The Delaware Statutory Trust marketplace has grown dramatically. Investors considering a 1031 exchange may now face dozens of DST offerings involving apartments, industrial properties, healthcare facilities, retail properties, self-storage, build-to-rent communities, net-leased properties and other specialized real estate sectors.
More choices, however, do not necessarily make investment decisions easier.
Two DST offerings can have similar targeted cash distributions while differing significantly in leverage, property quality, tenant concentration, market fundamentals, sponsor experience, financing terms, reserves, exit assumptions and other important factors.
That is why First Guardian Group developed FGG Compass™.
What Is FGG Compass?
FGG Compass is First Guardian Group's proprietary analytical process designed to help our professionals evaluate and compare DST offerings using a broad, structured set of financial, property, market, sponsor and risk considerations.
Rather than focusing primarily on a targeted distribution rate, FGG Compass is designed to examine an offering from multiple perspectives.
Depending on the characteristics of a particular investment, our review may consider factors such as:
- Property type and investment structure
- Geographic location and market fundamentals
- Current and targeted cash flow
- Purchase price and valuation considerations
- Debt level, interest rate and financing structure
- Lease terms and tenant concentration
- Property age and physical characteristics
- Capital reserves and anticipated capital requirements
- Sponsor experience and historical activity
- Sponsor alignment and transaction structure
- Economic and demographic trends
- Potential downside exposures
- Assumptions affecting targeted investment performance
- Potential disposition and exit considerations
Not every factor carries the same relevance for every property. A single-tenant net-leased asset, for example, presents a substantially different risk profile than a multifamily community or a build-to-rent portfolio.
FGG Compass is intended to help us evaluate those differences systematically.
Looking Beyond the Brochure
DST offering materials necessarily contain substantial information, but identifying the issues that may matter most to a particular investor can require deeper analysis.
An attractive targeted return does not, by itself, tell an investor:
- What assumptions were required to support that target?
- How much leverage is being used?
- What happens if rents do not increase as targeted?
- What happens when existing debt matures?
- How concentrated is the property’s tenant base?
- How strong is the underlying market?
- How much experience does the sponsor have with this particular property type?
- What circumstances could affect the property’s eventual resale value?
FGG Compass is designed to help organize and evaluate these types of questions.
Using Technology to Expand the Analysis
One distinguishing feature of FGG Compass is our use of technology, including artificial intelligence-assisted analytical tools, to help review and organize substantial amounts of information.
DST private placement memoranda and supporting materials can run hundreds of pages. Additional information may include financial projections, property supplements, market studies, sponsor information, third-party due diligence reports and other available data.
Technology can help us identify, organize and compare more data points than would ordinarily be practical through a brochure-level review alone.
Importantly, technology does not make investment decisions for us.
FGG professionals review the information, consider the context of the offering and use professional judgment in evaluating its potential strengths and risks.
AI-assisted analysis is a tool - not a substitute for experience, due diligence or human judgment.
The FGG Compass Score
When appropriate, FGG Compass may produce an overall analytical score or comparative assessment intended to help our professionals evaluate an offering relative to the factors included in our review.
The score is not a credit rating, prediction of investment performance, guarantee of principal, recommendation to purchase, or assurance that one investment will outperform another.
A higher analytical score does not eliminate risk, and a lower score does not necessarily mean an investment is unsuitable for every investor.
Instead, the Compass process is intended to provide another structured framework for identifying potential strengths, weaknesses and areas requiring additional investigation.
Experience Still Matters
Data is most useful when it is interpreted in context.
First Guardian Group's approach combines analytical technology with decades of experience involving investment real estate, 1031 exchanges, DSTs and other real estate securities.
Our objective is not simply to identify investments offering the highest targeted distribution. In fact, higher targeted returns can sometimes reflect higher underlying risks.
We believe investors should understand what may be driving a targeted return and whether the potential reward appears reasonable in relation to the risks being assumed.
That distinction can be especially important when evaluating newer or more specialized property sectors, highly leveraged transactions, unusually aggressive projections or investment structures with limited operating history.
FGG Compass Is Part of a Broader Due-Diligence Process
No analytical system can predict the future.
Real estate values, interest rates, rents, operating expenses, capital markets, tenant performance and economic conditions can change significantly during the holding period of a DST.
FGG Compass therefore should not be viewed as a forecasting system.
Instead, its purpose is to help us ask better questions, analyze more information and provide investors with a clearer understanding of factors that may affect an investment.
FGG Compass supplements - and does not replace - the investor's review of the Private Placement Memorandum and other offering materials, consultation with tax and legal professionals, suitability analysis and the due-diligence processes required in connection with a securities investment.
A Better-Informed DST Conversation
We developed FGG Compass around a straightforward principle:
Investors considering significant real estate investments deserve more than a sales brochure and a targeted distribution rate disclosed in the PPM.
Our goal is to provide investors with a disciplined analytical framework that helps identify both potential opportunities and potential risks before an investment decision is made.
For investors completing a 1031 exchange, FGG Compass can provide another important perspective as they evaluate competing DST alternatives and consider how individual investments may fit within a diversified exchange strategy.
Put FGG Compass to Work for Your 1031 Exchange
Choosing among DST investments can be one of the most important decisions in a 1031 exchange. The professionals at First Guardian Group combine extensive real estate and DST experience with the analytical capabilities of FGG Compass to help investors look beyond targeted returns and better understand the opportunities, risks and tradeoffs among available offerings.
If you are considering a 1031 exchange, we invite you to speak with an FGG professional about how FGG Compass can help you evaluate your DST alternatives with greater depth, discipline and perspective.
Learn More! Contact First Guardian Group today 866-398-1031 or info@fgg1031.com
Important Disclosures
FGG Compass™ is First Guardian Group’s proprietary, AI-assisted research and due-diligence process. Compass is designed to help organize, review, and compare information concerning Delaware Statutory Trust ("DST") offerings using selected offering documents, third-party information, publicly available information, analytical tools, and professional review.
Artificial intelligence assists with the initial analysis but does not independently select investments or make recommendations. AI-generated information may be incomplete or inaccurate and is subject to human review. Compass does not guarantee the accuracy or completeness of available information, predict investment performance, or eliminate investment risk.
Compass is not a substitute for the controlling offering documents, independent tax or legal advice, Emerson Equity LLC’s product-review and supervisory processes, or the customer-specific analysis required before a recommendation is made. Any recommendation must be based on the investor’s individual circumstances and is subject to applicable suitability, best-interest, and supervisory requirements.
DST investments are speculative, illiquid, and subject to substantial risks, including possible loss of principal. Projections and forward-looking information are based on assumptions that may not occur.
General Disclosure
For more information on Emerson Equity, please visit FINRA’s BrokerCheck website. You can also download a copy of Emerson Equity’s Customer Relationship Summary to learn more about their role and services.
Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.
Securities through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.
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