Johnathan Rickman | Blue Vault
As more sponsors of nontraded REITs get into the Delaware statutory trust (DST) game, interested advisors should pay special attention to an offering’s exit strategy when evaluating a DST. If your investor client’s final destination is a REIT, then the performance of the REIT’s underlying assets should dictate your DST investment decision.
More high-profile alternative investment firms are turning to the DST structure — some for the very first time — to raise capital. The fundraising flurry arrives at an opportune moment for private real estate. With giants such as Blackstone and even smaller firms such as Sealy & Company launching new DST platforms last year, the industry is, intentionally or not, reviving advisor interest in the sector.
The REIT structure could use some of that mojo. Continuing challenges in real estate markets have forced sponsors of nontraded REITs to shed assets and draw on other income sources to cover payouts to shareholders. Based on the offerings tracked by Blue Vault, the nontraded REIT industry raised about $1.46 billion in public funds in the third quarter of 2025, down from the $1.53 billion raised in Q2 2025 and from the $1.50 billion raised in Q1 2025. By contrast, in September 2025 alone, DSTs raised a record-high $826.2 million in equity, according to Mountain Dell Consulting2.
The DST fundraising push comes amid falling interest rates and rising concern about a potential future credit bubble. But it also leans into real estate’s reputation as a perennial asset class. The sector’s turnaround won’t happen overnight, but it’s showing signs of life.
NAIOP, the Commercial Real Estate Development Association, said in October that optimism within its ranks is rising3. The trade group likened the outlook to “expectations of improving conditions across the commercial real estate landscape” in relation to construction costs, occupancy rates and rents, and new data center opportunities.
But there’s perhaps a more straightforward explanation for DST’s spotlight moment: It’s simply easier for sponsors to raise capital through DSTs than it is through REITs right now. The latter compete with other allocations in client portfolios, while the former solve both income and tax-deferral needs for investors. But as DST demand takes off, advisors would do well to remind themselves that real estate investments, no matter how they’re wrapped, still need to perform well for clients.
“Asset quality is the most important part of any real estate investment, regardless of whether a portfolio of assets is structured as a DST or a REIT,” says Joshua Ungerecht, a Managing Partner of ExchangeRight. The California-based firm has been in the DST business for over 13 years.
The Download on DSTs
DSTs can allow multiple investors to invest in diversified portfolios of institutional-grade private real estate. The structure is best suited for high-net-worth individuals seeking passive income from active, professionally managed real estate assets.
But investors can’t stay in a DST forever. Holding periods typically last anywhere between five to seven years, and some are as short as two years. All who enter a DST must exit, and many offerings come with a 721-only exit, meaning once the holding period ends, the investor’s ownership is exchanged for operating partnership units of a designated REIT, which acquires the DST’s portfolio of assets. A 721-only exit can be beneficial or detrimental depending on 1) an investor’s long-term financial goals, and 2) the REIT’s performance, both current and historical.
A 721 exchange, or UPREIT — short for Umbrella Partnership Real Estate Investment Trust — can be a good option for investors seeking long-term investments with liquidity potential, and who, notably, have the freedom to shop around for a REIT that meets their investment goals. Many investors, particularly those nearing retirement age, are more interested in the passive income that REITs can provide.
Advisors considering DSTs for income-seeking clients should review each offering’s exit plan. If the exit plan is a 721-only option, then analyzing the REIT’s performance is of utmost performance. “If a REIT is the final destination for a DST investor, then that REIT’s performance is critical when evaluating the DST as a tax deferral solution for your clients, since you are effectively placing them in the REIT after a scheduled delay in the DST,” ExchangeRight’s Ungerecht said.
Warren Thomas and Joshua Ungerecht founded ExchangeRight in 2012 to develop DSTs they felt comfortable placing clients into. ExchangeRight’s Essential Income DST series, or “REIT Fast-Track” DSTs, offer investors accelerated access to the company’s Essential Income REIT via a 721 exchange after a targeted two-year hold.
The industry trend is pre-dominantly 721-only exits. For instance, Blackstone Real Estate Income Trust, Inc. (BREIT) announced in a November 4, 2025, SEC filing that its DST platform will offer investors a 721 pathway, if not an outright conversion4. It also includes two new share classes, one of which specifically targets institutional investors. The powerhouse firm is clearly casting a wide net as it looks to raise more equity for its REIT.
Due Diligence Matters
When considering DSTs with a 721 conversion, comparing their destination REIT is key. Let’s explore two popular nontraded REITs with such an exit plan: The publicly offered BREIT and The Essential Income REIT, a privately offered REIT managed by ExchangeRight.
BREIT
BREIT’s portfolio is diversified across nine real estate segments including data centers, residential, and self-storage. As of September 30, 2025, BREIT’s portfolio also consisted of 117 net-lease properties covering 16.1 million square feet. Its net-lease occupancy rate for the same period was 100%5. During the quarter ending September 30, 2025, BREIT sold 24 rental housing properties, 17 industrial properties, three hospitality properties, and one retail property for total net proceeds of $1.74 billion. It acquired no properties in Q3 2025.
BREIT has dominated the nontraded REIT sector since it was introduced in 2016. In the third quarter of 2025, it was the leading fundraiser, pulling in $786.0 million for a 53.7% market share. The offering has raised an estimated total of $83.3 billion since inception.
For the nine-month period ending September 30, 2025, the company declared distributions totaling $1.8 billion, including $884.8 million reinvested through is dividend reinvestment plan. In Q3 2025, the REIT’s I shares had a distribution rate of 4.76%.
According to Blue Vault, Blackstone REIT’s quarterly AFFO payout ratio came in at 208% in the third quarter of 2025, the highest ratio since its quarterly payout ratio of 240% in Q3 2024. When this metric rises above 100%, it typically indicates the REIT’s income isn’t enough to cover distributions.
The offering’s debt-to-total-assets ratio was also highly levered at 57.1% in the third quarter of 2025. 20.7% of the REIT’s debt matures before 2027, and 20.1% is at unhedged variable rates, indicating a need for refinancing and some interest rate risk.
The Essential Income REIT
The Essential Income REIT’s portfolio is focused on single-tenant, primarily investment-grade net-leased real estate. As of September 30, 2025, the company owned 361 properties in 35 states at a 98.6% lease rate6. During the third quarter of 2025, the REIT acquired two properties for $3.8 million and sold no properties.
For the nine-month period ending September 30, 2025, the company declared distributions totaling $33.5 million. The REIT’s I shares had a Q3 2025 distribution rate of 6.37%. All distributions during the quarter were entirely funded from cash flow from operating activities. Accordingly, the REIT’s historical AFFO payout ratio has remained at or below 100% since its inception in 2019, coming in at 100% in Q3 and year-to-date 2025.
Here’s how the two offerings compare in other areas, according to Q3 2025 Blue Vault data:
| Nontraded REIT | Q3 Debt-to-Total-Assets Ratio | Q3 Return on Assets | Q3 Redemption Rate |
| BREIT | 57.1% | 3.07% | 2.69% |
| The Essential Income REIT | 48.0% | 5.49% | 1.34% |
The point of this comparison is not to show that one offering is better than the other, but that no two offerings are the same, whether it’s packaged as a real estate investment trust, interval fund, or business development company. Advisors and investors exploring DSTs should perform due diligence on the REITs that will eventually acquire their assets down the road, no matter how potentially beneficial or enticing the lure of the DST may seem.
References
1 Blue Vault Nontraded REIT Industry Review: Third Quarter 2025
2 Real Assets Advisor, November 10, 2025. DST October sales decrease by 6.4 percent from September, raising $773m.
3 NAIOP, October 16, 20205. Commercial Real Estate Sentiment Increases, Signaling Growing Optimism.
4 Real Assets Advisor, November 12, 2025. Blackstone’s BREIT launches DST platform for UHNW investors.
5 Blue Vault Nontraded REIT Industry Review: Third Quarter 2025
6 Blue Vault Nontraded REIT Industry Review: Third Quarter 2025
