Cove Capital Acquires Two Texas Small Bay Industrial Assets for DST 86 Offering
Cove Capital Investments, LLC has finalized its Texas Small Bay Industrial Portfolio 86 Delaware Statutory Trust (DST) offering by acquiring two properties, targeting nearly $14.8 million in capital. The portfolio, located in the greater Houston Metropolitan Statistical Area (MSA), comprises five buildings across two sites in Katy and Richmond, TX.
The Katy property includes three buildings totaling 29,165 square feet, constructed in 2023, and fully leased. The Richmond property is two newly built buildings on 2.52 acres, offering 40,000 net rentable square feet, also fully leased.
Dwight Kay, managing member and co-founder of Cove Capital, highlighted the portfolio’s appeal, including value-add potential: Opportunities to increase rents to market rates as leases, typically 12–36 months, renew. Triple Net Leases: ability to pass inflationary expenses to tenants, enhancing cash flow stability. Debt-free structure: Eliminates risks tied to real estate debt, such as mortgage foreclosure, cash flow sweeps, or go-dark clauses.
According to Cove Capital, the small bay industrial asset class is gaining traction due to its multiple-tenant model, which reduces vacancy risks compared to single-tenant industrial properties.
Chay Lapin, managing member and co-founder, emphasized the portfolio’s unique exit strategy, including an optional 721 exchange and a 20-year tax protection agreement (TPA).
Optional 721 Exchange:
Investors can choose to roll their investment into a Real Estate Investment Trust (REIT) via a 721 UPREIT structure. Unlike forced UPREITs common among other sponsors, Cove Capital offers full optionality. Lapin stated, “Cove Capital provides investors with full optionality whereby they are able to participate in the 721 UPREIT if they choose to do so, but at their sole discretion as opposed to being forced into the 721 exchange. This full optionality is a key differentiator in today’s marketplace.”
20-Year Tax Protection Agreement (TPA):
For those opting into the 721 exchange, a standout feature is the 20-year TPA. If the REIT sells the property without a 1031 exchange, it will cover investors’ federal and state capital gains taxes. Kay added, “This long-term TPA stands out in the 721 UPREIT DST marketplace, where many offerings either lack a TPA entirely or offer only limited protection for 2 to 5 years. The 20-year duration provides meaningful peace of mind.”
In line with the Los Angeles-based real estate investment firm’s strategy, the DST was acquired with no leverage and the assets are part of its portfolio of debt-free real estate assets for 1031 exchange and direct cash investors.
In December 2024, the firm announced it fully subscribed its Net Lease Industrial 77 DS offering, raising over $13.3 million. The firm has acquired a slew of properties in recent months for various offerings. In November, it completed the purchase of a multi-tenant flex/industrial asset in San Antonio, TX that will be included in its Texas Small Bay 85 Flex DST and aims to raise over $15.3 million.
In October, it acquired a new net lease industrial asset in Athens, GA that will be part of the firm’s General Time Industrial Park Opportunity 84 DST. The firm is targeting a $16.5 million raise.
Cove Capital also purchased The Peanut Factory Lofts, a multifamily asset in downtown San Antonio, TX for its Cove Capital San Antonio Multifamily 74 DST; three net lease properties for its Cove Essential Net Lease 81 DST; and a net lease property for Cove Tractor Net Lease 79 DST.
The firm operates a portfolio of more than 2.5 million square feet of real estate in 33 states.
Pictured: Katy, TX Small Bay property
