Cove Capital raises $7.1M for Shreveport retail DST

Cove Capital Investments has closed on a 29,000-square-foot retail property in Shreveport, La., according to IREI. The firm is raising $7.1 million of equity for it through a debt-free 1031-exchange Delaware statutory trust.

Cove, a national sponsor of debt-free DST offerings, structured the deal under Regulation D Rule 506(c) for accredited investors. Dwight Kay, the firm's managing member and founding partner, said the property is fully leased to two national retail tenants with long operating histories. Both tenants recently exercised lease-renewal options, Kay said. Bayou Walk sits in a submarket with low retail vacancy and is among the most-trafficked shopping destinations in the region. Cove says it bought about 30 percent below replacement cost. In-place rents run roughly 29 percent below the submarket average.

Because the DST carries no debt, the $7.1 million equity raise is the entire capital stack. No mortgage sits in front of investors. Bayou Walk's ability to push rents toward the market is therefore where the return has to come from. Cove's case rests on the discount to replacement cost and the gap between current and market rents. The lease renewals reduce near-term vacancy risk, but they also lock in the below-market rents until the next negotiation.

The acquisition adds another asset to Cove's roster of debt-free DST offerings, a structure built for 1031-exchange investors. If rents stay where they are, the below-replacement-cost purchase still leaves a buffer.