CS1031 Texas Active Living Portfolio II, DST

Offering Overview

A 64-unit, two-asset active-adult (55+) portfolio comprising Emerald Cottages of Kerrville (32 units, vintage 2019, Texas Hill Country) and Emerald Cottages of Round Rock (32 units, vintage 2018, Austin MSA / Williamson County), each a single-story, cottage-style community of detached 2BR/2BA homes averaging 1,350 SF with attached garages, ADA-accessible step-free layouts, and clubhouse amenities. Both assets are 100% occupied with 10+ resident waitlists secured by $1,000 deposits, zero bad debt, and no concessions. The thesis pairs a recession-resilient, demographically tailwinded niche — needs-based active-adult housing for an aging cohort (48% of the Kerrville zip is 50+) — with an all-cash, debt-free capital structure that eliminates refinancing and rate-cap exposure across the ten-year hold. Operations run through a master-lease structure with Capital Square-affiliated master tenants and Carbon Shepherd as on-site manager, targeting a 5.65% Year 1 yield-on-cost stepping to 7.51% by Year 10 on contractual base-rent escalations averaging roughly 3% annually.

Investment Highlights

• The portfolio occupies the active-adult (55+) niche that sits structurally between conventional market-rate multifamily and licensed senior housing, capturing needs-based demographic demand without the operational intensity, regulatory overhead, or labor-cost volatility of assisted living or memory care. Demand is anchored by an aging-in-place cohort: 48% of the population within the Kerrville property's zip code is age 50+, and the Hill Country functions as a regional retirement destination. This positioning insulates rent rolls from the discretionary-move-out behavior that pressures conventional Class A multifamily during economic softening.
• Both assets are 100% occupied with documented waitlists exceeding ten prospective residents each, every entry backed by a $1,000 deposit — a tangible, capitalized indicator of unmet submarket demand rather than aspirational lease-up assumptions. The trailing-twelve-month operating history shows zero bad debt, no concessions, and resident retention of 91% (Kerrville) and 81% (Round Rock), signaling sticky tenancy and minimal turnover frictional cost that underpins the forecast effective-gross-income stability.
• The all-cash, no-mortgage-debt capitalization removes the single largest source of DST mid-cycle distress: refinancing risk and interest-rate-cap repurchase cost at loan maturity. With no debt service, the full NOI stream converts to distributable cash flow, the Year 1 yield-on-cost of 5.65% accretes to 7.51% by Year 10 on contractual escalations, and the asset can be sold or contributed into a 721 UPREIT transaction on the Sponsor's timing without lender consent, defeasance, or prepayment penalty constraints.
• The Round Rock asset benefits from a demonstrably supply-constrained submarket: only 200 units of construction starts over the trailing two years, with submarket vacancy improving more than six percentage points in 2025 — the third-sharpest reduction among Austin submarkets. Sited within the Teravista master-planned community (18-hole golf course, fitness, pickleball, 10+ miles of trails) in a county that grew 19.4% from 2020–2024 with ~$108,000 median household income, the asset combines a high-growth metro with a near-term barrier to competitive new deliveries.
• The Sponsor's full subordination of its disposition fee to investors' return of capital creates explicit co-investment alignment at the exit, deferring sponsor compensation until principal is recovered. Combined with the cottage-style, detached single-story product format — which carries lower turnover capital intensity than stacked-flat multifamily and appeals to a long-tenure resident base — the structure aligns sponsor economics with the durability of the forecast cash flows rather than transactional fee velocity.

Forecasted Cash Flow

Projected annual cash-on-cash distributions with the corresponding tax-equivalent yield over the hold, based on the sponsor’s underwriting assumptions.

Illustrative projections only — targeted distributions are not guaranteed and actual results will vary. Tax-equivalent yield assumes depreciation shelter of distributed income.

Analyst Notes

The risk-adjusted profile reflects a deliberate trade of leveraged return amplification for downside protection: the absence of debt caps the upside but removes the dominant failure mode in DST vintages exposed to the 2023–2025 rate regime, positioning the offering as a defensive, income-oriented allocation rather than a total-return vehicle. The ~5.00% average cash-on-cash and 5.65%-to-7.51% yield-on-cost trajectory are underwritten on conservative, contractually supported escalations rather than aggressive mark-to-market rent growth or cap-rate compression, lending credibility to the assumptions in a higher-for-longer environment. The active-adult niche aligns with secular demographic demand that is comparatively insensitive to the macroeconomic cycle, and the optional 721 UPREIT exit affords the Sponsor flexibility to time disposition into a liquidity event without refinancing pressure. The principal underwriting tension lies in master-tenant credit dependency layered on a thin 64-unit, single-state base; the feasibility of the forecast rests on sustained submarket demand and disciplined expense control, both of which the trailing operating history supports but neither of which is contractually guaranteed across a full ten-year horizon.

Financing

Financing terms for this offering are summarized below.

Benchmark Comparison

Benchmark reflects the average of comparable Senior Living offerings. Differences are relative to the benchmark.

Offering Documents

Offering Documents Available By Request

About the Sponsor

Capital Square

Capital Square has evolved from a pure 1031/DST sponsor into one of the more vertically integrated platforms in the securitized exchange market, with over $6 billion in AUM and more than $7.5 billion in transaction volume since its 2012 founding by Louis Rogers. Beyond sponsoring DSTs across 175-plus assets for some 6,500 investors, the firm develops its own multifamily product, manages roughly 13,000 apartments through Capital Square Living, and diversifies into Qualified Opportunity Zone funds and a REIT. That control of the full lifecycle—and full-cycle results such as a cited 159% return of equity on a completed DST—make it a benchmark name for diligence-minded exchangers.