Research guide

Delaware Statutory Trust Fees: Questions to Ask About Related-Party Payments

By Sequoia ResearchPublished Read as Markdown

What Is This Article About?

This article explains how to review DST payments to businesses connected with a sponsor or manager. It focuses on the service provided, the price support, the approval process, and the records showing what was paid. A dated public disclosure provides a starting example, followed by separate fictional cases involving construction, reimbursements, shared expenses, and a property sale. The aim is to turn an affiliate label into specific questions that can be answered from documents.

Table of Contents

Start With the Relationship and the Actual Payment

A payment to a related party deserves a clear explanation of both the relationship and the work. The first question is who is connected to whom. The second is what the investment receives in exchange for the payment. Knowing only the fee rate leaves both questions partly unanswered.

For this article, a related party means a business with a documented ownership, control, or other relevant connection to the sponsor, manager, or issuer. This is a working research label, not a formal tax or accounting definition. Use the actual documents to describe the connection. Similar names, shared addresses, and familiar logos do not establish every legal relationship.

Identify the legal payer and recipient. A trust can pay an affiliate directly. A master tenant may pay a property manager. A seller may pay a fee connected with an acquisition. These cash paths can affect the investment in different ways. The recipient's brand name alone does not show the path.

Then distinguish a disclosed formula from an actual payment. An offering budget may authorize or estimate compensation. A later invoice may request it. A bank record may show that cash moved. None of these records alone proves every step: authority, calculation, service delivery and payment each need their own support.

FINRA's private-placement guidance specifically discusses transactions and payments between an issuer and its affiliates involving offering proceeds. It tells covered firms to consider the terms, possible material conflicts and disclosure, and to investigate material claims. That is a duty for firms within the guidance's scope. This article provides research questions; it does not certify a firm's compliance. FINRA Regulatory Notice 23-08.

An affiliate can provide useful services. An outside provider can also charge too much or perform poorly. The relationship is a reason to understand how the decision was made. It does not by itself prove misconduct, good value, or a fair price.

Keep the initial conclusion narrow. “The recipient is affiliated and the scope is disclosed” is different from “the price is supported by a comparable bid.” A review may establish the first fact while leaving the second open. Those are separate findings, and the record should preserve the difference.

Passco Allure DST's PPM is dated May 1, 2026. It describes an affiliated property manager using an unaffiliated submanager. Its compensation section says the parties did not negotiate these terms at arm's length. The construction-management line lists a 5% fee on hard construction costs. It also lists a downstream 3.5% fee whose amount is subject to agreement based on work scope. Those descriptions do not establish matched final bases, actual invoices, completed work or net profit. Passco Allure PPM, printed pages 25 and 116–119.

This is one dated disclosure example, checked October 16, 2026. It is not a ranking of the sponsor, a review of actual contractor performance, or a finding about current billing. The underlying service and payment records were not obtained. No conclusion about a real fee's fairness is supplied here.

The useful next question is what each business agrees to do and how its fee is calculated. A manager and a submanager can have different duties. A percentage gap does not explain the work retained by the first manager, the costs it bears, or the final amount payable under the second agreement.

Also ask what “not negotiated at arm's length” means in the actual file. It identifies a limit in the pricing process described by the document. It does not answer whether the price matches outside alternatives or whether the service was delivered. Those questions need other evidence.

The rest of this article uses invented Redfield examples. The names, terms, prices, approvals and records are fictional teaching assumptions. They do not describe Passco or any other actual offering. Each example shows how to test a specific claim without turning a missing document into an accusation.

Ask What Service the Fee Actually Buys

Start with a task description that can be checked. “Management” is too broad to show whether a payment covers accounting, site supervision, leasing, construction oversight, investor reports, or several of these. Ask for the agreement's duties and the period covered by the fee.

In the fictional Redfield case, Redfield DST pays Redfield Services, which shares a parent with the sponsor. An outside contractor performs building work. Under the service agreement, Redfield Services reviews the work schedule and checks payment requests. It also reports progress and helps arrange final acceptance. The contractor's agreement covers the physical work and its stated warranty.

Those are distinct roles in the example. Whether both are needed, whether they are performed well and whether their prices are reasonable remain separate questions. Do not assume that two parties working on the same project are charging for the same task. Do not assume the duties are distinct just because their fee labels differ either.

Build a simple work map. Put each task beside the party responsible, the fee that covers it, the evidence of completion and the person who checks that evidence. If no one owns a task, the map reveals a service gap. If two contracts cover the same task, ask how the overlap is handled.

A statement such as “the affiliate oversees construction” needs more detail. Does it review contractor bids, inspect work, approve changes, verify invoices, or merely pass reports to the sponsor? Does it employ staff for those duties or hire others? What reports can the trust receive to confirm the work?

Separate standing duties from additional work. A fixed administration fee may cover routine accounting while an unusual legal project may be billed separately. The relevant contract must define the boundary. A new invoice should identify which extra duty it covers rather than repeat the name of a service already included.

The SEC's fee bulletin points investors toward product and account disclosures and questions about direct and indirect costs. That supports reading the fee schedule alongside the service description. A percentage without the promised work is an incomplete basis for comparison. SEC fee bulletin.

Compare Prices Only After Matching the Work

An outside bid can help assess a related-party price, but only if it covers comparable work. Check the project scope, materials, permits, warranty, timing and payment conditions. A lower headline price can exclude a service that another bid includes.

Assume Redfield has two invented quotes for exactly the same completed work and schedule. An independent firm quotes $510,000, including all required project supervision. The affiliate-arranged quote shows $500,000 for the contractor's work, plus a separate 4% coordination fee on that amount.

The second quote totals $520,000: $500,000 plus $20,000. Comparing $500,000 with $510,000 would make it appear $10,000 cheaper. Comparing the stated complete packages shows it is $10,000 more expensive. That finding relies on the assumption that the work, quality commitments and other terms really match.

Fictional price item Independent package Affiliate-arranged package
Stated work and included supervision $510,000 $500,000
Additional coordination charge Included $20,000
Compared package total $510,000 $520,000

The difference is a question to investigate, not an automatic overcharge finding. The affiliate may have a reason for its price, but the reason needs to be stated and checked. Perhaps the packages were not truly equal. If so, revise the comparison instead of keeping an unsupported “same service” label.

Ask whether the outside quote was available when the decision was made. A later bid, an expired quote, or a price for another location may not show an alternative the trust could actually obtain. Record the date, conditions and any reason a quote could not be used.

Avoid presenting one bid as a market price. It is one provider's stated offer under particular terms. Multiple relevant bids may provide better context, but their scope still needs review. A simple average of mismatched bids can look precise while answering no useful pricing question.

Also check what happens after selection. A low starting bid can lead to costly changes if the scope was thin. Review the final expected cost alongside the initial quote. Price support should follow the transaction as it changes, rather than freeze at the number used to obtain approval.

Trace Subcontractor Payments Without Calling the Difference Profit

A recipient may keep some of a fee and use some to pay another provider. Trace those transfers without adding every movement as a new charge to the investment. Also avoid calling the amount retained net profit when other costs remain unknown.

Use a separate payment breakdown for Redfield's $20,000 coordination fee. Assume its agreement allows the affiliate to hire an outside specialist and pay that specialist from the fee. The specialist receives 2.5% of the same $500,000 base, or $12,500. The affiliate retains $7,500 before its own costs.

The investment has paid one $20,000 coordination charge in this example. The $12,500 is a downstream use of that charge. Adding $20,000 and $12,500 as separate investor costs would report $32,500 and count part of the same money twice.

The retained $7,500 is not automatically profit. The affiliate may have staff, insurance, systems and other costs associated with its duties. Those costs are not supplied here. The correct description is the amount retained before unspecified expenses, not net earnings or excess compensation.

Now change one condition. Suppose the governing agreement instead makes the trust separately responsible for the outside specialist's fee, in addition to the $20,000 affiliate fee. Then both charges belong in the trust's cost model. The total would be $32,500 under those different terms. The contract's payer rule changes the answer.

Keep these two versions separate. A payment to an outside provider does not always come from the affiliate's fee, and it does not always create an additional charge. Read who owes it, what pays it and whether a credit applies. Similar percentages in different contracts are not enough.

When records are incomplete, state which link is missing. You may know the trust paid the affiliate but lack the specialist's invoice. You may have the invoice but not proof that it was paid. Neither gap proves that the service was absent. It tells you what evidence is needed to finish the cash and service map.

Check Reimbursements Against the Existing Fee Agreement

A reimbursement repays a cost one party paid for another. Its label does not establish that the expense is eligible, supported or outside an existing fee. Ask which agreement allows it, which records support it, and whether another charge already pays for the same work.

Consider a separate Redfield administration case. A fixed $12,000 fee covers the affiliate's routine internal staff work. The contract also allows the trust to reimburse specified external expenses. These are invented terms; actual contracts may draw the line elsewhere.

The affiliate submits $3,400 for forty staff hours at $85 and $3,300 for sixty staff hours at $55. It also submits $1,400 of eligible travel receipts and a $900 eligible software invoice. The request totals $9,000 beyond the fixed fee.

Under the stated contract, the $6,700 internal staff amount is already covered by the $12,000 fee. The supported extra reimbursement is $2,300. The combined cost is therefore $14,300. Paying the full additional request would produce $21,000, a $6,700 difference that needs reconciliation.

The fictional contract makes that conclusion possible. Without its included-service language, the same invoice list would not prove duplication. An internal hourly charge can be permitted under some agreements. The research task is to connect the charge to the applicable terms rather than assume all internal costs are included or excluded.

Check the receipts as well as the totals. A software invoice may serve several properties or the sponsor's wider business. A travel bill may include more than one project. The trust should be charged under the agreed allocation and eligibility rules, not simply because the affiliate paid the vendor first.

Ask how credits and refunds are handled. If a vendor later refunds part of an expense, does the trust receive the credit? Does the reimbursement record show it? A proper initial invoice can still need an adjustment after the amount changes. Keep the original charge and later credit linked so the final cost can be reproduced.

Examine How Shared Costs Are Allocated

A sponsor group may use the same staff or outside services for several trusts. Identify the pool of costs and how it is split. Then look for evidence that each trust benefits. A mathematically correct split can still rest on an unsupported basis.

In a fictional shared-service case, a $27,000 eligible cost pool covers three trusts. Documented work hours are ninety for Trust A, sixty for Trust B and thirty for Trust C. The total is 180 hours. If the agreed method uses those hours, the implied cost is $150 per hour.

The allocations are $13,500, $9,000 and $4,500. Together they equal $27,000. Equal division would assign $9,000 to each trust instead. That would shift $4,500 away from A and onto C, while leaving B unchanged.

Neither method becomes correct just because the totals balance. The contract and the work records must support the chosen method. Equal division might be appropriate under other stated terms. Hours might be inappropriate if the service is priced for a different benefit. The example only shows how the method affects the charge.

Ask whether the pool includes costs that should be charged directly. If a bill clearly belongs to one trust, placing it in a shared pool can shift part of that cost to others. Conversely, billing the full invoice to one trust and also leaving it in the pool can charge the same expense twice.

Check the period too. A quarterly pool should not include a later quarter's invoice without explanation. A trust that joined the program midway through the period may require a different allocation under the agreement. Keep entry dates and service dates beside the allocation basis.

A missing work log does not prove that no work occurred. It limits the evidence for an hours-based split. State that limit and request the support. Do not replace an unavailable log with equal allocation just to make a clean table; that would substitute a new assumption for the claimed method.

Review the Approval and Change-Order Record

Ask who had authority to select the provider, approve the price and authorize payment. Those may be different people or entities. Review the governing documents rather than assuming investors vote on every contract or that an outside committee approves each related-party arrangement.

The approval record should connect the decision to the version actually used. A signed initial proposal may not approve later additions. A budget line may allow spending without defining the final work. Ask what documents were reviewed and what conditions applied to approval.

Return to the fictional $500,000 work contract and separate 4% coordination fee. Suppose an approved change adds $60,000 of eligible work at the same fee rate. The added coordination fee is $2,400. The change adds $62,400 to the original $520,000 package, making the revised total $582,400.

The work base is now $560,000 and the coordination fee is $22,400. That is a complete reconciliation under the invented terms. A summary that reports only “$60,000 extra work” leaves out the related fee effect. The fee applies to the work price. Applying another 4% charge to the full $582,400 package would use the wrong base and count the fee twice.

Check whether the agreement actually permits fees on change orders. It might exclude certain work, apply a cap, or require separate approval. The fact that the initial contract used a percentage does not prove that every later dollar carries the same charge.

Related parties may share decision-makers. Ask how that connection was disclosed and what process addressed the conflict. A person signing on both sides can be important context, but the legal effect depends on authority and the documents. The investor's research record should describe the observed roles without making an unsupported legal conclusion.

Disclosure is only one part of the covered broker-dealer duties discussed in FINRA's guidance. The notice states that conflict disclosure alone does not satisfy the duty to act in a retail customer's best interest. Keep that regulatory point distinct from a claim that every DST contract must use a particular approval structure. FINRA conflict and disclosure discussion.

A property price can include an economic benefit to a related seller without presenting that benefit as a separate service fee. Review the transaction and price support on their own terms. A fee schedule alone may not explain the entire purchase.

Use a separate fictional acquisition example. A sponsor affiliate previously bought a property for $22.4 million. The available record shows $600,000 of later work and $200,000 of related closing costs. A DST proposes to buy it from that affiliate for $24 million.

The identified prior price and costs total $23.2 million. The $24 million proposed price is $800,000 above those identified amounts. That is an unexplained difference in this limited record. It is not automatically a fee, net profit, or an improper markup.

Other costs, holding expenses, value changes or transaction terms may matter. They are not supplied in this case. Ask for the acquisition timeline, prior closing record, capital-work support and explanation of the transfer price. Do not fill the gap with an assumption favorable or unfavorable to the seller.

Suppose a separate appraisal estimates the property at $24.6 million as of a stated date. That may inform a value review, depending on its scope and assumptions. It does not prove that every affiliate charge is reasonable or that the prior $800,000 difference is profit. Cost history, current value and compensation are different questions.

Read who engaged the appraiser, the effective value date, what property interest was valued and what assumptions were used. A report can be professionally prepared yet address a different date, condition or ownership interest from the transaction. Match it to the actual claim before treating it as price support.

Also look for embedded amounts. If a quoted property price already includes a specified acquisition-related payment, adding that payment again to total uses can double-count it. Preserve a bridge from the underlying transaction price to the amount funded by the trust. The bridge should explain each amount once.

Follow the Service Through Delivery and Payment

A permitted fee and a sound price comparison do not establish that the promised work was completed. Follow the record through performance. Look for reports, inspection results, accepted milestones, invoices and payment evidence that match the agreement.

For Redfield's revised construction case, assume the trust withholds 10% of the $560,000 work price pending final acceptance. That holdback is $56,000. The contractor has received $504,000, while the full $22,400 coordination fee has been paid under the example's separate payment rule.

Total cash paid is $526,400. The remaining $56,000 brings paid plus unpaid amounts to the $582,400 revised package. The holdback is an unpaid part of the work price. It is not an extra fee and should not be added on top of the revised total.

This example also exposes a service question. If oversight continues through final acceptance, what duties remain after the coordination fee is paid? Read the agreement's deliverables and remedies. Do not assume that a paid fee means the service has ended or that an unpaid construction amount creates a right to recover a different party's compensation.

Ask who confirms completion and what evidence is retained. A contractor's invoice states a request for payment. A report may describe progress. An acceptance record may show that a defined milestone was approved. These documents have different roles; no single label proves the whole chain.

Use dates to connect them. Work described as completed after the invoice date may reflect progress billing, an error or a later correction. Identify the sequence and ask for the explanation. A timing difference alone is not proof of wrongdoing, but it may prevent the record from supporting a final conclusion.

If the service changes hands, review the handoff. Who holds the records, who finishes open work and which charges continue? A replacement provider may need access to contracts, logs and unpaid invoices. The cost review should follow the service obligation through that change rather than stop when the first vendor leaves.

Turn Missing Evidence Into a Clear Research Request

A useful question names a claim and the record needed to test it. “Are these fees fair?” is broad. “Please show which duties the 4% charge covers and how the outside quote was adjusted for the same work” is specific. It gives the recipient a concrete way to answer.

Keep four types of evidence separate: relationship, authority, price and performance. Ownership records or disclosures support the relationship. Agreements and approvals support authority. Comparable terms and bids help evaluate price. Work records and payment evidence address performance and cash. Evidence in one category does not automatically settle another.

The SEC warns that private placements can provide less information than registered offerings. Some records may be unavailable to a prospective investor. A request may therefore remain open. State which conclusion cannot be reached and why, rather than presenting the absence as either approval or proof of a problem. SEC private-placement bulletin.

Prioritize gaps that could change the analysis. An unknown payer rule can change whether a subcontractor amount is an extra cost. An unresolved service overlap can change whether an invoice is already covered. Missing price support may leave value unresolved even when the fee calculation is correct.

Record the response without overstating it. A supplied contract can resolve the fee base while leaving actual performance unverified. A corrected invoice can resolve one duplicate line while leaving the shared-cost method open. Close each question only to the extent the new evidence answers it.

The final note should say what is known, what was calculated and what remains uncertain. It can identify an affiliate payment, explain its stated purpose, reconcile its amount and describe the pricing support obtained. It should also say when no actual invoice, comparison bid or service record was reviewed. That is a useful research result even when it stops short of a fairness verdict.

FAQ

Is a payment to a sponsor affiliate automatically a problem?

No. The relationship alone does not show whether the service is needed, the price is reasonable or the work is delivered. Identify the legal parties, the duties, the fee rule and the approval process. Then seek evidence for the specific claim being made. An affiliate label calls for context, not an automatic verdict.

What is the difference between a fee disclosure and proof of payment?

A disclosure may describe an authorized or estimated charge. An invoice requests payment. A payment record shows cash moved. None alone proves that the full service was performed or that the amount follows the governing agreement. Connect those records and their dates before drawing a broader conclusion.

Can I subtract a subcontractor's rate from an affiliate's rate to find profit?

Not without checking the bases, duties and payer rules. Even if the rates apply to the same amount, the difference may cover costs the affiliate still bears. It is not net profit unless those costs are accounted for. Also determine whether the subcontractor is paid from the affiliate's fee or separately by the investment.

Does an outside bid prove that an affiliate fee is too high?

Only a properly matched comparison can establish the stated price difference. Check scope, materials, timing, warranty, included supervision and availability. A difference can justify further questions without proving an improper charge. One quote also does not establish the price of the entire market or the quality of either provider.

How should shared expenses be divided among DSTs?

Use the method supported by the governing terms and the benefit or work being allocated. Hours, units, direct assignment or another basis may produce different results. Check the cost pool, period and supporting records. A split that adds to the invoice total can still be inappropriate if the basis is unsupported or the same cost was billed elsewhere.

No. An appraisal addresses a defined value question under stated assumptions and at a particular date. It may help assess a property price, but it does not by itself verify every service fee, cost reimbursement or affiliate's profit. Keep value evidence, transaction cost history and compensation review separate.

What should I do if the supporting records are unavailable?

Describe the missing record and the conclusion it prevents. Ask a focused follow-up through the people reviewing the offering. Do not replace an unknown with zero, assume a service was never performed, or call a charge fair solely because it is disclosed. Preserve the gap in the decision record so it can be assessed with the other investment risks.

About Sequoia Research

Sequoia Research, LLC provides independent research on DSTs and other real estate investment offerings. This library helps readers connect investment documents, calculations, and practical questions when reviewing real estate offerings.

Sources

Sources inspected October 16, 2026. The named example describes selected public disclosure terms only. All Redfield cases and other numerical examples are fictional. No actual sponsor billing audit, market-price finding, service-performance finding or misconduct determination is supplied.