A DST due diligence checklist helps an accredited investor evaluate the people, property, financing, disclosures, and risks behind a Delaware Statutory Trust offering before making an investment decision. It should be used alongside the offering’s Private Placement Memorandum, or PPM, and guidance from independent tax, legal, and financial professionals.
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What Should a DST Due Diligence Checklist Cover?
A complete review covers sponsor experience, property and tenant fundamentals, market conditions, leverage, fees, distributions, conflicts, exit assumptions, liquidity, and tax risks. The goal is to identify risks, test assumptions, and decide whether the investment deserves further consideration.
Accredited-investor status does not establish suitability. DST interests are securities and generally illiquid. Distributions, appreciation, exit timing, principal preservation, and tax treatment are not guaranteed.
DST Due Diligence Checklist at a Glance
| Review area | What to examine | Potential warning signs |
|---|---|---|
| Sponsor | Experience, realized results, reporting, litigation, and management capabilities | Limited realized track record or weak reporting |
| Property, tenants, market | Condition, occupancy, lease rollover, tenant credit, rent assumptions, supply, and demand | Deferred maintenance, aggressive assumptions, or concentration |
| Debt | Loan-to-value, rate, amortization, covenants, reserves, maturity, and refinancing | Near-term maturity, thin reserves, or dependence on favorable refinancing |
| Fees and distributions | Fees, use of proceeds, projections, reserves, and coverage | Opaque compensation or optimistic assumptions |
| PPM, conflicts, exit, tax | Risk factors, related parties, sale assumptions, liquidity, and 1031 analysis | Unclear conflicts or uncertain tax qualification |
Sponsor and management
- Review acquisitions, management, financing, dispositions, reporting, litigation, regulatory matters, defaults, and challenged investments.
- Separate unrealized projections from completed results and ask how the sponsor performed during difficult markets.
Property, tenant, and market fundamentals
- Assess property condition, capital needs, occupancy, leases, tenant credit, expirations, and renewal assumptions.
- Study population, employment, supply, demand, competing properties, and dependence on one employer or sector.
Capital structure, leverage, and debt maturity
- Identify loan balance, loan-to-value, interest rate, amortization, maturity, covenants, and reserves.
- Test lower income, higher expenses, and refinancing at a higher rate.
Fees, distributions, and financial assumptions
- Trace proceeds, acquisition costs, commissions, financing costs, reserves, and related-party fees.
- Determine whether projected distributions are supported by property operations after debt service and expenses.
PPM, conflicts, exit, liquidity, and tax risks
- Read the full PPM, including risks, conflicts, subscription documents, projections, and exhibits.
- Review exit assumptions, transfer restrictions, and potential need to hold indefinitely.
How Do You Evaluate a DST Sponsor?
Start with relevant experience, not just years in business or total assets. Ask for realized performance and compare it with original assumptions where available. Review the people responsible for acquisitions, asset management, finance, compliance, and property operations. Compare multiple DST sponsors.
Review the Property, Tenants, and Market
Evaluate the real estate independently of the tax strategy. Review location, age, condition, competitive position, occupancy, rents, expenses, maintenance, capital improvements, environmental issues, and insurance exposure. For tenants, examine credit, lease guarantees, remaining terms, renewal options, rollover, and replacement costs. Review employment, population, planned construction, vacancy, and rent trends.
Use this checklist alongside guidance on investor due diligence and investment risks.
Stress-Test Leverage, Debt Maturity, and Distribution Assumptions
Review loan amount, lender, rate, maturity, amortization, prepayment terms, covenants, recourse provisions, and cash-management requirements. Ask what happens if refinancing is unavailable or more expensive. Projected distributions are estimates, not obligations. Determine whether they are supported by recurring property cash flow after debt service, expenses, and reserves.
Read the PPM, Fees, Conflicts, and Exit Assumptions
The PPM is the central source for offering-specific facts and risks. Identify acquisition costs, commissions, financing costs, organizational expenses, management fees, disposition fees, and related-party compensation. Review conflicts and who controls material decisions. Treat the hold period and exit strategy as scenarios, not promises. There may be no practical secondary market.
Account for Liquidity, Market, Sponsor, Interest-Rate, and 1031 Risks
DST interests are generally illiquid. Investors have limited control. The property can lose tenants, incur unexpected costs, or decline in value. Sponsor execution can fall short. Investors can lose some or all principal.
A DST proposed as replacement property also involves tax risk. Review deadlines, property eligibility, debt replacement, vesting, and structure with independent professionals. See IRS guidance on like-kind exchanges involving real property and Cornerstone’s DST and 1031 exchange education. No review can guarantee Section 1031 qualification or a desired tax result.
How Cornerstone Applies Four Stages of Due Diligence
Cornerstone serves as an independent resource and quality gatekeeper rather than an offering sponsor. Read about Cornerstone’s four-stage due diligence process and why Cornerstone may reject an offering. Cornerstone’s review does not replace each investor’s own diligence or independent advice.
Questions to Ask Before Investing in a DST
- What assumptions have the greatest effect on distributions and exit value?
- How did completed offerings perform compared with projections?
- What tenant, capital, or debt events could change cash flow?
- Which fees and related-party arrangements affect investors?
- What happens if occupancy falls, expenses rise, refinancing costs increase, or sale is delayed?
- What do independent tax, legal, and financial professionals identify as key risks?
Next Steps Before Making an Investment Decision
Compare offerings consistently, document unanswered questions, and review conclusions against the PPM. Give special attention to assumptions that must go right.
View current DST properties and schedule a qualified consultation with Cornerstone.
This material is for educational and informational purposes only. It is not tax, legal, financial, or investment advice, and is not an offer to sell or solicitation to buy any security. All investments involve risk, including illiquidity and potential loss of principal. Review the applicable PPM and consult your own qualified tax, legal, and financial professionals before making an investment decision.