Statutory Trust Offering in Richmond, VA Goes Full Cycle Kay Properties and Investments, LLC announced that another of their custom Kay Properties Delaware Statutory Trust offerings successfully went full cycle to deliver a 167% return on behalf of multiple 1031 exchange and direct cash investors* Torrance, CA & Richmond, VA

he DST investment that was sold was the Maple Springs Apartments in Richmond, VA, a 268-unit multifamily community. For those investors that closed simultaneously on the DST investment the same day that the property was purchased, the total returns were approximately as follows: Total Return of 167%– which was inclusive of principal invested, appreciation and monthly distributions Total annualized return of 15%– which was inclusive of monthly distributions and appreciation Dwight Kay, CEO and Founder of Kay Properties commented, “We are pleased to have offered

another Kay Properties client-only custom Delaware Statutory Trust offering to our investors with a fantastic outcome. The Maple Springs Apartments DST was made available to Kay clients as a Custom DST in November 2016 and was sold at a very profitable exit on behalf of our clients in April 2021.” Kay continued, “This successful sale resulted in the majority of the investors doing a subsequent 1031 exchange into more Delaware Statutory Trust investments on the www.1031dstdigest.com investment platform. Over the years the repeat business by our clients throughout the country has been something we are especially proud of. The sale of the Maples Springs Apartments DST has been another custom Kay Properties full cycle event with

*Past performance is not a guarantee of future results.

satisfied Kay investors nationwide. As always, past performance is no guarantee of future results and all investors should consider the risk factors of investing in DST investments and real estate by reading the Private Placement Memorandum prior to participating in any DST offering for sale, paying careful attention to the risk factors section.” Chay Lapin, President of Kay Properties, remarked, “We were very pleased with the value-add investment strategy of Maple Springs DST investment for our investors. As an investor myself in Maple Springs, it was a great opportunity to have a double-digit IRR and give our investors an opportunity for upside potential. We saw the class B multifamily sector opportunity years ago and were very extremely pleased to have

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*Past performance is not a guarantee of future results. 86

1031 DST Digest

our team execute the business plan successfully.” Jason Salmon, Senior Vice President and Managing Director of Real Estate Analytics at Kay Properties, noted, “It has always been gratifying when clients return for multiple investments over time - many of our clients work with Kay Properties to divest of their real estate portfolios and diversify into multiple DSTs in separate transactions as they sell off their investment properties (it’s also a pleasure to help investors with single investment transactions to transition from active to passive real estate ownership).” Salmon additionally stated, “It’s been especially pleasing throughout the years to see many of the real estate and DST offerings we have worked on sell at a handsome profit for our investors. Maple Springs is no exception, a DST investment for sale that was exclusively available to investors working with Kay Properties that created value for 1031 exchange and cash investors.” * Salmon also observed, “Maple Springs DST was a fine example of a Delaware Statutory Trust real estate offering that was managed in accordance with the business plan and investors were more than satisfied with the results. My clients around the country

reinvested in additional DSTs for their 1031 exchanges and I’m proud to have been able to work with them again.” Betty Friant, Senior Vice President at Kay Properties, reflected, “Maple Springs is typical of many of the types of DST properties we offer. Great location, upside potential, and high barriers to entry in the Richmond rental market. With the total annualized return inclusive of monthly distributions at approximately 15% (past performance does not guarantee future results), this was a nice piece of our investors’ real estate portfolio. In fact, I liked this property so much that I invested in it myself!” Kay concluded, “The power of the Kay Properties platform at www.1031dstdigest.com is that not only do investors who access the platform and register for an account receive access to the marketplace of Delaware Statutory Trust offerings from over 25 different DST sponsor companies, but they also are able to access custom Delaware Statutory Trust offerings that are only available to clients that work with Kay Properties.”

No representation is made that any DST investment will or is likely to achieve profits or losses similar to those achieved in the past or that losses will not be incurred on future offerings. Past performance does not guarantee or indicate the likelihood of future results. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guarantees for cash flow, distributions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Placement Memorandum (PPM) prior to making an investment. This case study may not be representative of the outcome of past or future offerings. Please speak with your attorney and CPA before considering an investment. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

www.1031dstdigest.com | 866.805.2844

Can I Cash-Out a Portion of My 1031 Exchange Proceeds? The ins and outs of a Partial 1031 Exchange

By Orrin Barrow, Vice President, Kay Properties and Investments, LLC

any investors that come to Kay Properties are looking for a full tax deferment utilizing a like-kind exchange. A full tax deferment under IRC Section 1031 consists of buying a replacement property for equal or greater value than that of your relinquished value of the property. For example, if an investor sells their property for a net sales price of $1,000,000 in order to have full tax deferment under Section 1031, the investor has to buy at least $1,000,000 worth of total real estate as replacement property. However, many investors are unaware that they are not fully obligated to use 100% of their proceeds in order to still do a 1031 exchange. For example, if an investor sold for $1,000,000 they can actually take $200,000 out of their exchange to increase their liquidity and only pay capital gains and depreciation recapture taxes on that portion of their exchange, the $200,000 that they peeled off. The $200,000 is then deducted from

what the investor has to replace, leaving the investor with needing to purchase only $800,000 of replacement property to defer the bulk of their taxes due. The liquid cash that the investor has available is now taxable but can be used for a variety of different reasons. Many investors have a large part of their net worth captured inside of their real estate holdings. They understand the value of a 1031 exchange but still want the option of having cash set aside for a rainy day. During the COVID-19 pandemic, we saw certain investors decided to complete a partial exchange rather than a full exchange so that they could have some additional liquid funds to possibly weather a more severe economic downturn. It is prudent for investors to understand 1031 exchange rules to complete a partial exchange. When engaging in a 1031 exchange an investor has 45 days from the date of the recorded closing to identify properties and 180 days from the

date of a recorded closing to close on their replacement property. Once an investor's 1031 proceeds are transferred to an accommodator/qualified intermediary account they have the 45-day identification timeline to remove the proceeds that they want to liquidate from the accommodator account. If the funds remain in the accommodator account past the 45th day, the investor's proceeds will remain with the accommodator until the 180th day. Investors need to be aware of when to remove their funds from their accommodator account in order to complete a partial 1031 exchange and how much their estimated tax obligation will be before considering completing a partial exchange. Remember, if your tax obligation from a partial exchange outweighs the proceeds you are left with, it may be prudent to do a full exchange. It is always advised for investors to speak with their CPA and attorney for all tax and legal advice prior to deciding to complete any 1031 or partial 1031 exchange.

1031 DST Digest

Chapter 4: Manage Debt

Why Real Estate Income Funds Have Distinct Benefits for Investors Real Estate Income Funds are Becoming Particularly Appealing to Retail Investors Who Want to Access Institutional Caliber Real Estate

By Steve Haskell, Vice President, Kay Properties and Investments, LLC

he recent fluctuations in the stock market have many investors looking for more conservative and less volatile investments. On top of that, traditional investment instruments like stocks and bonds are similarly not looking very attractive because of their lackluster yield performances. Therefore, more and more investors are attracted to Real Estate Income Funds. While Kay Properties & Investments is best known for its expert-level knowledge of Delaware Statutory Trust 1031 exchange investment strategies and opportunities, the company also has a great reputation for working with nationally recognized real estate sponsors to source and structure All-Cash/Debt-Free Real Estate Income Funds for accredited investors.

What is a Real Estate Income Fund? In general terms, any “income fund” is simply a pool of capital that has been assembled on behalf of a group of investors. There are literally tens-of-thousands of different types of investment funds, including equity funds, bond funds, money market funds, mutual funds, and hedge funds. While direct ownership of real estate has been a popular investment for centuries, recently many investors have also started investing in real estate through participation in a fund. A Real Estate Income Fund is a specific subset of funds that is focused exclusively on investing in potentially income-generating real estate. Real estate income funds provide another entry point for those looking to invest in large commercial or multifamily real estate portfolios. Real Estate

Income Funds are particularly appealing to retail investors who want to own institutional quality real estate that would normally be out of reach for them. A Real Estate Income Fund pools capital from many investors, and then the fund’s sponsor oversees all the fund’s activities, including performing due diligence, underwriting, and property management. Investing in a Real Estate Income Fund is a great way to potentially generate passive income, gain access to institutional level assets, and avoid the responsibilities of direct ownership.

Three Distinct Benefits of Investing in a Real Estate Income Fund Diversification* The ability to diversify in real estate funds has attracted conservative investors that want to avoid the concentration risk that often

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1031 DST Digest

Chapter 4: Manage Debt

accompanies purchasing one piece of real estate. Typically, real estate investing requires a large down payment in order to obtain a loan with reasonable terms, tying up a significant portion of investors’ wealth in a single asset. Funds allow an investor to often place a smaller amount of cash into a highly diversified portfolio, therefore mitigating risk through diversification. Not only do funds allow investors to diversify in different pieces of real estate all over the country but investors can also diversify their investment by asset type and tenants. Funds may hold multifamily apartments, net lease commercial assets, medical, industrial, etc. Asset types can have varying market cycles. Diversifying one’s investment across asset types and geography can potentially insulate their investment from market volatility. Depreciation An additional benefit to real estate income funds is the potential for depreciation. Many real estate income funds allow investors to depreciate their basis in the fund. The non-cash expense lowers the taxable income incurred from fund’s distributions. This may hold significant benefits for investors in high tax states such as California and New York. Investors should

speak to their CPA to determine their own potential tax efficiencies from investing in real estate income funds. Resilience Finally, the ability for funds to continue to purchase real estate over time allows investors to optimize both inflationary and deflationary market cycles. An inflationary market will theoretically drive up the value of the fund. In a deflationary cycle, the fund may continue acquiring assets, cost dollar averaging as the market retreats. Funds have the flexibility to pick up these assets at a discount. Cap rates often expand in a deflationary market, which will allow investors to potentially realize higher distributions as they wait for the market to turn around. ✔ Additional Potential Benefits of Real Estate Income Funds

property into another without realizing capital gains. ✔ Low minimum investment amounts allow for portfolio diversification (typical minimum investment amounts are $25,000-$50,000) ✔ Professional real estate expertise, including acquisition, financing, property management and asset management ✔ Elimination of day-to-day management headaches While it is almost impossible to predict what the economic future will look like, many prudent investors are posturing their portfolios to mitigate risk while optimizing their upside potential no matter which direction the market turns. As more investors learn about the potential benefits of Real Estate Income Funds, their popularity will continue to grow throughout the coming years.

✔ Passive income and/or distribution potential ✔ May provide monthly cash flow and/or distributions ✔ Capital appreciation/equity growth potential ✔ Tax advantages through depreciation, interest deductions, and the fund itself being able to 1031 exchange proceeds from the sale of one

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8% Preferred Return* Debt-Free Offering*

NET LEASE INCOME FUND 18, LLC The Net Lease Income Fund 18, LLC is focused on acquiring and actively managing a portfolio of a single-tenant, Longterm Net Lease, income-producing industrial, medical and retail properties throughout the United States that are subject to net leases with corporate tenants.

INVESTMENT HIGHLIGHTS: ✔ All-Cash/Debt-Free ✔ 8% Preferred Return* ✔ Long-term Net Leases ✔ Targeted Monthly Distributions ✔ Corporate Leases ✔ Offering Size: $50,000,000 ✔ Minimum Investment: $50,000 ✔ Accredited Investors Only - Regulation D, Rule 506c

PRIMARY GOALS AND OBJECTIVES: ✔ ✔ ✔ ✔

Preservation of capital Capital appreciation Current monthly distributions Corporate backed net leases

✔ Assemble a portfolio of primarily

✔ Tax advantages flow through to investors to

✔ Diversification amongst tenants,

✔ 8% preferred return* ✔ Accedited Investors Only - Regulation D

All-Cash/Debt-Free net lease real estate industries, asset classes, and geography

provide shelter to potential income stream.

Rule 506c offering

For more details or to request a copy of the Private Placement Memorandum Please visit www.1031dstdigest.com/netlease call 866.805.2844 or email info@kpi1031.com *Diversification does not guarantee profits or protect against losses. *Preferred return is not guaranteed and is subject to available cash flow. This offering is available to Accredited investors only and made available under Regulation D Rule 506c. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the PPM). Please read the entire PPM paying special attention to the risk section prior investing. This material contains information that has been obtained from sources believed to be reliable. However, Kay Properties, LLC, FNEX Capital, and their representatives do not guarantee the accuracy and validity of the information herein. Investors should perform their own investigations before considering any investment. This material is not intended as tax or legal advice. There are material risks associated with investing in real estate, Limited Liability Company owned (LLC) properties, LLC interests, promissory notes, and real estate securities including illiquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and net leased properties, short term leases associated with net leased properties after the primary lease term has decreased, financing risks, potential adverse tax consequences, general economic risks including the effects of pandemics and civil unrest, development risks and long hold periods. Diversification does not guarantee profits or protect against losses. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns, potential tax benefits and potential appreciation are not guaranteed. Preferred return is not guaranteed and is subject to available cash flow. Please view the PPM for further details. For an investor to qualify for any type of investment, there are both financial requirements and suitability requirements that must match specific objectives, goals and risk tolerances Securities offered through FNEX Capital, member FINRA, SIPC.

1031 DST Digest

Chapter 4: Manage Debt

Press Release

Custom Kay Properties DST Offering Goes Full Cycle on Behalf of Investors One of Kay Properties Custom DST offerings located in Greenville, SC has gone full-cycle delivering an annualized return of 12.60%* after providing uninterrupted monthly distributions throughout the COVID-19 Pandemic

Torrance, CA

ay Properties & Investments, a national DST investment firm, announced another one of its debtfree DST investments has gone full cycle to deliver successful returns on behalf of investors. According to Dwight Kay, CEO & Founder of Kay Properties & Investments, the DST property was sold on behalf of a large group of DST accredited investors. “Full Cycle” is the term used to describe a Delaware Statutory Trust property that is purchased and then sold on behalf of a group of accredited investors after a period of time. The recent full-cycle DST offerings sale generated a 12.60% Annualized Return*.

“We are very pleased for this investment to have provided our clients with a full cycle liquidity event, uninterrupted monthly distributions throughout the entire COVID-19 pandemic, return of their entire equity amount invested as well as appreciation on that equity upon sale. While past performance does not guarantee or indicate the likelihood of future results and all real estate investments could result in a full loss of principal, this DST offering is a good example of how Kay Properties does everything it can to provide our clients with investments that have a lower risk profile with assets that are potentially resilient to pandemics and recessions, and often offered as debt free DST offerings without long-term mortgages,” said Kay.

*Past performance is not a guarantee of future results.

Chay Lapin, President of Kay Properties & Investments, explained that the Greenville, SC DST property performed as per the business plan in the Private Placement Memorandum (PPM) which sought to provide investors with monthly distributions, a full cycle liquidity event and a profitable sale, all while maintaining the lower-risk profile of an all-cash/ debt-free DST investment**. “Our investors were attracted to this Delaware Statutory Trust offering because it provided them the potential for a risk adjusted durable income stream, a high quality tenant, risk mitigation via a debt-free offering with no balloon mortgage, and multiple exit strategies,” said Lapin. In the case of the Greenville 17

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1031 DST Digest

Chapter 4: Manage Debt

DST, the asset was 100 percent occupied and secured with a longterm, absolute NNN lease that was corporately backed. “Investors liked that the asset had a long-term, corporately-backed lease, annual rent increases, and a tenant with an established track record. It is a good example of a DST real estate offering that was managed in accordance with our business plan and our investors were very satisfied with the results**. Of course, going forward we hope that all of our offerings perform as well

as or even better than this particular DST however that is never guaranteed, and investors should understand that all real estate and DST investments contain multiple risk factors. We always encourage all investors to read each offering’s PPM, paying careful attention to the risk factors prior to considering an investment.” said Lapin.

To view current 1031 exchange DST replacement properties and/or direct cash investment opportunities, please visit www.1031dstdigest.com or call 866.805.2844 for more information.

Kay Properties continues to offer more net lease, industrial and multifamily properties for its DST investment program as well as its private real estate investment funds.

*Past performance is not a guarantee of future results. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation.This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital, member FINRA, SIPC.

www.1031dstdigest.com | 866.805.2844

Considering a 1031 Exchange? Learn How Delaware Statutory Trust Investments can offer you: ✔ The ability to close your 1031 Exchange within 3 days

✔ The opportunity to eliminate the

hassles of tenants, toilets, and trash (i.e. the Three T’s).

✔ The potential to receive regular

monthly distributions via ACH direct deposits

✔ The benefit of accessing Institutional grade real estate assets

✔ The potential advantages associated

with greater portfolio diversification by geography and asset class*

CALL TODAY! 866.805.2844 VISIT US: www.1031dstdigest.com “We are so impressed with the volume of available investments, level of professionalism and communication from everyone at Kay Properties,” Felicity I., South Lake Tahoe, CA “We are very happy with our monthly paycheck and the knowledge that we are part-owners of professionally managed real estate in good markets with good tenants,” G.R. Westerly, Providence, Rhode Island *Diversification does not guarantee profits or protect against losses. These testimonials may not be representative of the experience of other clients. Past performance does not guarantee or indicate the likelihood of future results. These clients were not compensated for their testimonials. Please speak with your attorney and CPA before considering an investment. This material does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can be made only by the confidential Private Placement Memorandum (the “Memorandum”). Please read the entire Memorandum paying special attention to the risk section prior investing. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax codes therefore you should consult your tax or legal professional for details regarding your situation. This material is not to be construed as tax or legal advice. There are material risks associated with investing in real estate securities including illiquidity, vacancies, general market conditions and competition, lack of operating history, interest rate risks, general risks of owning/operating commercial and multifamily properties, financing risks, potential adverse tax consequences, general economic risks, development risks and long hold periods. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, potential returns and potential appreciation are not guaranteed. Securities offered through FNEX Capital.