A sponsor company is a company that plays an important role in creating and managing a Delaware Statutory Trust (DST). The sponsor company is responsible for identifying, acquiring, and managing the properties that will be held in the DST. They create the structure that governs the trust and manages the day-to-day operations, including collecting rent and paying expenses. The sponsor company also markets and offers the DST to potential investors, manages investor relations, and provides professional expertise in real estate acquisition, management, and finance. When considering an investment in a DST, it’s important to research the sponsor company and ensure that they have a track record of success and expertise in the areas necessary to effectively manage the DST.

What Sponsors Do

• Identify and Acquire Properties: Sponsor companies are typically responsible for identifying and acquiring the properties that will be held in the DST. They may also be responsible for conducting due diligence on the properties. Typically, they will buy the property outright and as investors buy-in, they will recoup their initial investment. This way, DSTs are structured to be ready to invest into eliminating any closing risks on the property. 

• Create and Manage the Trust: Sponsor companies are typically responsible for creating the trust agreement and other legal documents that govern the DST. They may also be responsible for managing the day-to-day operations of the trust, including collecting rent and paying expenses.

• Manage Investor Relations: Sponsor companies are typically responsible for communicating with investors and providing regular updates on the performance of the DST. This can come in the form of quarterly, semi-annual, or annual memos. They may also be responsible for making distributions to investors and handling any investor inquiries or concerns. 

• Market and Offer the Investment: Sponsor companies are typically responsible for marketing and offering the DST to potential investors. This may include preparing offering materials, working with brokers and financial advisors, and hosting investor seminars and webinars.

In summary, sponsors play a critical role in managing Delaware Statutory Trusts (DSTs), handling everything from property acquisition to investor communications. These companies ensure the DSTs operate smoothly, maintaining transparency and efficiency in managing your investment. When considering an investment in a DST, it’s important to research the sponsor company and ensure that they have a track record of success and expertise in the areas necessary to manage the DST effectively. More on that below.

How do I know which sponsor company to work with

Here are a few factors to consider when evaluating DST sponsor companies:

• Track Record: A sponsor’s track record speaks volumes to their investment strategy and philosophy. You should research the sponsor company’s track record in managing DSTs and other real estate investments. Look for companies with a successful track record of identifying, acquiring, and managing properties, as well as a strong history of performance for previous DSTs.

• Expertise: You should also consider the sponsor company’s expertise in real estate acquisition, management, and finance. Look for companies with experienced professionals who have a deep understanding of the real estate market and can effectively manage the DST.

• Investment Strategy: You should understand the investment strategy of the sponsor company, including their approach to property acquisition, management, and potential exit strategies. Why did they buy the property you’re thinking about investing in? Look for companies with a well-defined investment strategy that aligns with your investment goals and risk tolerance.

• Fees and Expenses: You should understand the fees and expenses associated with the DST investment, including upfront fees and ongoing management fees. Look for companies with transparent fee structures and reasonable fees that don’t eat into your potential returns. In today’s market a lot of sponsors are bloating their fees. Professionals you work with should be able to easily walk you through the fee structure. 

• Reputation and Integrity: You should consider the sponsor company’s reputation and integrity. Look for companies with a strong reputation in the industry and a commitment to ethical and transparent business practices. Open and consistent communication is key here.

Ultimately, selecting the right sponsor company requires thorough research, due diligence, and consultation with a financial advisor or attorney. Don’t rush into any investment decisions, and carefully evaluate all potential DST sponsor companies to ensure that you select the right partner for your investment goals.

What do I ask sponsors?

When talking to a DST sponsor company, there are several questions that you may want to consider asking in order to gather information and evaluate the potential investment opportunity. 

Here are 10 good potential questions to ask:

1. What’s the track record of the sponsor company in managing DSTs and other real estate investments? 
2. What does a successful DST look like to you?
3. What’s the investment strategy for the DST? How do investors get returns?
4. How do you plan to generate returns for investors? 
5. What’s your approach to property acquisition and management?
6. Is there an exit strategy if things don’t trend positively?
7. What is the minimum investment amount, and what fees will I incur? 
8. What is the target return for this DST? What risks are there?
9. What is the expected holding period of the DST? How will this impact my ROI?
10. How do you communicate with your investors? What does your reporting look like?

It’s important to work with qualified professionals and follow the rules and requirements carefully in order to ensure that the exchange qualifies for tax-deferred treatment. Investors should consult with a tax advisor, attorney, and qualified intermediary to determine the best strategy for their specific situation and to ensure that they are in compliance with the IRS regulations.