What is the Financial Time Commitment on a DST?

Wally Smith:
And most of them are built on a 10 year chassis though, right?

Jeff Hertz:
Yeah. Exactly.

Wally Smith:
Is that statutory that it’d be a 10 year period?

Jeff Hertz:
It’s not. Really to me it’s all about the loan term, and that stems from the fact that when the IRS created and were blessed, I should say, the revenue ruling 2004-86, in 2004 they established what are known as the seven deadly sins, which are basically just guidelines of how a DST has to be managed. One of those is that you cannot refinance a DST. There have been some sponsors who have figured out a way to do that in a way. Exactly. But generally speaking you’re going to be in an asset that is going to be a 10 year lease, if not longer, with one caveat, which I’ll mention in a second, and generally 10 years of financing or longer.
Now, again, what we saw in maybe 2004, 05 was shorter term financing, I.e five years. And then the challenge that of course those sponsors ran into was, oh my gosh, five years is not that long of a time, and it happened to coincide with the worst financial crisis we’ve seen in our lifetimes. So most of the time you’re seeing at least 10 year debt on these assets. Like I said, you’re often seeing at least 10 year lease term, especially for a single tenant asset. Now, the one exception is of course when you’re talking about things like multifamily, student housing, self-storage, you have generally shorter term leases, I.e, one year, and that’s where you would have a master lease structure in place.