Tenant Case Studies: Is it Possible to Provide Long-Term Stability in DST Investments

Investors in Delaware Statutory Trusts (DSTs) often look for ways to ensure long-term stability, as the nature of real estate investing inherently involves risks. Questions around tenant strength, property durability, and market dynamics are common when evaluating DST opportunities.

While no investment can guarantee stability, careful selection of both the property and the tenant plays a critical role in enhancing long-term outcomes. CAI Investments' disciplined approach to underwriting provides an example of how thoughtful decision-making can meaningfully mitigate risk, as illustrated by the Medical Products I DST.

Why Property and Tenant Selection Matter 

The Foundation of Stability 

When considering DST investments, the property itself forms the foundation for stability. Key factors include location, property type, and the demand in the local market.

• Location quality: Proximity to major transportation and strong employment markets supports leasing demand.
• Property class: Mission-critical manufacturing facilities often attract high-quality tenants with long-term operational commitments.
• Market dynamics: Growing or stable local economies increase the likelihood of continued tenant occupancy.

Key Point: A well-positioned property with a strong tenant and favorable lease terms lays the groundwork for stable DST performance. 

CAI’s Approach to Property Selection

CAI Investments is thorough in its asset selection process, using a strategic method to identify high-potential properties in prime locations. Our approach evaluates market fundamentals, property characteristics, and tenant reliability to identify assets positioned for longevity.

A central component of CAI's strategy is securing long-term absolute triple-net (NNN) leases with creditworthy tenants. Under this structure, tenants assume responsibility for operating expenses, including maintenance, insurance, and taxes, which reduces risk and volatility for investors.

Key Point: CAI's property selection process emphasizes long-term leases, strong locations, and reduced operational risk.

Case Study: Medical Products I DST

Property Overview

The Medical Products I DST exemplifies how rigorous property selection can enhance stability. Located in Statesville, North Carolina, this 469,299 square-foot manufacturing facility sits on approximately 21 acres and serves as the global headquarters and primary U.S. manufacturing campus for its tenant.

The property features comprehensive manufacturing infrastructure, including:

• Three interconnected manufacturing facilities
• Over 52,000 square feet of integrated office space
• Specialized production systems for steel, wood, and laminate casework
• Epoxy resin manufacturing capabilities

These attributes make the asset well-suited for long-term manufacturing occupancy where operational continuity is essential.

Strategic Location Advantages

Location is a defining strength of the Medical Products I asset. Situated within three miles of Interstates 40 and 77, and approximately 41 miles north of Charlotte, the property offers convenient access to major transportation corridors and a strong regional labor market.

The tenant has maintained continuous manufacturing operations at this Statesville location since the post-World War II era, demonstrating the site's enduring strategic value for industrial production.

Key Point: Prime location, established infrastructure, and decades of continuous operation contribute meaningfully to asset durability.

Tenant Profile: Kewaunee Scientific Corporation

Tenant Strength and Industry Positioning 

A property's stability is closely tied to the tenant occupying it. For the Medical Products I DST, CAI secured Kewaunee Scientific Corporation, a recognized global leader in the design, manufacture, and installation of laboratory, healthcare, and technical furniture products.

Founded in 1906, Kewaunee brings over 117 years of continuous operation and is publicly traded on the NASDAQ under the symbol KEQU, providing additional transparency into financial strength. The company is the largest U.S.-based manufacturer of laboratory products and technical furniture. 

Kewaunee serves over 5,000 global customers across critical industries, including:

• Pharmaceuticals and biotechnology
• Healthcare and life sciences
• Government and defense research
• Education and higher learning institutions
• Chemical, petroleum, and industrial sectors

Notable customers include Johnson & Johnson, Pfizer, Abbott, AstraZeneca, Novartis, Intel, P&G, and numerous government research facilities.

Key Point: Financial transparency through public trading, essential-industry exposure, and a diversified blue-chip customer base enhance tenant reliability.

Lease Structure and Income Durability

The Medical Products I DST is supported by a 20-year absolute NNN lease with Kewaunee Scientific.

Key lease features include:

• Annual rent increases of 2%
• Four five-year renewal options
• Headquarters and primary manufacturing facility commitment

Under the absolute NNN structure, Kewaunee assumes responsibility for property-level expenses, which supports net income stability for investors.

Key Point: Long-term leases with built-in rent escalations and renewal options often support income predictability.

Summary: What This Case Study Demonstrates 

The Medical Products I DST highlights how volatility in DST investments can be reduced through disciplined property and tenant selection.

Key contributors to decreased volatility include:

• A mission-critical manufacturing facility serving as the tenant's global headquarters
• A financially transparent, publicly traded tenant operating in essential industries
• Over 117 years of continuous company operation, with decades at this specific location
• A long-term absolute NNN lease with built-in growth and renewal options

While no investment can eliminate risk, this case study illustrates how experienced sponsors can meaningfully reduce uncertainty through comprehensive underwriting.

What This Means for Advisors

For advisors evaluating DST opportunities, assessing factors that may support income durability requires looking beyond surface-level metrics. Assessing the quality of both the property and tenant—and the alignment between them—is essential.

CAI Investments' approach to securing prime assets and creditworthy tenants offers a framework advisors can reference when evaluating sponsors and offerings for their clients.

Key Point: Thorough property and tenant due diligence is central to enhancing stability in DST investments.

Key Takeaways

• Careful tenant and property selection may enhance the potential for stable cash flow in DST investments.
• Strong tenants in mission-critical industries reduce vacancy and income risk.
• Triple-net lease structures help protect investors and simplify cost exposure.
• Built-in escalations and renewal options can support durable income streams.
• Investment advisors must look beyond surface details to evaluate DST offerings.

FAQs

Q1: What is the most critical factor in DST investment stability?

Tenant financial strength, industry positioning, and lease commitments directly influence income durability and asset value.

Q2: Why do location and property quality matter?

Properties in strong markets with established infrastructure and mission-critical designations are more likely to retain tenants and sustain long-term cash flow.

Q3: Can DST investments be guaranteed stable?

No, all investments carry risk. But selecting strong tenants and favorable lease structures may enhance income stability.

Q4: How do lease escalations help investors?

Built-in rent increases help protect investors from inflation and support steady income growth over time.

Q5: Should advisors evaluate DST sponsors?

Yes, sponsor expertise in property and tenant selection is crucial for identifying DSTs positioned for long-term stability.