As economic and tax landscapes shift, real estate investors may want to move beyond traditional Delaware Statutory Trust (DST) structures in search of greater flexibility and tax efficiency. While DSTs remain a popular vehicle for 1031 exchanges, their inherent limitations may not align with every investor’s long-term objectives, estate planning strategies, or liquidity preferences. 

Scott Smith, Principal of Lamplighter Capital Advisors LLC, highlights why the one-size-fits-all approach to tax-advantaged real estate investing is becoming outdated. He examines how high-net-worth investors are leveraging a more sophisticated toolkit, including direct syndications, 721 UPREIT structures, Tenancy-in-Common (TIC) arrangements, Qualified Opportunity Funds (QOFs), and even oil and gas royalty interests.  

Through Lamplighter’s planning-first model, investors can navigate these options with precision, optimizing their portfolios for long-term wealth creation. 

CM: Why might investors look beyond DSTs for tax-advantaged real estate investments, and what are the key alternatives you recommend? 

SS: While DSTs offer convenience and 1031 compatibility, they’re not always the best fit, especially for investors with approximately $3 million or more in appreciated real estate. Increasingly, these investors are seeking more holistic strategies that better align with their financial goals, estate plans, and income needs. 

DSTs are just one tool in a broader toolbox. They’re often marketed as the only passive 1031 solution, but that oversimplifies the landscape. At Lamplighter, we don’t recommend products; we recommend strategies tailored to the client’s complete tax picture, estate planning objectives, and their preferences around control, liquidity, and diversification. Many of our clients pursue wholly owned, passive real estate solutions or structured alternatives like Tenancy-in-Common (TIC) arrangements or even oil and gas royalty interests. And in some cases, paying tax is the best option. The right fit depends on the client, not the product. 

CM: What are the liquidity challenges associated with DSTs, and how can investors address them? 

SS: DSTs are fundamentally illiquid investments, typically requiring a five-to-ten-year hold period with no built-in secondary market or exit option. This can be a significant constraint for investors who need flexibility or access to capital during the hold period.  

Mitigating this challenge begins with thoughtful liquidity planning, hopefully beginning as soon as the client is under contract to sell their down-leg of the transaction.  We design flexible strategies during these critical stages, such as access to income-producing direct investments or partially deferring taxes through structured 1031 exchanges that may combine DSTs with alternative vehicles. Our process goes beyond simply allocating to DSTs; we model cash flow, liquidity exposure, and estate impact across multiple scenarios to help clients avoid rigidity and make informed decisions. 

CM: Are there emerging real estate structures that could rival DSTs in popularity? 

SS: DSTs have a strong foothold in the passive 1031 exchange market, especially given their uniform structure and compliance framework. The product has gained full acceptance by the banks and, as a result, has effectively replaced the more cumbersome TIC model for many passive investors. 

New options are quietly gaining ground, however. Direct passive real estate syndications are attractive for their transparency, alignment with investor interests, and ability to tailor deals to specific goals. The 721 UPREIT structure offers a pathway to convert real estate into diversified REIT shares, providing both deferral and long-term estate planning benefits. Custom TICs and structured co-investments are also regaining attention among high-net-worth investors who want control and more growth opportunities. 

The future is unlikely to be about displacing DSTs but rather expanding the available solution set. Lamplighter’s role is to guide clients and their team through these options using a planning-first approach, not one-size-fits-all recommendations. 

CM: How do direct real estate syndications differ from DSTs in terms of control and risk? 

SS: Direct syndications offer significantly more control over key elements like asset selection, leverage strategy, and exit timing. This can result in higher return potential but also introduces more operational complexity and sponsor-related risk. Syndications also tend to concentrate investment in fewer assets unless clients diversify across multiple deals. 

DSTs, by contrast, offer simplicity, farily predictable income, and standardized 1031 compliance, but at the cost of control and potential upside.  We feel today’s DSTs present more debt risk as well given elevated interest rates and the inability to refinance the asset held by the DST.  At Lamplighter, we regularly model syndications and DSTs side-by-side so clients can make informed decisions based on their risk tolerance, estate goals, and long-term financial objectives. 

CM: Are tenant-in-common (TIC) arrangements still a viable option for real estate investors? 

SS: TICs remain viable but are used less frequently in the securities industry due to the administrative burden of co-ownership in TICs and the rise of more lender-friendly DST structures. That said, TICs can be a better fit as a real estate investment in specific scenarios, such as custom 1031 solutions involving family members, high-value exchanges where DST fees would erode returns, or situations where clients value voting rights and shared governance. TIC options are best suited for all cash exchanges, with refinance opportunities later, though we’ve helped clients place debt on TIC interests should their tax deferral require it. 

We help clients evaluate when a TIC arrangement makes strategic sense and work closely with their legal and tax advisors to structure it properly. For the right client, it remains a powerful tool. 

CM: How is the 2025 economic landscape, especially tax policy changes, influencing the choice of these alternatives? 

SS: The economic and legislative outlook is creating significant pressure and opportunity for real estate investors. With key provisions of the Tax Cuts and Jobs Act scheduled to sunset, many high-net-worth investors are accelerating plans in anticipation of higher capital gains taxes and reduced estate tax exemptions. There’s also growing uncertainty around the future of 1031 exchanges themselves, though 1031 exchanges have always been in the discussion around the federal budget and rarely amended or changed significantly. 

Interest rate volatility adds another layer of complexity. While inflation has cooled, future rate policy remains unclear. For many investors, long-duration DSTs feel too rigid in this environment. At the same time, a wave of commercial real estate debt is set to mature, creating both risk and opportunity—especially in multifamily and office sectors. 

In response, many investors are rebalancing. They’re blending DSTs with direct syndications that offer more control, exploring cash-based oil and gas investments for diversification and income, and using structures like UPREITs or tax-efficient funds that hedge against real estate-specific risk. 

At Lamplighter, we help clients evaluate these decisions with clarity, modeling various approaches to ensure they’re choosing strategies that align with both their current needs and future realities. 

CM: How do Qualified Opportunity Funds (QOFs) compare to DSTs in terms of tax benefits? 

SS: DSTs are well-suited for certain investors who want to defer all capital gains taxes through a 1031 exchange, maintain real estate exposure, and receive passive income, typically with limited control or liquidity. They’re ideal when predictability and compliance are key priorities, and they do not have a required legislated hold period. 

QOFs, on the other hand, offer different kinds of benefit. They allow investors to defer capital gains triggered from the sale of most assets, not just real estate, and potentially eliminate tax on new gains after a 10-year hold. QOFs often involve development or value-add risk, but they can also offer more geographic and asset-class diversification than DSTs. 

For investors with gains from a business sale or stock portfolio, or for those looking to align tax strategies with impact investing or urban redevelopment, QOFs can be a compelling alternative. As with all options, Lamplighter helps clients evaluate the fit within their broader financial and estate planning goals.