---
title: Pros and Cons of Investing in Necessity Retail DSTs
description: This article discusses the pros and cons of investing in necessity retail DSTs- a sub-class of retail that consists of recession-resilient, creditworthy tenants in retail and healthcare industries.
---

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# [Pros and Cons of Investing in Necessity Retail DSTs](https://blog.fgg1031.com/blog/pros-and-cons-of-investing-in-necessity-based-retail-dsts)

 Written by [Paul Getty](https://blog.fgg1031.com/blog/author/paul-getty) | Apr 22, 2021 4:30:00 PM

##### **What is necessity retail?**

Necessity retail is a sub-class of retail that consists of recession-resilient, creditworthy tenants in retail and healthcare industries. These tenants provide essential services which continue to be in high demand during recessionary periods and are not easily replaced by the internet. They remain open in many cities and states where other businesses have been forcibly closed due to the COVID-19 pandemic. In many instances, tenants have experienced record demand for their products and services during this challenging period.

Examples of necessity retail tenants that are found in DST offerings include Walgreens, Walmart Neighborhood Market, Tractor Supply, Family Dollar, Fresenius Dialysis Clinic, CVS Pharmacy, among others. Leases for necessity retail tenants are often guaranteed by the parent company.

Due to the relatively small value of each necessity retail asset as compared to an apartment or commercial office property, it is very common for several necessity retail properties to be grouped together as a portfolio in a single DST. 

##### **How are necessity retail properties performing?**

One of the largest necessity retail DST sponsors, ExchangeRight, reported that they collected 100% of their rents in 2020 totaling approximately $129M – and that all their past necessity retail DST offerings have met or exceeded cash flow distributions to investors since their founding in 2012. Comparable portfolios of net leased properties managed by public REITs did not fare as well and reported collections during 2020 ranging from 69% to 96% underscoring that not all necessity retail was immune to the pandemic.\*

##### **What attracts investors to necessity retail DSTs? **

- Steady payments with no COVID related distribution reductions in 2020
- Generally higher pre-tax income relative to other assets classes e.g., apartments
- Good track record of leading necessity retail DST sponsors
- Diversification of assets across tenants and geographies within a single DST

While these attributes contribute to the growing demand for necessity retail DSTs, there are additional considerations that investors should evaluate. 

##### **What to consider before investing in necessity retail?**

- ***Fixed term leases***

- ***Properties with shorter term leases can have added risks***

- ***Depreciation impact on after-tax cash flow***

- ***Tax reporting***

- ***Self-dealing and conflicts of interest at time of sale***

##### **Summary**

Necessity retail has become a very popular DST asset class and new offerings from top sponsors often fill-up up quickly after being released due to recent and past performance. Prospective investors are urged to study the inherent risks and trade-offs prior to investing and to especially consider exit scenarios and options offered by sponsors at the time of future sale. 

For more information on necessity retail DST offerings, please [contact us!](https://fgg1031.com/contact/)

#### Download our latest Ebook today!

\* Rent collection data provided by ExchangeRight who reported that cited data was based on press releases and public filings that have been made available as of January 2021. 

\* If the investor passes during the holding period, his/her heirs may be able to inherit those interests at the current market rate at the time of passing and avoid paying capital gains taxes. 

[View full post](https://blog.fgg1031.com/blog/pros-and-cons-of-investing-in-necessity-based-retail-dsts)

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