Our Delaware Statutory Trust Recovery Attorneys Are Investigating Investor Losses

Zero-coupon Delaware Statutory Trusts (DSTs) are highly leveraged, complex 1031 exchange investments that offer no cash distributions, expose investors to “phantom income” tax liabilities, and carry significant illiquidity risks. The law firm Shepherd Smith Edwards and Kantas is investigating claims against brokers who unsuitably recommended these risky Reg D offerings to retail customers and conservative retirees without properly disclosing the associated risks and high fees.

Shepherd Smith Edwards and Kantas (investorlawyers.com) is representing investors who suffered losses in zero-coupon Delaware Statutory Trusts (DSTs), which are also referred to as zero-cash-flow DSTs or zero DSTs.  Structured as a Regulation D offering meant for investors looking to solve tax and structural issues with a1031 Exchange, this is a risky unsuitable investment for retail customers and conservative seniors.

Unfortunately, it has come to our attention that there are zero-cash-flow DST investors that are losing money because their financial advisor inappropriately recommended this Reg D private placement to them or failed to fully apprise them of the risks and fees. If you are one of these investors and you want to explore your legal options, contact us today.

What are The Risks Involved in Zero-Coupon Delaware Statutory Trusts?

This type of DST utilizes a passive, fractional real estate investment structure involving high leverage and long-term single tenant leases. It is designed to quickly pay off the mortgage rather than provide direct cash flow to investors. Returns are dependent on property appreciation and the paying down of debt.

• There is no cash flow or investor distributions.
• There is a possibility of phantom income because of tax rules regarding principal pay-downs and depreciation. A zero-cash-flow DST investor could end up owing annual income or capital gains-related taxes even as the property stays locked in the trust.
• Vulnerability to high leverage—especially if long-term vacancy, tenant default, or market decline occurs—can be a concern.
• Extreme illiquidity and set holding periods that lock in an investor’s money can prevent them from redeeming or reselling their fractional shares.
• These are not risk-free government bonds. Zero-cash-flow DSTs are subject to commercial real estate and execution risks.
• The failure of the underlying debt to not fully amortize by term’s end could lead to exposure to other risks.

What is the Difference Between a Delaware Statutory Trust and a Zero-Coupon Delaware Statutory Trust?

• A standard DST is supposed to pay an investor regular rental income. A zero-cash-flow DST doesn’t pay distributions to investors.
• Delaware Statutory Trusts are usually debt-free or moderately leveraged. Zero-coupon Delaware Statutory Trusts are heavily leveraged.
• DSTs are for investors wanting fractional ownership in institutional grade real estate that allows them to defer capital gains through a Section 1031 exchange. Zero-cash-flow DSTs are utilized in 1031 exchanges to fulfill debt replacement requirements.

Why Are Investors Exploring Suing The Broker That Sold Them a Zero-Cash-Flow DST?

• There are brokers that unsuitably marketed this complex alternative investment to retail investors and conservative retirees.
• There are investors of zero-coupon DSTs who are telling us they were never fully apprised of the risks or the high commissions and fees they would need to pay.
• Some investors contend that phantom income was never fully explained to them, nor was the possibility that they could end up owing taxes on money they never received.
• Allegations of Regulation Best Interest violations involving brokers that purportedly prioritized their own financial interests when selling zero-cash-flow DSTs have come to light.

Why You Should Speak With Skilled Zero-Cash Flow Delaware Statutory Trust Loss Attorneys

These are complex investments, and you want to explore your legal options with seasoned DST recovery lawyers that have experience with representing investors who have suffered losses in zero-coupon Delaware Statutory Trusts.

Shepherd Smith Edwards and Kantas can help you assess the cause of your DST losses and whether you should sue your financial advisor in FINRA arbitration.

Discuss Your Zero DST Investment Concerns With Us Today

Call our Delaware Statutory Trust Loss Attorneys at (800) 259-9010 or contact us online to schedule your free case consultation.