Portfolio Risk

DSTs are ill equipped to address the untimely and unexpected need to raise capital or to re-tenant a property or to carry a property in the event of excessive vacancies. The Master Tenant is not likely to have the necessary resource to replace tenants as a result of default or untimely turnover. This risk is increased by an investment which includes multiple properties. 

1031 Risk

Although it is intended that interests will be acquired on a tax-deferred basis under Code Section 1031, each investor must satisfy a number of technical requirements to qualify for tax deferral under Section 1031. Also, no assurance can be given that investors will be able to complete a qualifying Section 1031 exchange in the future when the Properties are sold.

Real Estate Investment Risk

Any investment in real estate carries certain inherent risks, and there is no guaranty as to the future occupancy of the properties or operating results.  Factors which might influence outcome include:

• Changes in national or local economic conditions
• Changes in the local market, including the entry of new competitors
• Changes in the financial condition of the major tenant or tenants
• The occurrence of casualties or natural disasters
• The enactment of unfavorable laws

Master Lease Risk

The properties are subject to a Master Lease to an affiliate of the Sponsor whose only assets and source of revenues will be the underlying properties and which may not be able to meet its obligations as they come due. As with any Master Lease, if there is a significant upswing in rents, that upside accrues to the Master Tenant, but if there is falloff or vacancy, that risk is likely to fall on the investors.  There is a substantial risk that, if the Master Tenant is unable to meet its obligation to pay rent, a default or foreclosure may occur under property financing which could result in a substantial or total loss of an investment.

Conflict of Interest Risk

There are various potential conflicts of interest among the Sponsor, the Trustees, the Signatory Trustees, the Master Tenant, the Property Managers, and others engagement in the management and operation of the properties, one or more of whom may be affiliated with the others. 

DST Risk

IRS established seven prohibitions over the powers of the DST Trustee, which include the following:

• Once the offering is closed, there can be no future equity contribution to the DST by either current or new co-investors or beneficiaries
• The DST Trustee cannot renegotiate the terms of the existing loans, nor can it borrow any new funds from any other lender or party
• The DST Trustee cannot reinvest the proceeds from the sale of its investment real estate
• The DST Trustee is limited to making capital expenditures with respect to the property to those for a) normal repair and maintenance, (b) minor non-structural capital improvements, and (c) those required by law
• Any liquid cash held in the DST between distribution dates can only be invested in short-term debt obligations
• All cash, other than necessary reserves, must be distributed to the co-investors or beneficiaries on a current basis, and
• The Trustee cannot enter into new leases or renegotiate the current leases

Some of these restrictions are ameliorated in part by the introduction of a Master Tenant, who will have the ability, for example, to enter into or renegotiate leases.  However, the existence of a Master Tenant carries with in its own set of risk factors.  In addition, DST Members will have no voting rights, and therefore no control over future decisions regarding sale of the properties or roll-up into a limited liability company.

Forward-Looking Statements

Specified matters discussed in this Memorandum are forward-looking statements. The Signatory Trustee has based these forward-looking statements on its current expectations and predictions about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Property, including, among other things, factors discussed below:

• General economic performance of the local and national economy;
• Required capital expenditures at the Property
• Competition from properties similar to and near the Property
• Adverse changes in local population trends, market conditions, neighborhood values, and local economic and social conditions
• Supply and demand for property such as the Property
• Interest rates and real estate tax rates
• Governmental rules, regulations and fiscal policies
• The enactment of unfavorable real estate, rent control, environmental, zoning or hazardous material laws
• Uninsured losses
• Anticipated market capitalization rates at the time of sale

The Signatory Trustee intends to identify forward-looking statements in this Memorandum by using words or phrases such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “objective,” “plan,” “predict,” “project,” “may be” and “will be” and similar words or phrases, or the negative thereof or other variations thereof or comparable terminology. All forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual transactions, results, performance or achievements of the Property to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements. The cautionary statements set forth under the caption “Risk Factors” and elsewhere in this Memorandum identify important factors with respect to such forward-looking statements.

Limited Transferability of Securities

Each Purchaser will be required to represent that he is acquiring the Interests for investment and not with a view to distribution or resale, that such Purchaser understands the Interests are not freely transferable and, in any event, that such Purchaser must bear the economic risk of investment in the Interests for an indefinite period of time because: (i) the Interests have not been registered under the Act or applicable state “Blue Sky” or securities laws; and (ii) the Interests cannot be sold unless they are subsequently registered or an exemption from such registration is available. There will be no market for the Interests and the Purchasers cannot expect to be able to liquidate their investment in case of an emergency. See “Restrictions on Transferability” in the PPM. Finally, the sale of the Interests may have adverse federal income tax consequences. See “Federal Income Tax Consequences” in the PPM.

Sale of the Property

The proceeds realized from the sale of the Property will be distributed among the Beneficial Owners, but only after satisfaction of the claims of other third-party creditors and Affiliates of the Sponsor. The ability of a Beneficial Owner to recover all or any portion of its investment, accordingly, will depend on the amount of net proceeds realized from such sale and the amount of claims to be satisfied therefrom. There can be no assurance that the Beneficial Owners will realize gains on sale of the Property.

Loss of Deposit

The Signatory Trustee may on behalf of the Trust retain the deposit of a Purchaser who is in default under the Purchase Agreement. See “Summary of Purchase Agreement and Escrow Instructions - Deposit; Liquidated Damages” in the PPM.​

No Representation of Beneficial Owners

Each Beneficial Owner acknowledges and agrees in the Purchase Agreement and Escrow Instructions that legal counsel representing the Depositor, the Signatory Trustee, the Property Manager and their Affiliates do not represent, and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing, any or all of the Beneficial Owners.​

Receipt of Compensation Regardless of Profitability​

The Sponsor, the Signatory Trustee, the Property Manager and their Affiliates are entitled to receive certain significant fees and other significant compensation, payments and reimbursements from the acquisition and operation of the Property regardless of whether the Property operate at a profit. See “Estimated Use of Proceeds" and “Compensation of the Sponsor and Affiliates” in the PPM. ​

No Fiduciary Duty

The Trust, the Signatory Trustee, and the Property Manager and their Affiliates will not have a fiduciary duty to the Beneficial Owners as would be applicable to a limited liability company, partnership, or corporation and, therefore, may take actions that would not be in the best interests of one or more of the Beneficial Owners. As permitted under applicable Delaware law, the Signatory Trustee and the Delaware Trustee have expressly disclaimed all duties to the Beneficial Owner except for the duties expressly contained under the Trust Agreement.

The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Private Placement Memorandum for a discussion of additional risks.

The above presentation is based upon information supplied by the Sponsor and others. Realty Mogul, Co., along with its respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.