The Oklahoma Bar Journal May 2026

distribution center. On their own, the investor would likely never be able to afford or manage such an asset. Diversification. Financial advisors typically advocate that their clients obtain exposure to various asset classes to reduce overall portfolio risk. DSTs can aid in accomplishing the diver sification and risk management objectives by exchanging one particular type of real property for several different types of real estate classifications. DSTs usually have flexible minimum investment amounts, enabling investors to exchange into multiple offerings. DST investments can offer multiple property portfolios across a variety of property types (such as com mercial, industrial, multifamily, etc.) as well as broad geographic locations. For example, a real estate investor could exchange their eight rental properties (all held in Tulsa), classified as residential real property, for a DST that holds real property assets in industrial (Garland, Texas), commercial (Miami, Florida) and residential (Nashville, Tennessee), thereby accessing multiple sectors and in different geographic locations.

Nonrecourse debt. 16 When an individual owns a building, they are responsible for repayment of debt if a default occurs. DSTs, however, typically use nonre course financing. The sponsor of the program ( i.e. , trustee) takes on the liability and is responsible for any debt repayment on the prop erty, and while there is always risk involved with owning real estate, nonrecourse financing limits the liability for DST investors. 17 18 19 For investors approaching retirement who are looking to sell property to simplify their lives, a DST also helps solve the dilemma of trying to secure a mortgage on a replace ment property at a time when the investor’s earned income may become reduced (due to retire ment), which might make quali fying to obtain future financing more of a challenge. Simplified tax reporting (grantor letter). Every tax attorney and CPA dreads the Schedule K-1 form. Not only do they tend to be issued late in the tax season, but they’re very complex and require significant skill and time to process. Most real estate hold ings, including securitized real estate, cannot avoid K-1 report ing. However, DSTs can bypass Schedule K-1 and issue a grantor trust letter (GTL) that exhibits the DSTs’ allocable income and expenses. The GTL streamlines the tax filing process as compared to the K-1 form. Closing efficiency. Investor and DST sponsor transaction costs may be lower due to less lender paperwork. In addition, the DST sponsor arranges financing and manages all due diligence efforts. Often, in a §1031 exchange, when a lender is involved, the lender requires a special purpose entity

tax liability while still permitting the investor to enjoy the tax ben efits of a real estate investment during their lifetime. Additional Advantages of Using DSTs in §1031 Exchanges For real estate investors desir ing to transition away from active management, better diversify their real estate holdings or streamline their estate and tax planning, DSTs can offer unique strategic advan tages over the options typically used for real property replacement. DSTs offer the following potential advantages. Access to institutional-quality real estate. The multitrillion-dollar U.S. commercial property market may be a challenge to navigate for individual investors. Partnering with a respected DST sponsor with local market knowledge, who has access to institutional-quality properties coupled with expertise in management and financing, can help real estate investors expand their options when looking for replacement property. Using this strategy, an investor could potentially exchange their apart ment complex interest into a DST that owns a $70 million Amazon

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

28 | MAY 2026

THE OKLAHOMA BAR JOURNAL