Capital Square: Zero Coupon DFW Hospitality DST
Investment Overview
The trust’s fee ownership of the land is subject to a long-term ground lease with 815 Commerce LLC, a Texas limited liability company (“ground tenant”), which owns all of the improvements situated on the land. Effective as of the date of the ground lease, the ground tenant subleased the land and improvements to a hotel operator affiliated with the ground tenant. The 99-year ground lease has over 95 years of term remaining, with 2.0% annual rental increases throughout the entire term. The ground lease affords the trust, as its landlord, certain rights to take ownership of the improvements in the event of a non-payment of ground lease rent, thereby putting the landlord in an advantaged position to leasehold lenders.
The ground lease is supported by a 188-room, full-service hotel that was completely renovated and reopened in 2024. Located in the heart of downtown Fort Worth, the 14-story hotel has a long-term franchise agreement with Marriott’s upscale Le Meridien brand and features a restaurant, rooftop bar with event space, pool lounge area and convention center.
The offering features a high loan-to-value (LTV). This was achieved by structuring the loan so that the ground rent paid by the hotel operator is approximately the same as the debt service and fees due under the loan. Because of the high LTV, there will be no distributions to investors during the holding period. Section 1031 exchange investors whose relinquished property includes a relatively high LTV may be able to exchange into this offering without contributing additional capital to their exchange.
Offering Strengths
Attractive for investors with debt replacement needs.
Offering Weaknesses
Ground lease structure limits appreciation potential, value is primarily tied to cap rate movements. Restrictions in the ground lease limit flexibility to sell or redevelop and tenant purchase option creates exit uncertainty.
Key Facts
Sponsor: Capital Square
Structure: Delaware Statutory Trust (DST)
Location(s): Texas
Property Type(s): Hospitality
Assumable Loan: 77.78% LTV
Estimated Hold Period: 10 Years
Key Features
1031 Exchange: Yes
721 Exchange/UPREIT: No
Cash-Out Refinance: No
Income Guarantee: No
Distribution Forecast
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | Year 8 | Year 9 | Year 10 | |
|---|---|---|---|---|---|---|---|---|---|---|
| Investor Cash Flow | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
Sponsor Overview
Capital Square is a vertically integrated, national real estate firm specializing in tax-advantaged real estate investments, including Delaware statutory trusts for Section 1031 exchanges, qualified opportunity zone funds for tax deferral and exclusion and a real estate investment trust (REIT). The company is also an active developer and manager of multifamily communities. Since 2012, Capital Square has completed more than $7.9 billion in transaction volume. Capital Square's mixed-use development projects total over 2,000 apartment units with a total development value in excess of $800 million, and Capital Square Living, the firm's property management division, now manages over 13,000 apartments across multiple states. Capital Square's related entities provide a range of services – including due diligence, acquisition, loan sourcing, property/asset management and disposition – for a growing number of high-net-worth investors, private equity firms, family offices and institutional investors. The company has been recognized by Inc. 5000 as one of the fastest growing companies in the nation for eight consecutive years.