DST Risks and Fees Explained: What Are Investors Paying For?

Delaware Statutory Trusts (DSTs) are often discussed in shorthand. Passive income. Tax deferral. Institutional real estate. Those descriptions are not wrong, but they are incomplete.

What is frequently missing from the conversation is a clear explanation of where fees exist, why they exist, and how they relate to risk. When that understanding is absent, investors tend to assume either that fees are excessive or that risks are minimal. Neither assumption is helpful.

DSTs don’t hide fees. They embed them inside the offering structure which some investors haven’t had to analyze before. It is imperative to do so before investing.

This article provides a clear, structured explanation of DST risks and fees, including a revised breakdown of the primary fee categories and how each one fits into the overall investment structure.

How Risk Works in a Delaware Statutory Trust

Risk in a DST does not come from daily market volatility. It comes from delegation and duration.

Once invested, the investor delegates nearly all decision-making authority to the sponsor and accepts a long holding period with limited flexibility. Outcomes depend on underwriting discipline, asset selection, financing terms, and sponsor execution over time.

In practical terms, DST risk can be grouped into three broad areas:

• Asset-level risk tied to the underlying property
• Structural risk driven by lack of control and liquidity
• Execution risk related to sponsor decision-making

Fees exist largely to support the management of these risks within a regulated framework.

A Revised Breakdown of DST Fee Categories

Below is a simplified framework outlining the primary fee categories commonly embedded in Delaware Statutory Trust offerings and what each one supports.

How to Read This Fee Structure Properly

These fees are not layered arbitrarily, nor are they designed to enhance returns. They exist because DSTs operate at the intersection of real estate ownership, securities regulation, and tax law.

Each fee category supports one of three core functions:

• Distribution through regulated channels
• Compliance and investor protection
• Execution and long-term asset management

When viewed together, the fee structure reflects the cost of outsourcing sourcing, compliance, management, and execution to a professional sponsor operating inside a regulated framework.

The more complex the asset, the longer the hold period, and the larger the investor base, the more infrastructure is required to support the investment.

Understanding the Relationship Between Fees and Risk

Fees and risk cannot be evaluated separately.

Higher fees may be justified when an asset requires greater operational depth, conservative underwriting, or complex financing. Lower fees paired with aggressive assumptions often increase downside risk.

The relevant question is not whether fees are “high” or “low,” but whether they are aligned with:

• Asset complexity
• Sponsor experience
• Risk profile
• Duration of the investment

Misalignment between fees and execution quality is where problems tend to arise.

The Common Misconception About DST Fees

The most frequent mistake investors make is evaluating DST fees in isolation.

Fees are often compared to public REIT expense ratios, brokerage commissions, or self-managed real estate ownership. These comparisons ignore structural differences.

DST fees replace costs that investors would otherwise incur directly, including sourcing, underwriting, financing, compliance, reporting, and exit execution. The correct evaluation is whether those costs are reasonable given the asset, the structure, and the sponsor’s ability to execute over time.

Fees are not the problem. Misaligned expectations are.

Where DST Risk Typically Shows Up Over Time

DST risk rarely appears immediately. It emerges gradually.

• Changes in operating expenses
• Tenant credit deterioration
• Interest rate pressure on refinancing or exit values
• Market conditions at disposition

Because investors cannot intervene, sponsor discipline and communication matter more than initial projections.

How Experienced Investors Evaluate DST Risks and Fees

Sophisticated investors do not ask whether DST fees are excessive. They ask better questions.

• What risks am I outsourcing to the sponsor
• How does this DST fit within my broader portfolio
• Are incentives aligned over the life of the investment
• What happens if assumptions fail

These questions provide more clarity than any single percentage or projection.

Conclusion

Delaware Statutory Trusts involve real risks and real costs. Both are structural. Neither should be minimized or exaggerated.

When understood clearly, DSTs can serve a defined role within a broader strategy. When misunderstood, they often create frustration not because the structure failed, but because expectations were misaligned.

A structured planning discussion can help determine whether the risks and fees embedded in a DST align with an investor’s objectives, liquidity needs, and tolerance for long-duration commitments before capital becomes constrained.

General Disclosure