How to read a
DST private placement memorandum
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers,
represents individual investors who lost money in Delaware Statutory
Trust programs because material risks in the offering documents were not
adequately disclosed or explained. We are former Wall Street defense
attorneys who now use that insider knowledge to help investors
understand what their documents reveal — and what they may have
hidden.
What a private placement
memorandum is
A private placement memorandum (PPM) is the legal document that a DST
sponsor prepares to disclose the terms, risks, and structure of the
offering to potential investors. It is the single most important
document in any DST investment. Before a broker-dealer recommends a DST,
the firm is required to review the PPM under FINRA Regulatory Notice
10-22.
Many investors never read the PPM in full. Many brokers never read it
either. This article explains the sections that matter most and what to
look for in each one.
Key sections of
a DST PPM and what they reveal
Risk factors
The risk factors section is often the longest section in the PPM. It
discloses every material risk the sponsor has identified. Read this
section carefully. It contains the information that marketing materials
tend to gloss over.
Look for these specific risks:
| Risk to find in the PPM | What it means | Why it matters |
|---|---|---|
| Distribution suspension | The sponsor can stop distributions at any time | Your income is not guaranteed |
| Illiquidity | There is no public market for DST interests; secondary markets are limited |
You may be unable to sell for 5–10 years |
| Sponsor control | Investors have no voting rights or management control | You depend entirely on the sponsor’s decisions |
| Debt and refinancing risk | Non-recourse debt may mature before the property can be sold or refinanced |
Refinancing risk can jeopardize distributions and principal |
| Tax reassessment | The property may be reassessed upon acquisition, increasing property taxes |
Higher taxes reduce net operating income and distributions |
| No guarantee of 1031 qualification | The IRS may challenge the DST’s qualification for 1031 exchange treatment |
Tax deferral could be lost |
Use of proceeds
This section explains how your investment dollars will be spent.
Compare the amounts allocated to the property versus the amounts
allocated to fees. A DST that devotes a large percentage of investor
capital to sponsor fees, acquisition fees, and dealer concessions may
struggle to generate the projected returns.
| Use of proceeds category | Typical range | Red flag threshold |
|---|---|---|
| Property acquisition | 85–95% of investor capital | Below 85% may indicate excessive fees |
| Sponsor organization fees | 1–3% | Above 3% warrants scrutiny |
| Dealer concessions / commissions | 3–7% | Above 7% is unusually high |
| Property acquisition fees | 1–3% | Above 3% warrants scrutiny |
| Reserve funds | 2–5% | Below 2% may indicate insufficient reserves |
Fee structure
The PPM must disclose all fees — upfront and ongoing. Add up the
total fees and calculate how much of your investment actually goes
toward the property. The difference between your investment and the
amount deployed into the property is the fee drag that reduces your
returns.
Key fees to identify:
- Sponsor organization fees: Paid from investor
capital at closing. - Property acquisition fees: Paid to the sponsor for
acquiring the property. - Dealer concessions / commissions: Paid to the
broker-dealer that sold the DST. - Asset management fees: Ongoing fees paid to the
sponsor for managing the property. - Property management fees: Ongoing fees for
day-to-day operations. - Financing fees: Fees related to arranging the DST’s
debt.
Distribution policy
This section explains when and how distributions will be paid, and —
critically — under what circumstances they can be suspended. Look for
language that says distributions are not guaranteed and can be reduced
or stopped at the sponsor’s discretion. If the PPM projects specific
distribution rates, compare them to the property’s historical
performance and local market data.
Debt and financing
Read the debt section carefully. Understand the loan-to-value ratio,
the interest rate, the maturity date, and whether the debt is
non-recourse. Debt that matures before the anticipated holding period
ends creates refinancing risk. If the property cannot be refinanced on
favorable terms, distributions may stop and the property may face
foreclosure.
Sponsor background
and conflicts of interest
The PPM must disclose the sponsor’s track record, litigation history,
and any conflicts of interest. Look for:
- Prior DST programs that halted distributions or failed to meet
projections. - Pending litigation against the sponsor or its principals.
- Affiliated entities providing services at above-market rates.
- Incentive fees that encourage the sponsor to take on excessive
risk.
Tax information
The PPM will include a discussion of the DST’s intended tax
treatment, including qualification for 1031 exchange treatment under
Revenue Ruling 2004-86. Read the caveats carefully. The IRS can
challenge a DST’s qualification if the trust violates the seven deadly
sins — the strict operating restrictions that maintain 1031
eligibility.
How a PPM can
reveal due diligence failures
When we review a DST investor’s case, we compare what the PPM
disclosed to what the broker communicated. If the broker did not explain
the risk factors, did not discuss the fee structure, and did not address
the distribution suspension risk, the investor may have a claim for
unsuitable recommendation, misrepresentation, or omission of material
facts.
| PPM disclosure | What the broker should have explained | What due diligence failure looks like |
|---|---|---|
| Distribution suspension risk | That distributions are not guaranteed and can stop | Broker promised stable income without mentioning suspension |
| Illiquidity | That there is no public market and the holding period is 5–10 years |
Investor needed liquidity but was placed in a long-hold DST |
| Fee structure | Total fees and how they reduce invested capital | Broker did not disclose all fees or their impact on returns |
| Debt and refinancing risk | That maturing debt creates refinancing risk | Broker did not discuss the loan maturity date or its implications |
| Sponsor control | That investors have no voting rights or management control | Broker did not explain that the sponsor makes all decisions |
Contact Investment Fraud
Lawyers
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers,
has recovered losses for investors across the country. We work on a
contingency fee basis: no recovery, no fee. We review each case at no
cost and determine whether the broker, sponsor, or both may be
liable.
If you invested in a DST and your broker did not explain the risks in
the PPM, call us at 1-888-885-7162 or use our
confidential contact form. We will review your offering documents,
brokerage statements, and communications to identify whether your losses
were avoidable.
Legal disclaimer: Past results do not guarantee
future outcomes. Every case is unique, and recovery depends on the
specific facts, applicable law, and available defendants.
Return to our main resource on DST investor losses.