Kay Properties, one of the largest 1031 exchange marketplaces, has closed an impressive year. The firm raised and placed $230 million in exchange equity with a total funding value of $3 billion. The capital—invested by accredited investors—was placed in millions of square feet of commercial and multifamily properties.
“The fact that the Kay Properties marketplace connects investors with over 25 DST sponsor companies, which allows the investor to view a diverse selection of DST 1031 properties and receive guidance on which DST investments make potential sense for their situation,” Dwight Kay, CEO and founder of Kay Properties, tells GlobeSt.com. “Also, the fact that there is an increasing demand for turnkey, passive 1031 exchange replacement property options as well as increasing desire by high-net-worth investors for alternative investment opportunities such as private real estate that are non-correlated to the public equity markets.”
Kay specializes in Delaware Statutory Trust investments and private equity real estate investments, which are allowable options for exchange buyers. DST investments have several benefits. “Many of the high-net-worth investors that transact our marketplace are choosing to invest in DST properties as opposed to purchasing a single property for two reasons,” says Kay. “First, they are passive investments. DSTs have professional asset management in place so investors don’t have to deal with the tenants, toilets and trash anymore—they are seeking a hands-free investment. Second, they are seeking diversification. Many Kay Properties clients are selling properties that they have a large amount of their net worth tied up in. By utilizing a diversified DST approach, the investor is able to defer capital gains taxes via the 1031 exchange and spread their equity by investing into multiple properties, multiple geographic locations, multiple asset classes and multiple tenants. Of course diversification does not guarantee profits or protect against losses, but it is an encouraged strategy to mitigate potential risk.”
In terms of specific property types, Kay is seeing the most opportunities in multifamily and net leased assets. “We are seeing investors focus on multifamily and net-leased properties at this stage in the market cycle as well as many investors seeking debt-free DSTs, which carry no debt service or risk of lender foreclosure,” he says. “At the same time, many of our clients need to replace debt in their exchanges. For those offerings, loan-to-values of 50-60% are very common and can be equally attractive.”
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This year, the company expects to continue to see record activity. “Kay Properties is seeing the largest amount of activity on the Kay Properties marketplace than ever before,” says Kay. “The first quarter of 2020 is setting records in volume of capital placed on the Kay platform and we believe this trend will potentially continue throughout the rest of 2020.”