How Combining NNN and Multi-Tenant DSTs Can Reduce Portfolio Concentration Risk

Delaware Statutory Trusts (DSTs) are often evaluated one offering at a time. Investors review a property, a tenant, and a projected return, then decide whether it fits. That approach misses a larger question that matters more over time: how different DST structures interact inside a portfolio.

Pairing single-tenant net lease DSTs with multi-tenant DSTs is less about chasing yield and more about managing concentration risk. Lease structure and tenant credit exposure influence income durability, downside risk, and how a portfolio behaves across economic cycles.

DST selection should be viewed as portfolio construction, not deal selection.

Understanding how these structures complement each other helps investors avoid unintended concentrations while maintaining the benefits of passive ownership and 1031 eligibility.

Why Lease Structure Matters in a DST Portfolio

Lease structure determines how income is generated and where risk resides. In a DST context, investors cannot adjust leases, replace tenants, or change strategy midstream. That makes upfront structure selection especially important.

Single-tenant and multi-tenant DSTs respond differently to tenant stress, vacancies, and economic shifts. Neither is inherently superior. Each introduces a different risk profile that behaves differently over time.

Diversification across lease structures is one way to reduce reliance on a single outcome.

Understanding NNN DSTs

Single-tenant net lease DSTs are typically anchored by one tenant operating under a long-term lease. Operating expenses, taxes, and maintenance are usually passed through to the tenant.

Key characteristics include:

• Predictable income stream
• Minimal operational complexity
• Concentrated tenant risk

Cash flow stability is tied directly to the tenant’s credit quality and lease terms. If the tenant performs, income is steady. If the tenant fails, the impact is immediate and binary.

NNN DSTs tend to appeal to investors prioritizing simplicity and income visibility.

Understanding Multi-Tenant DSTs

Multi-tenant DSTs derive income from multiple tenants occupying a single property or portfolio. Leases vary by term, size, and credit quality.

Key characteristics include:

• Diversified tenant exposure
• Partial vacancy risk rather than all-or-nothing outcomes
• More operational complexity

Income is less dependent on a single tenant, but variability can be higher. Vacancies are absorbed incrementally rather than all at once, which can soften downside risk but introduce cash flow fluctuation.

Multi-tenant DSTs often behave more like traditional real estate portfolios, even though management decisions remain sponsor-controlled.

How Pairing These Structures Reduces Concentration Risk

When investors allocate exclusively to one lease structure, they concentrate risk in a single failure mode.

NNN-only portfolios concentrate:

• Tenant credit risk
• Lease rollover risk at a single point in time

Multi-tenant portfolios concentrate:

• Leasing and re-tenanting risk
• Operational execution risk

Pairing the two allows risks to offset rather than compound. Stability from NNN income can balance variability from multi-tenant assets. Tenant diversification in multi-tenant DSTs can reduce reliance on a single corporate credit.

This is not about optimization. It is about portfolio resilience.

Credit Exposure and Economic Cycles

Credit exposure behaves differently across economic environments.

In stable or expanding economies, NNN DSTs benefit from long-term leases and fixed rent escalations. Multi-tenant assets may see stronger rent growth but also higher turnover.

In downturns, single-tenant risk becomes more pronounced if the tenant experiences stress. Multi-tenant properties may face vacancies, but income loss is often incremental rather than total.

Pairing these structures reduces sensitivity to any single economic outcome.

Practical Considerations When Allocating Across DST Types

Pairing DST structures requires more than splitting capital evenly.

Key considerations include:

• Relative lease durations and rollover timing
• Tenant industry exposure
• Sponsor experience managing each structure
• Debt maturity alignment across offerings

Sequencing matters. Capital committed to DSTs is illiquid. Allocation decisions should be made with full awareness of timing and long-term capital needs.

How This Fits Into a 1031 Exchange Strategy

In a 1031 exchange, time pressure often narrows focus to availability rather than structure. That is when concentration risk is unintentionally introduced.

Using both NNN and multi-tenant DSTs can:

• Reduce reliance on a single tenant or lease outcome
• Create staggered income dynamics
• Improve portfolio durability over a full hold period

This approach is especially relevant for larger exchanges where capital concentration becomes harder to manage.

Conclusion

Pairing NNN DSTs with multi-tenant DSTs is not a return-enhancement strategy. It is a risk management decision.

Lease structure and credit exposure shape how income behaves, how downside risk is absorbed, and how a portfolio responds to change. Evaluating DSTs in isolation obscures those dynamics. Evaluating them together clarifies them.

A structured planning discussion can help determine how different DST lease structures fit together before capital is committed and flexibility is surrendered.

General Disclosure