November 2023

26A — November 2023 — M id A tlantic Real Estate Journal

M id A tlantic R eal E state J ournal

Leif Dormsjo spearheads growth and innovation . . .

Another Reason to Stay Debt Free in a 1031 DST . . . experience compared to the continued from page 5A

do until then. A ship came into Baltimore Harbor, made one stop to drop off the entire ship–worth of salt, and we had plenty of salt to fight the storm. That was certainly not something I anticipated while studying at Harvard. What outside activities do you enjoy during your free time? Any time that I can spend with my two sons, who are 3 and 5, is time I cherish. We enjoy doing things outside together – whether going to the park, hiking, taking them swimming, going to a butterfly field, all of those family activi - ties are joyful moments. What inspiring word of advice would you give to a young executive graduat- ing from college today? I typically give two pieces of advice to young people: Read as much as you can about a wide range of subjects. People that have the best ideas, richest conversation, greatest ability to connect the dots, and typically rise the fastest within their organizations are the ones that are well-read. Curios- ity is a good thing, and the best way to activate your mind is to read for purpose and pleasure. Make an effort to connect with seasoned people. If you attend an event that you were particularly inspired by, ap- proach the speaker at the end, and ask to have coffee with them. It takes a lot of cour- age, but you’d be surprised at how willing people are to offer their time. Maybe it gives you a new connection, maybe it leads you on a path towards mentorship, maybe you learn something – whatever it may be, you won’t regret putting yourself out there and con- necting with someone you find inspirational. MAREJ free time? I enjoy playing golf, going to the gym and cooking during my free time. What inspiring words of advice would you give to a young executive graduating from college today? Apply yourself, have a strong work ethic, dedicate time to learning. Sometimes people are fortunate to have a mentor, other times one has to look over the shoul- ders of others and watch what they do right…and what they do wrong. Learn from your own mistakes and try not to repeat them. Always do your best. MAREJ

public sector. It’s been a great opportunity to learn more about the real estate develop- ment world, while still bringing my previous experiences and focus on transit-oriented devel- opment in a fresh way. What were some of your early goals and did anything happen to change them? My focus has always been primarily in transportation- oriented development and in- frastructure development. At the outset of my career, I knew I wanted to prioritize a wide aperture so I could see on a broad typology of projects. I’ve found this has paid off: there’s always something new to learn, and it’s nice to have a sense of how smaller pieces of the bigger puzzle fit together in harmony. I’ve also always intended to learn a lot from others, knowing that gaining specialized knowl- edge will help me understand different inputs in one project. What is the funniest, most unique situation you have faced / conquered during your career? Or in your life? In 2010, when the East Coast was hit with the back-to- back snowstorms well-known as “Snowmaggedon,” I was working in the Maryland De - partment of Transportation (MDOT), and the state was running out of roadway salt. There had been so much snow, we were going through our salt supply too quickly, and we weren’t going to have enough to open the transportation network. The governor at the time, Gov. Martin O’Malley, appointed me “Salt Czar.” I was responsible for figuring out how we were going to get more salt. We ended up buying a whole ship’s worth of salt, which I did not know you could to that point, but this instance was the best lesson that I’ve been given. I was empow- ered to think critically and to trust my instincts. From then on, whether it was with academics, business or life, I’ve known that with thorough research and analysis—it can sometimes be awkward— but it’s acceptable to have confidence in one’s opinion. Other people might agree or disagree with it; and regard - less of their opinion, hopefully they’re willing to have a dis - cussion about it. What outside activities do you enjoy during your

provide protection from a bal- loon payment associated with loan maturity, which many real estate firms are very concerned about in today’s market. 2. Debt-free DSTs Give Sponsors More Flexibility to Respond to Unforeseen Circumstances. On a leveraged property, many asset management and leasing initiatives require lender approval before they can be executed. This limits the real estate operator in the speed at which they can oper- ate the property and, at times, may limit the options available to them. In a debt-free DST setting, however, there is no lender that needs to approve an asset management or leasing initia- tive, so the sponsor has the ability to potentially act quickly on behalf of the property and thereby investors. 3. Debt-Free DSTs Have No Monthly Debt Service to a Lender. A leveraged DST has monthly debt-service payments that must be made first and in full each month, allowing remain- ing funds to be paid out to investors. In economic down- turns, an asset’s revenues may be reduced. The equity investors in a leveraged DST bear the burden of this revenue reduction because debt-service payments must still be made, potentially impairing investor monthly distributions. 4. Debt-Free DSTs Pro- vide Investors the Ability to Diversify a Portion of Their Portfolio into Un- levered Assets to Lower Potential Risk. Many entrepreneurs who have invested heavily in the stock/bond markets turn to all-cash/debt-free Delaware statutory trust properties as a strategy to diversify away from stocks and bonds. Since these products do not contain the risks of a loan, they are especially interesting to direct cash investors. 5. Debt-Free DSTs Pro- tect Investors From Lender Cash-Flow Sweeps Associ- ated with Tenant Credit- Rating Fluctuations. In the event a tenant’s credit rating decreases, under certain loan terms, the lender would have the right to sweep the cash flow until the tenant’s credit rating improves. This is a major risk found in many net lease DST offerings with leverage. In a debt-free DST, if the ten- ant’s credit rating gets lowered,

there is no lender to effectuate a cash-flow sweep, thereby po - tentially protecting investors’ monthly distributions. In summary, each of these arguments supporting the wis- dom of investing in debt-free assets stands on its own. Put them all together, and debt-free DSTs are not just something to consider during higher inter- est rate environments, but an important investment strategy for DST investors for the fore- seeable and long-term future as well. To sign up for a free list of all-cash/debt-free DST prop- erties for 1031 exchange and cash investors please register at About Kay Properties and Kay Properties is a national Delaware Statutory Trust (DST) specialty firm. The platform provides access to the market- place of typically 20-40 DSTs from over 25 different DST sponsor companies, custom DSTs only available to Kay clients and a DST secondary market. Kay Properties team members collectively have over 400 years of real estate experience, are licensed in all 50 states, and have partici- pated in over 30 Billion of DST 1031 investments. Diversification does not guarantee profits or protect against losses. All real estate investments provide no guar- antees for cash flow, distribu - tions or appreciation as well as could result in a full loss of invested principal. Please read the entire Private Place- ment Memorandum (PPM) prior to making an invest- ment. This case study may not be representative of the outcome of past or future of- ferings. Please speak with your attorney and CPA before considering an investment. There is a risk of loss of the entire investment principal. Past performance is not a guarantee of future results. Potential distributions, po- tential returns and potential appreciation are not guar- anteed. For an investor to qualify for any type of invest- ment, there are both financial requirements and suitability requirements that must match specific objectives, goals, and risk tolerances. Securities of- fered through FNEX Capital, member FINRA, SIPC. Dwight Kay is founder & CEO of Kay Properties and Investments. MAREJ

after the owner was unable to make payments on a large self- storage facility near Midtown Manhattan 7 . The most recent example comes from Yahoo! Finance whereby a major real estate investor has defaulted on $161 million dollars of loans tied to an office portfolio in the Wash - ington DC area that it owns. Just a thought, but maybe this portfolio would have been better suited as a debt-free acquisition to protect investors from default and a complete loss of equity. Kay Proper - ties is a leader in providing investors with debt-free real estate investment options for their 1031 exchange and di- rect cash investments. Here ( investments-cash-debt-free- delaware-statutory-trust-prop- erties/) is a video on some of the benefits of investing in debt-free DST real estate. Sur- prisingly, very few real estate investment firms acquire prop - erties on an unleveraged basis. However, now more than ever, investors should consider debt- free real estate investments as a prudent strategy. Recent Black Swan Events Expose the Dangers of Debt The good news is that now, more and more investors are waking up to the reality that investing in leveraged offerings may not be a prudent situation for them and that taking on an extra layer of risk may not be a good choice. For wealth advisers and investors alike, recent events such as the war in Ukraine, bank failures, and of course, the COVID-19 pandemic serve as reminders that black swan events are real and that using leverage comes with risk. The bottom line is that the risk of lender foreclosure, which is always mentioned but rarely considered a realistic possibil- ity, has suddenly become much more of a reality. Here are five specific rea - sons why debt-free DSTs should potentially be a part of a 1031 exchange investor’s portfolio today. 1. Debt-Free DST Assets Provide Investors with Zero Risk of Lender Foreclosure. DSTs without debt are con- sidered by many to have a much lower risk profile than those with leverage. Debt-free DSTs have zero risk of lender foreclo- sure, protecting investors from a complete loss of principal invested. Also, debt-free DSTs continued from page 2A

continued from page 4A Jason Salmon’s Approach to CRE Success: Learn, Lead, Succeed

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