22A — February 2025 — M id A tlantic Real Estate Journal
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M id A tlantic R eal E state J ournal
By Dwight Kay, Kay Properties & Investments How to Use DSTs and 1031 Exchanges for Diversification
Lender to fund construction of 152 villas Kennedy Funding closes DR land loan
the work himself. The solution: Tom’s CPA rec - ommended he consider DSTs After telling his CPA he was not interested in a NNN property or other apartments, Tom’s CPA recommended that he look into DSTs for his 1031 exchange. After presenting a thorough overview of the DST structure — including both benefits and risks — and conducting a comprehensive review of Tom’s needs, we were able to help him curate a tailored real estate portfolio solution to potentially meet his goals of passive income, diversification and risk mitigation. This plan involved him diver- sifying his $5 million of equity into multiple DST properties. Although diversification does not guarantee profits or pro - tection against losses, Tom felt confident because his $5 million was spread out among multiple properties, asset classes, loca- tions and tenants. By doing this, Tom achieved a level of di- versification that significantly reduced reliance on any single property or tenant. Addition- ally, the portfolio was entirely debt-free, eliminating the risk of lender foreclosure or cash flow sweeps. The portfolio of DST invest- ments for Tom’s 1031 exchange included: ● A multifamily DST in- vestment. This debt-free 159- unit apartment community is in the Dallas market and provides the opportunity for a value-add investment strategy with the potential to increase the net operating income (NOI) of the property along with monthly distributions. This investment is sometimes called a “buoy” investment because it can ad- just with time and potentially increase value as NOI is grown through a value-add strategy. ● A multitenant retail DST investment. This debt-free multi-tenant retail property is located in Birmingham, Ala., and has a occupancy rate of 96% including national ten - ants. The property was ac- quired at below replacement cost at an attractive basis. In addition, the property sees more than 3.4 million annual visits from shoppers. ● Essential net lease port- folio DST. This debt-free investment is a portfolio of single tenant net lease essen- tial tenants in one DST that is located across multiple geo- graphic locations. The entire
portfolio is 100% leased with high-quality tenants with corporate-backed net leases. This type of DST investment is sometimes described as an “anchor” investment, because it is designed to potentially deliver predictable income throughout the hold period. ● Creative infill industri - al DST. This debt-free prop- erty is a multitenant indus- trial building with long-term leases in place. The asset was purchased below replacement cost, and is in the employment, cultural, educational and busi- ness center of Athens, GA. Tom’s results Tom was able to successfully leverage the DST structure to achieve his investment goals of a 1031 exchange into pas- sive management, portfolio diversification and the pos- sibility for regular monthly cash flow distributions. Thanks to the DST and 1031 exchange solution, Tom was able to transition from intensive ac- tive property management into truly passive investing. The predictable income stream po- tential from his diversified DST portfolio supports his retirement lifestyle while freeing him from the stress of hands-on manage- ment and equity squeezing rent control regulations. (Note: Di- versification does not guarantee profits or protection from losses.) Tom now enjoys the flexibility and freedom he worked so hard to achieve, knowing that his in- vestment portfolio is designed to align with his financial goals and risk tolerance through the 1031 exchange into DST investments. If you would like to speak with one of the thousands of clients like Tom who have cho- sen to have Kay Properties help them with their 1031 exchange and DST investments, please just call us at (855) 899-4597 or visit www.kpi1031.com. This material is not tax or legal advice. Please consult your CPA/attorney for guidance. Past performance does not guarantee or indicate the likelihood of fu- ture results. Diversification does not guarantee returns and does not protect against loss. Poten- tial cash flow, potential returns and potential appreciation are not guaranteed. There is a risk of loss of the entire investment principal. Please read the Pri- vate Placement Memorandum (PPM) for the offerings business plan and risk factors before investing. Securities offered through FNEX Capital LLC member FINRA, SIPC. MAREJ
continued from page 2A . . . California. Over the years, he painstakingly managed the properties himself, growing the portfolio to an estimated $5 million estate. However, as Tom approached retirement, he realized the hands-on management of deal- ing with tenants, toilets and trash, along with the increasing local rent-control regulations, was just too much for him. As a result, Tom decided to relinquish his portfolio, which he sold for $5 million. The excitement surrounding the sale of his portfolio that he had worked so hard to build over many years quickly faded when his CPA calculated that the capital gains tax and depre- ciation recapture taxes would eliminate nearly 40% of the portfolio’s value. Surrendering this money to the government would significantly impact Tom’s retirement plans. The challenge: Find a suit - able replacement property for a 1031 exchange Tom quickly recognized he needed to complete a 1031 ex- change to help defer taxes and find a replacement property that would require less hands- on management. Tom at first considered a triple net lease, or NNN, prop- erty in which the tenant agrees to pay the property expenses as an option for his 1031 ex- change. However, Tom quickly realized he did not want to put such a large amount of capital into a single NNN property. He always remembered his grandmother using the expres- sion “never keep all your eggs in one basket.” Placing most of his net worth into a single NNN property would put Tom in a precarious position, especially if the tenant closed the location or, even worse, went bankrupt, as the property’s value would be negatively impacted and his monthly rental payments would cease. He needed a strat- egy that would spread risk across multiple investments, in multiple locations, with multiple tenants and multiple asset classes. Tom also knew he didn’t want to purchase more apart- ment buildings. He would then have to continue to manage them as well as be subject to rent-control restrictions. He thought about buying apart- ments out of state but then quickly realized that managing a management company would likely be worse than just doing
“Atlantic Blue Group’s successful track record was one of the factors we took into account while evalu- ating their application,” Falzone said. “As direct private lenders, we’re not constricted to a rigid set of requirements. We have the flexibility to assess outside factors, like the borrower’s prior successful projects and vision for the current proj- ect, to say ‘yes’ to a deal.” Situated on the northern coast of the Dominican Re- public, Vista del Atlántico will be a premier destination for vacationers with breathtaking views of the Atlantic Ocean. At- lantic Blue Group acquired 45 acres in 2021 and began phases 1 and 2 of the development on 25 acres of that property shortly thereafter. Many of the villas are already sold. Vista del Atlántico will offer a suite of first-class amenities, including a clubhouse, a gym, tennis and basketball courts, a spa room, and a meeting room. Unique to Vista del Atlántico will be a restaurant built on an island at the center of a 5-acre lake within the complex. Resi- dents and guests will be able to shop at an on-campus su- permarket and pharmacy, and use the services in its on-site beauty salon. “The developers have a re- markable vision for a dream getaway in this incredibly popular tourist destination,” said Falzone, adding that the project’s post-construction value is estimated to exceed $53 million. “Knowing Atlan - tic Blue Group’s successful track record in the country; their knowledge of the com- mercial real estate market, zoning laws, and construction requirements; we had no doubt that they have what it takes to complete this project.” Puerto Plata is the second- most connected province in the Dominican Republic. “Vista del Atlántico’s prime location in one of the country’s hottest tourism areas, the pre-sold villas, and the full approval from the town were all important aspects we could take into account because we’re not held to an arbitrary checklist or a cap on the types of projects we fund,” Wolfer said. “That kind of flexibility is what makes us an excel- lent partner for borrowers in the Dominican Republic and throughout the world.” MAREJ
ENGLEWOOD, NJ — Kennedy Funding closed a $1.7 million land loan for Vista
del Atlántico, a mixed-use development featuring 152 three- bedroom and four-bedroom villas in Puerto Plata, a province
Mark Falzone
within the Villa Montellano municipality in the Dominican Republic. Proceeds from the loan will be used for construc- tion and working capital. “There are many lucrative opportunities for real estate de- velopment outside the United States, but finding a willing lender to work on a project abroad is incredibly difficult, or even borderline impossible,” said Kevin Wolfer , CEO/ president, Kennedy Funding. “We are thrilled that we have the necessary experience and knowledge to fill this need and get borrowers the financing they need to complete profitable projects outside our borders.” Kennedy Funding has suc - cessfully closed millions of dollars in land loans outside the United States. According to Wolfer, nearly all traditional lenders are hesitant to enter- tain opportunities outside the US. This is especially true of land loans, which are already hard enough to secure in the US, let alone abroad. “Lending internationally takes deep knowledge and ex- perience in dealing with local markets, governments, laws, and land values. Plus, you have to have strong relationships with the right professionals and partners,” Wolfer said. “We leverage this infrastructure to successfully fund projects like Vista del Atlántico in countries like the Dominican Republic.” “We’ve closed more inter- national deals than anyone,” Wolfer said. “With more than $4 billion in loans closed, and with many closed deals in Cen- tral America, the Caribbean, and other global locales, we’re proud to be the go-to lender for international real estate acqui- sition or redevelopment.” According to Mark Fal - zone , executive loan officer at Kennedy Funding, the bor - rower, Atlantic Blue Group 3DRD, SRL, is a renowned developer with several com- pleted projects in the Domini- can Republic.
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