Because the real estate offerings through Cornerstone Real Estate Investment Services are private placement offerings regulated by the federal government under the 1933 Securities Act, a law firm is retained by the sponsor to write a Private Placement Memorandum (PPM).

This PPM contains a detailed description of the property, the sponsor, the financial details of the investment, the projected return on the investment, and the specifics of the DST structure. It also contains third-party due diligence reports, all pertinent leases, agreements, contracts, and a legal opinion as well as a detailed discussion of general and specific risks associated with each particular investment.

All DSTs are structured and offered as securities under the Securities Act of 1933, which requires the investor to be provided with a private placement memorandum (PPM) created out of significant due diligence from the real estate company, the lender, and the securities industry. The PPM discloses all possible risks and material facts about the investment. In comparison, for traditional real estate, in most cases, the standard “caveat emptor” or buyer beware essentially makes it the buyer’s responsibility to inspect the property and discover whether there are any unacceptable conditions or defects before closing the deal, with some states imposing a requirement for the seller to disclose only known material items.

The combination of due diligence and full disclosure is a powerful advantage for the DST investor.  When contemplating the purchase of a traditional single-ownership property, the investor would have to pay in advance and out of his own pocket for appraisals, environmental studies, and loan application fees, all before removing contingencies on a possible purchase. If the investor performs similar due diligence on multiple properties, these significant expenses will increase proportionately. However, with a DST investment, an investor can compare and contrast many DST offerings at no expense, simply by requesting and reviewing the PPM documents.  All the pertinent information such as appraisals, environmental studies, leases, tenant agreements, and loan documents are presented in the full disclosure PPM at no cost to the investor.  Similar formatting between PPMs allows the investor to easily compare and contrast multiple DST offerings and make an informed investment decision with no upfront costs. This is especially advantageous given the 45-day identification and other time constraints of the 1031 exchange.


These are benefits that may not be available to an investor seeking to purchase a non-securitized piece of real estate on their own unless they paid for them themselves.

The law firm must also perform limited due diligence on disclosures made in the PPM to ensure that they are complete, accurate, and not misleading to the reader. A law firm is also retained to issue a legal opinion published within the PPM on whether the offering as structured will meet the provisions for Revenue Ruling 2004-86 or Revenue Procedure 2002-22 and qualify for 1031 exchange treatment. Both our brokerage and the Real Estate Investment Securities Association require a “should” level opinion for an offering to be acceptable. Per Regulation D of the 1933 Securities Act, each accredited investor must be provided with the PPM in advance of making a decision to invest in the offering.