PPM Due Diligence: What to Read Before You Subscribe to a DST

A DST subscription without a thorough PPM review is a structural error, not a paperwork shortcut. The offering memorandum is the only authoritative source of property-level business plans, risk disclosures, and sponsor economics. Advisors who guide clients through an exchange owe it to those clients to treat the PPM as the centerpiece of the review process.

Last reviewed: October 13, 2026

The Legal Perimeter of a DST Offering

Delaware statutory trusts are private placements. As such, they are subject to offering memorandum filing and registration requirements at both the state and federal level. Every DST offering is issued under Regulation D Rule 506(c), which restricts participation to accredited investors only.

The PPM is not a marketing document. It is the confidential legal instrument that governs all terms of the investment. Sponsors direct investors to read the entire memorandum before subscribing, with specific attention to the risk factors section. Anything a sponsor communicates in a webinar, pitch deck, or broker summary is subordinate to what the PPM actually says.

For advisors operating in regional markets from the Mountain West to the Mid-Atlantic, this distinction matters because state blue-sky registration requirements vary. The filing obligations attached to a DST offered in Colorado will differ from those in Florida or Ohio. Confirm registration status in the client's state of domicile before treating a subscription as actionable.

What to Examine Inside the PPM

A structured PPM review covers several layers. Advisors and their clients should work through:

• Property-level business plan: How the sponsor intends to operate, lease, and eventually dispose of the asset
• Risk factors: All material risks disclosed by the sponsor, read in full, not summarized
• Acquisition price and prior valuation: Whether the property was transferred from an affiliated entity, and at what price relative to a prior appraisal
• Lease terms: Rent escalation schedules, renewal options, and corporate versus franchise tenant structures
• Sponsor economics: Fee layers, promote structures, and any related-party transactions

The lease review deserves particular attention for net-lease assets. Evaluation of rent escalations and renewal options is standard due diligence practice for NNN properties, and that same discipline applies inside a DST wrapper. Property condition assessments and location trend analysis belong in the same review pass.

The Related-Party Transfer Problem

One of the most consequential disclosures inside a PPM involves how the property was sourced. When the same sponsor controls both a REIT and a DST that acquires property from that REIT, the transfer price is set internally rather than tested by the market.

Observed transactions have moved property into affiliated DSTs at a 20% markup over prior valuation. Incoming DST investors effectively absorb that premium in the acquisition price. The practical test is direct: locate the property's prior appraisal or REIT-level carrying value inside the PPM and compare it to the DST-stage acquisition price. A material gap between those two numbers warrants a conversation with the sponsor before subscribing.

For UPREIT-bound investors evaluating a 721 exchange path, the same scrutiny applies to REIT-level financial health. Adjusted funds from operations coverage measures whether distributions are sourced from property-level cash flow or from capital sources that may not be sustainable. Coverage that does not meet distributions from operating cash flow is a structural flag, not a rounding error.

Checkpoint	DST PPM Review	721 UPREIT Review
Governing document	Private Placement Memorandum	REIT offering documents and SEC filings
Acquisition price test	Compare DST price to prior property valuation	Assess REIT-to-DST transfer markup if applicable
Income sustainability test	Lease term and rent escalation review	AFFO coverage relative to distributions
Investor eligibility	Accredited investors only under Rule 506(c)	Accredited investors; additional REIT-specific criteria
Risk disclosure location	Risk factors section of PPM	Prospectus risk factors and related-party disclosures

The Advisory Team Behind the Review

No single professional completes a PPM review in isolation. CPAs carry the primary tax advisory role throughout the exchange process. They are the appropriate first call on exchange qualification, tax consequence analysis, and whether the replacement property's structure serves the client's long-term tax posture.

Real estate attorneys provide the legal framework. Counsel with specific experience in real estate transactions helps clients understand exchange qualification requirements and the range of replacement options available to them. Their role is distinct from the CPA's and complementary to it.

The qualified intermediary holds the exchange funds in a segregated account maintained separately for each exchanger's benefit. That structural protection is a baseline expectation, not a differentiator. Confirming the QI's segregation practice belongs on the due diligence checklist alongside the PPM review itself.

Broker-dealer registered representatives who sponsor the offering carry their own disclosure obligations. Advisors should request confirmation that the PPM has been filed appropriately and that the offering is open in the client's state before proceeding.

Closing Recommendation

Accredited investors approaching a DST subscription should schedule a strategy review with the partnered broker-dealer before the identification deadline narrows their options. The review should begin with the full PPM, focus on the acquisition price relative to any prior valuation, confirm lease structure and risk factor disclosures, and include the client's CPA and real estate attorney in any decision that carries material tax consequence. Confirm accreditation status to proceed.