Core mechanism: Working capital recycles every ~45 days (8x/year), but each DST remains under management for 2+ years. Each cycle adds to the cumulative AUM base. The 2% management fee applies to the entire growing portfolio. $100M of working capital generates $1.6B in AUM at steady state, producing $32M/yr in recurring fee income.
The capital provider earns approximately 2% on committed capital per deployment cohort. As the recycling engine reaches full velocity (8 cohorts per year), the annualized yield stabilizes at approximately 16%. The ramp reflects the time required to fill all cohort slots.
Each cohort contributes ~2% to the annualized yield. At 8 cohorts/year, yield stabilizes at ~16%.
| Cohort | Elapsed Time | Capital Deployed | Cohort Return (2%) | Cumulative Annual Yield | Status |
|---|---|---|---|---|---|
| 1 | ~45 days | $100M | $2.0M | 2% | Ramp |
| 2 | ~90 days | $100M | $2.0M | 4% | Ramp |
| 3 | ~135 days | $100M | $2.0M | 6% | Ramp |
| 4 | ~180 days | $100M | $2.0M | 8% | Ramp |
| 5 | ~225 days | $100M | $2.0M | 10% | Ramp |
| 6 | ~270 days | $100M | $2.0M | 12% | Ramp |
| 7 | ~315 days | $100M | $2.0M | 14% | Ramp |
| 8 | ~360 days | $100M | $2.0M | 16% | Stabilized |
Capital is returned and redeployed at the conclusion of each ~45-day cycle. The 2% per-cohort yield reflects the net spread earned on each deployment, inclusive of placement economics and management fee accrual. Yield stabilizes once all 8 annual cohort slots are concurrently active.
$100M committed capital × 2% per cohort × 8 cohorts/year = $16M annual distributions at stabilization. The first-year ramp reflects deployment timing, not credit risk. By month 12, all cohort slots are filled and the yield is fully stabilized at 16%.
Each deployment cycle creates approximately $100M in new DST assets that remain under management for a minimum of two years. Because working capital recycles 8x annually while DSTs persist, assets under management compound rapidly.
| Period | Cycles (Cumul.) | New DST AUM | Dispositions | Total AUM | Fee Rate | Quarterly Fee | Annualized Fee |
|---|---|---|---|---|---|---|---|
| Y1 Q1 | 2 | $200M | — | $200M | 2.0% | $1.0M | $4.0M |
| Y1 Q2 | 4 | $200M | — | $400M | 2.0% | $2.0M | $8.0M |
| Y1 Q3 | 6 | $200M | — | $600M | 2.0% | $3.0M | $12.0M |
| Y1 Q4 | 8 | $200M | — | $800M | 2.0% | $4.0M | $16.0M |
| Y2 Q1 | 10 | $200M | — | $1,000M | 2.0% | $5.0M | $20.0M |
| Y2 Q2 | 12 | $200M | — | $1,200M | 2.0% | $6.0M | $24.0M |
| Y2 Q3 | 14 | $200M | — | $1,400M | 2.0% | $7.0M | $28.0M |
| Y2 Q4 | 16 | $200M | — | $1,600M | 2.0% | $8.0M | $32.0M |
| Y3 Q1 | 18 | $200M | ($200M) | $1,600M | 2.0% | $8.0M | $32.0M |
| Steady State (Year 3+) | $1,600M | 2.0% | $8.0M | $32.0M/yr | |||
Earliest DSTs reach disposition at quarter 9 (beginning of Year 3), consistent with the two-year IRS safe harbor. At steady state, new deployments replace dispositions and AUM plateaus at approximately $1.6B.
AUM scales linearly for two years, plateaus as earliest DSTs reach disposition
| Fee | Rate | Basis | Notes |
|---|---|---|---|
| Management Fee | 2.0% | Total DST portfolio AUM | Sole revenue driver |
| Acquisition Fee | None | — | No upfront load |
| Transfer / Disposition Fee | None | — | No backend load |
The 8x capital velocity transforms the 2% AUM fee into a 16% effective annual rate on committed capital. No transaction fees are charged. The fee structure aligns sponsor and LP interests: Optionality Capital earns only when DSTs are successfully placed and managed.
9 years in institutional multifamily real estate private equity
Quantitative trading, systems engineering, venture investing
Complementary expertise. Zhang contributes institutional deal flow, underwriting discipline, and capital markets relationships honed across 3,700+ units and $32B+ in managed assets at GID. Wang contributes the technology infrastructure to automate DST formation, investor matching, and capital recycling at 8x velocity — plus institutional-grade systems experience from Bridgewater, Tower, and HG Vora. Both Princeton 2017.
DST interests are securities under federal law. Each sale of a DST interest constitutes a securities transaction requiring execution through a FINRA-registered broker-dealer with appropriately licensed registered representatives (Series 7, Series 63/66). SEC Rule 3a4-1 and applicable FINRA regulations govern all distribution activity.
| Approach | Time to Market | Margin Retention | Velocity Compatibility | LP Confidence |
|---|---|---|---|---|
| Owned / Affiliated BD | 12–18 months (one-time) | Full | Built for 8x | Institutional grade |
| Third-party selling group | 3–6 months | 30–50% shared | 1x optimized | Moderate |
| No BD (non-compliant) | Immediate | N/A | N/A | Enforcement risk |
The broker-dealer is not merely a compliance requirement. It is the distribution engine. Without controlled distribution, capital cannot recycle at 8x velocity, and the AUM compounding mechanism fails. Early investment in BD infrastructure creates a structural advantage that compounds with each month of operation.
You have 45 days to identify replacement property and 180 days to close. Below are three ways to frame the choice between a traditional DST and Optionality Capital — select the format that resonates most.
| Dimension | Traditional DST | Optionality Capital |
|---|---|---|
| Upfront Fee Load — on a $100M acquisition | ||
| Acquisition Fee (sponsor) | $2.5M (2.5%) | $0 |
| Broker-Dealer Selling Commission | $3.9M (7% of equity) | $0 |
| Managing Broker / Due Diligence Fee | $0.8M (1.5% of equity) | $0 |
| Disposition Fee at Exit (sponsor, reserved) | $2.0M (2.0% of sale) | $0 |
| Financing, Legal & Organizational | $2.0M | $2.0M |
| Offering Costs & Reserves | $3.8M | $8.0M |
| Total Capitalization | $115M | $110M |
| Excess Over Asset Value | $15M (15%) | $10M (10%) |
| Ongoing Annual Fees | ||
| Annual Management / Asset Mgmt Fee | 1.5–2.0% of AUM | 2.0% of AUM |
| Ongoing Broker-Dealer Trail | 0.25–0.50%/yr | $0 |
| Hold Period & Liquidity | ||
| Required Hold Period | 7–10 years | 2+ years (IRS minimum) |
| Early Exit / Secondary Market | 15%+ discount to NAV | Structured — no deep discount |
| Next 1031 Opportunity | Decade away | 2+ years — re-exchange sooner |
| Investor Yield — Same $100M Asset, 6% Cap Rate, 60% LTV | ||
| Equity Invested by 1031 Investors | $55M | $50M |
| Annual NOI less Debt Service | $2.1M | $2.1M |
| Cash-on-Cash Annual Yield | 3.82% | 4.20% |
| Yield Advantage | +38 bps / +10% more income | |
| Sponsor Alignment | ||
| When Does Sponsor Get Paid? | Day 1 (acquisition fee) | Ongoing — only while managing |
| Incentive to Preserve NAV | Low — already paid | High — fee tied to AUM value |
| Asset Quality / Tenant Credit | Varies widely | Investment-grade NNN only |
Debt service assumes $60M at 6.5%. Traditional ongoing BD trail excluded from yield calc for simplicity — inclusion widens the gap further. Disposition fee impact not reflected in annual yield but reduces total return at exit.
On a $100M acquisition, a traditional DST investor pays $5M more in fees for the identical property. That $5M earns nothing — it goes to the sponsor and its distribution chain on day one.
Across a $5M DST investment at typical sizing, that fee drag reduces your annual yield by ~40 basis points and compounds negatively across the hold period.
Bar heights are proportional to dollar amounts. Ongoing 2% AUM fee (Optionality Capital) not capitalized — it is earned monthly over the hold period and aligns sponsor incentive with investor NAV.
Traditional DSTs lock investors in for 7–10 years. Optionality Capital DSTs target a 2-year minimum hold — the IRS safe harbor — allowing investors to 1031 exchange again sooner, deferring additional capital gains and compounding tax-sheltered wealth faster.
There is no liquid secondary market for traditional DST interests. A forced sale or hardship redemption typically executes at a 15–25% discount to NAV. Optionality Capital's controlled cycle gives investors a defined, NAV-based exit path aligned with the property's actual value.
Traditional DST sponsors collect acquisition fees at closing — they are financially indifferent to what happens next. Optionality Capital earns its 2% AUM fee monthly only while assets are under management. Our revenue disappears if we mismanage the asset or fail to preserve NAV.
Traditional DST offering documents can run 200+ pages with fees scattered across selling commissions, trail fees, asset management fees, acquisition fees, and disposition fees. Optionality Capital discloses a single fee: 2% AUM annually. No acquisition. No disposition. No trail.
Traditional DST portfolios vary widely in tenant credit quality and asset class. Optionality Capital focuses exclusively on NNN-leased properties with investment-grade credit tenants — stable, predictable cash flows with minimal landlord obligation and lower vacancy risk.
Traditional DST sponsors must market each offering and hope to attract enough 1031 buyers before the investor's 180-day deadline. Optionality Capital's model creates structural, recurring 1031 demand — reducing placement risk and allowing faster closes that protect investor deadlines.