Capital Square Zero-Coupon DFW Hospitality DST

TX

Property Type

Hospitality

Assumable Loan

77.78% LTV

Current Yield

Zero-Coupon

Distributions

Zero-Coupon

Estimated Hold Period

10 Years

721 Exchange (UPREIT)

Optional

Capital Square Zero-Coupon DFW Hospitality DST

Investment Highlights

  • CS1031 Zero-Coupon DFW Hospitality DST is an investment in an approximately 0.92-acre, 99-year ground lease site located in Fort Worth, Texas.

  • Location: heart of downtown Fort Worth, steps from Sundance Square. Only 0.2 miles from Fort Worth Transit Center and 25 miles from DFW International Airport.

  • Property: newly constructed in 2024, 14-story Class A hotel with 188 rooms.

  • The 36-year loan term provides the trust with flexibility to exit the investment in ideal market conditions without risks imposed by a pending loan maturity.

  • Fully amortizing loan with zero residual loan balance to pay off upon maturity.

  • The sponsor believes that the loan's sub-6% interest rate is highly attractive compared to 30-year corporate bonds with investment-grade A-AAA ratings. This rate supports higher leverage and a larger loan amount.

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Have Questions?

Jerry Baker

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Jerry Baker, Founder of Baker 1031 Investments

FAQ: Common Investor Questions About DSTs and 1031 Exchanges

1. What is a 1031 exchange?
Named after Section 1031 of the Internal Revenue Code, a 1031 exchange allows a real estate investor to "swap" one investment property for another "like-kind" property while deferring federal capital gains taxes. To qualify, the investor must identify a replacement property within 45 days of selling their original asset and complete the acquisition within 180 days. This strategy is widely used to shift portfolios into higher-value assets or different sectors without the immediate "tax haircut" that usually accompanies a sale.
2. What is a Delaware Statutory Trust (DST) property?
A Delaware Statutory Trust (DST) is a legally recognized entity that allows multiple investors to hold fractional "beneficial interests" in a single large-scale commercial property or a portfolio of properties. Unlike a standard partnership, a DST is structured specifically to meet IRS requirements for passive ownership, meaning the day-to-day management, leasing, and financing are handled by a professional "Sponsor." This allows individual investors to own a piece of institutional-grade real estate without the headaches of being a landlord.
3. Do DSTs qualify for 1031 exchanges?
Yes, thanks to IRS Revenue Ruling 2004-86, an interest in a DST is officially treated as a direct interest in real estate for federal income tax purposes. This means a DST qualifies as "like-kind" replacement property for a 1031 exchange. This ruling was a game-changer for the industry, as it allows investors who are selling a managed property (like a rental home) to roll their proceeds into a DST to achieve complete tax deferral while moving into a strictly passive investment role.
4. How does income work with DSTs?
Income in a DST is distributed to investors on a pro-rata basis, meaning you receive a share of the net rental income proportional to your percentage of ownership in the trust. Because the properties are typically pre-stabilized with corporate tenants or high occupancy rates, distributions are often paid out monthly or quarterly. It’s important to note that this income is "net" of property operating expenses, management fees, and mortgage interest, but it still retains the tax benefits of direct ownership, such as depreciation deductions, which can shield a portion of that cash flow from taxes.
5. How do assumable loans work with DSTs?
One of the most attractive features of a DST is that it comes with "pre-packaged" non-recourse financing. The Sponsor secures the mortgage at the trust level, and because the investor is buying a beneficial interest in that trust, they effectively "assume" their share of the debt without having to personally qualify for a bank loan or sign a personal guarantee. This is particularly helpful for 1031 exchangers who need to replace a specific amount of debt from their previous sale to avoid paying "boot" (taxable gain), as the DST structure provides an easy way to satisfy those debt requirements instantly.
6. What does a 721 exchange (UPREIT) exit mean?
A 721 exchange (UPREIT) is an exit strategy where an investor trades their DST interest for operating partnership units in a larger REIT. This is often an optional move offered by the Sponsor at the end of the DST's life cycle, allowing the investor to trade a single-asset interest for a diversified share in a massive portfolio. While this further defers taxes and increases liquidity, it typically involves fees for a Fair Market Value (FMV) appraisal to ensure the exchange ratio is accurate. Investors should be aware that once they convert to REIT shares via a 721 exchange, they generally lose the ability to perform a 1031 exchange back into physical real estate in the future.

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