Why Current DST Offerings Are Not Listed Online, and How Investors See Them

Rule 506(b) is the exemption most DSTs use, and its price is silence in public

DST interests are securities sold without registration, and the filed 10-Ks of REITs that run DST programs state that their offerings are exempt from registration pursuant to Rule 506(b) of Regulation D. Rule 506(b) permits sales to an unlimited number of accredited investors and up to 35 sophisticated non-accredited purchasers, and it requires compliance with Rule 502(c), which prohibits the issuer or anyone acting on its behalf from offering or selling by any form of general solicitation or general advertising, including any notice published in a newspaper, magazine or similar media, any broadcast, and any seminar whose attendees were invited by general solicitation.

The SEC staff applied that to the web in Compliance and Disclosure Interpretation 256.23: the use of an unrestricted, publicly available website constitutes a general solicitation if the website contains an offer of securities. Interpretations 256.24 and 256.25 allow factual business information to be published widely, but say such information generally does not include predictions, projections, forecasts or opinions on valuation. That is why a sponsor's or broker's public site can describe how DSTs work and cannot show the trusts it is selling this month.

Why a DST is a security at all, and who may lawfully put one in front of you, is covered at is a DST a security and who can sell it. This page is about the mechanics of getting from a public page to an actual offering.

A pre-existing, substantive relationship is the door, and the SEC staff has defined both words

Interpretation 256.26 states that an offer to a prospective investor with whom the issuer, or a person acting on its behalf, has a pre-existing, substantive relationship is not a general solicitation. Interpretation 256.29 defines pre-existing as a relationship formed before the offering commenced, or one established through a registered broker-dealer or investment adviser before that firm began participating in the offering. Interpretation 256.30 adds that there is no minimum waiting period.

Interpretation 256.31 defines substantive: the issuer or the firm acting for it has sufficient information to evaluate, and does in fact evaluate, the prospective investor's financial circumstances and sophistication in determining accredited or sophisticated status, and self-certification alone by checking a box without other knowledge of the person's circumstances is not sufficient. Interpretation 256.28 confirms that SEC-registered investment advisers can form such a relationship with their clients, and 256.32 notes that other parties may in some circumstances.

This is the legal reason a broker-dealer asks for an investor questionnaire, income or net worth information and your exchange facts before it will send you a memorandum. The relationship has to be real and documented before the offer is made, and the accreditation tests it is checking against are set out at accredited investor rules for DSTs.

Rule 506(c) lets a sponsor advertise, and it changes what you must hand over

Rule 506(c) removes the ban on general solicitation on two conditions: all purchasers are accredited investors, and the issuer takes reasonable steps to verify that they are. The rule lists non-exclusive methods: reviewing IRS forms that report the purchaser's income for the two most recent years together with a written representation about the current year; reviewing bank, brokerage or appraisal documents dated within the prior three months plus a consumer report for liabilities; or obtaining written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant that such steps were taken within the prior three months.

SEC staff interpretation 260.07 states that the verification requirement must be satisfied even if every purchaser happens to be accredited, and interpretations 260.11 and 260.12 allow an issuer to move between 506(b) and 506(c) by amending its Form D, provided the conditions of the chosen rule are met for every sale. So an advertised DST is lawful, and the trade-off is documentary: a 506(c) sponsor needs your tax forms or statements, or a professional's letter, rather than a questionnaire.

Nothing in the choice of exemption changes the trust, the property or the memorandum. The same private placement memorandum, risk factors and fees apply either way, and the differences between the two routes are set out at Rule 506(b) vs Rule 506(c).

What you can see without a relationship: Form D on EDGAR, and what it leaves out

Rule 503 requires the issuer to file a notice of sales on Form D with the SEC no later than 15 calendar days after the first sale in the offering, with annual amendments while the offering continues. Form D is public on EDGAR and shows the issuer, the exemption claimed, the total offering amount, the amount sold and the sales commissions. It does not contain the property, the lease, the loan terms, the fees schedule or any projection, which is why the live page at reading a DST PPM and Form D treats it as a cross-check rather than a source.

The document that holds those terms is the private placement memorandum. FINRA Rule 5123 requires a member firm that sells a private placement to submit the memorandum, term sheet or other offering document to FINRA within 15 calendar days of the first sale, and Rule 5123(c) requires FINRA to accord confidential treatment to everything filed. The memorandum is therefore on file with a regulator and unavailable to the public at the same time.

FINRA Rule 2210(d)(1)(F) closes the last gap: a member's communications may not predict or project performance, with narrow exceptions for hypothetical illustrations of mathematical principles and investment analysis tools. A public page listing current trusts with their distribution rates would breach both the solicitation ban and the projection rule, which is why no compliant firm publishes one.

How the proposal process works from first contact to day 45

The sequence is the same at any registered firm, because the rules above dictate it. Regulation Best Interest adds the standard the firm must meet when it recommends a trust: it must act in your best interest without placing its own financial interest ahead of yours, and its care obligation requires reasonable diligence to understand the potential risks, rewards and costs and a reasonable basis to believe the recommendation is in your best interest.

Identification is your deadline inside that sequence. Reg. section 1.1031(k)-1 requires replacement property to be identified in a written document signed by you and delivered to the intermediary or another party to the exchange before midnight of day 45, with real property unambiguously described by legal description, street address or distinguishable name. How to word that list is at how to identify replacement property.

• You contact the firm and complete a questionnaire covering financial circumstances, accreditation and the exchange: sale price, debt to replace, closing date
• The firm evaluates that information, which is what makes the relationship substantive under interpretation 256.31
• You receive private placement memoranda for the trusts that fit, with the firm's Regulation Best Interest obligations attached to any recommendation
• You identify the chosen trust or trusts in writing to your qualified intermediary by day 45
• You subscribe, and the intermediary wires exchange funds to the trust at closing, the step described at do I need a QI to exchange into a DST