STRATEGY · OCTOBER 2026 · TAX
PPM Due Diligence: What to Read Before You Sign
A Private Placement Memorandum governs every DST and UPREIT offering. Here is what experienced advisors check before a client commits capital.
721 Hub · October 6, 2026
Investors rolling deferred gain into a Delaware Statutory Trust or a 721 UPREIT exchange receive a Private Placement Memorandum before any capital moves. That document is the legal perimeter of the deal, and reading it carefully is not optional.
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Who Can Legally Deliver the PPM
The licensing question matters before any other diligence begins. DST interests are treated as securities under federal law, so they sit outside the authority of a traditional real estate license. A broker holding only a real estate license cannot lawfully offer DST investments.
Most DST offerings are structured as private placements under SEC Regulation D, which exempts them from public registration while still imposing eligibility and disclosure requirements. The practical result: the person presenting the PPM must hold both a real estate license and a registered representative credential through a broker-dealer.
Any investor who receives a PPM from someone without that dual credential should pause and verify licensing before proceeding. The structure of the offering does not change this obligation.
What the Core Exchange Documents Reveal
The PPM does not stand alone. It works alongside a set of transactional documents that together define how capital moves and what protections attach to each transfer.
The Exchange Agreement is the written contract between the taxpayer and the Qualified Intermediary. It establishes the exchanger's stated intention to complete a Section 1031 exchange and defines how the QI will handle property transfers and fund custody throughout the process.
Two additional documents address property-level mechanics:
- The Assignment of Proper Notice provides the legal mechanism for direct deeding and ownership assignment, notifying both the buyer of the relinquished property and the seller of the replacement property.
- The Settlement Statement documents the precise amount of funds flowing from the relinquished property sale and provides evidence that those funds are applied correctly at replacement-property acquisition.
When the PPM references any of these instruments, investors should confirm that the language in each document is consistent with the disclosed exchange structure.
A Purchase and Sale Agreement for the relinquished property must contain explicit language stating that a like-kind exchange is underway, or a separate addendum must be attached to establish that intent. If the PSA is silent on this point, the exchange may be compromised before it begins.
Stress-Testing the Financial Disclosures
The financial section of a PPM for a REIT-linked or 721 UPREIT offering deserves concentrated attention. The single most consequential metric is Adjusted Funds From Operations (AFFO) coverage.
When AFFO coverage falls below 100%, the REIT is paying distributions from debt or from new investor capital rather than from property-level income. That condition is not sustainable and typically resolves through distribution reductions or redemption restrictions.
Direct property due diligence carries its own checklist. Property-level review requires:
- Appraisals and cash-flow analysis
- Environmental reports
- Lease audits
- Inspection reports
- Demographic and population surveys
- Title reports
- Financial stress tests
Most individual investors lack the resources or expertise to conduct this work independently, which makes the sponsor's disclosed methodology a critical section to read in full.
Structural Conflicts That the PPM Must Disclose
One conflict appears regularly in REIT-sponsored DST offerings and is worth isolating as its own review category. A non-arm's-length transaction occurs when the same sponsor controls both the REIT selling a property and the DST acquiring it. Because no independent buyer sets the price, the transfer value is not market-tested.
Some observed transactions have moved assets into DSTs at a material premium over prior valuations. Incoming DST investors absorb that markup through a higher acquisition basis. The PPM is required to disclose related-party transactions, but the disclosure may appear in footnotes rather than highlighted sections.
The practical test: locate the prior valuation or appraisal of the subject property and compare it to the DST-stage acquisition price stated in the PPM. A significant gap warrants a direct conversation with the sponsor before committing.
| Factor | Direct NNN Purchase | DST Offering |
|---|---|---|
| Lease audit | Investor-commissioned | Sponsor-disclosed in PPM |
| Environmental survey | Investor-commissioned | Sponsor-disclosed in PPM |
| Market analysis | Investor-commissioned | Sponsor-disclosed in PPM |
| Building inspection | Investor-commissioned | Sponsor-disclosed in PPM |
| Conflict-of-interest review | Not applicable | Non-arm's-length disclosure check |
| Securities licensing required | No | Yes, registered representative plus real estate license |
The Concrete Next Step
Accredited investors map their PPM review against current offerings and their own exchange timeline through the partnered broker-dealer's intake process. The advisory team coordinates document review, AFFO analysis, and conflict screening before any commitment is made. Confirm accreditation status to proceed.