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Real Estate Entrepreneur Wants to Protect His Wealth by Diversifying Into Multiple Markets.

John was a lawyer who started buying multifamily real estate in parts of downtown Brooklyn long before the market matured.  During this time, he was single and never felt he had time for a wife and family.  For decades, he was living the real estate dream as he refinanced and bought more properties within the same 1-mile radius.

Then John turned 60, September 11th happened, and he found and married Cindy. Suddenly, he started thinking that all his wealth was concentrated in less than a square mile and he realized that anything could happen after 9.11. He recognized that he had become rich by concentrating his wealth, but now wanted to preserve his wealth through diversification. His properties were collectively worth in excess of $80 million, with very low basis and a portfolio leverage ratio of 30%.

All of his properties were management intensive, and most of his buildings had restrictions on rent escalations at the same time as his operating expenses were increasing.

We embarked on a strategy to sell off 50% of his portfolio over time, so that he’d have more of an active-passive balance as he got older. John’s first sale was a cluster of 4 properties for a total of $15 million netting him around $10 million in cash.  Using DST’s, we curated for him a portfolio of properties net leased to institutional quality tenants in diverse states and industries.

With DST’s. you can dial up whatever fractional interest you choose of a particular investment. For example, you could invest $300,000 into an offering of a $200,000,000 property. You might have 0.25% of that property, but you have an undivided fractional interest prorata with every other investor in that property.

So, John spread his equity from 4 small local properties into a small fractional ownership of a portfolio worth almost $2 billion. He reduced his active management load, reduced the pressure of ever increasing operating expenses that he couldn’t pass on to his tenants, he diversified into different asset classes, he stepped up to institutional level credit, and paid no taxes in the process.