CS1031 Zero-Coupon DFW Hospitality DST

Offering Overview

CS1031 Zero Coupon DFW Hospitality DST is a zero-cash-flow, highly leveraged Delaware Statutory Trust sponsored by Capital Square. The Trust owns the fee-simple land, the ground-landlord interest in a 99-year ground lease (commenced November 2021), and the reversionary interest in the improvements at 815 Commerce Street in downtown Fort Worth, Texas, the site of the Le Meridien Fort Worth, a 14-story, 188-room upper-upscale full-service Marriott-franchised hotel (254,778 SF, near Sundance Square). The Trust is the ground landlord only; the ground tenant (815 Commerce LLC) and operator are controlled by Ashford Hospitality Trust (NYSE: AHT), with Remington managing the hotel under a Marriott franchise. The Trust acquired the Property for $37,145,000 ($4,845,000 cash plus a $32,300,000 UMB Bank senior mortgage at a 5.82% blended initial rate maturing in 2061), for a total investment cost of $41,530,000 and a 77.78% loan-to-cost. By design, the fixed ground rent (~$1.63M Year 1, growing 2% annually) approximately equals debt service, so the Trust produces no distributions during the ~15-year hold; investor return accrues solely through loan amortization (equity buildup) and the reversionary interest, with a discretionary Section 721 UPREIT exit available. Notably, because the Trust owns land and a reversion rather than depreciable improvements, the structure provides no depreciation shelter; its primary utility is replacing high relinquished-property debt for 1031 exchangers without additional equity.

Investment Highlights

• The defining feature is debt replacement: each 1% interest carries ~$323,000 of attributed nonrecourse loan (86.96% of purchase price), allowing 1031 exchangers whose relinquished property carried high leverage to satisfy their equal-or-greater-debt requirement without contributing additional equity. This makes the offering a specialized tool for a narrow investor profile rather than an income vehicle; the trade-off is that the same high leverage (77.78% loan-to-cost, rising toward ~80% mid-hold under negative amortization) leaves minimal equity cushion.
• The Loan is structured so monthly debt service approximately equals the fixed ground rent, producing zero distributions for the entire ~15-year hold; the investor yield comes exclusively from principal amortization that retires the loan to a zero balance by 2061 plus the reversionary interest in the hotel. An irregular schedule includes negative amortization for the first ~101 months (interest exceeds rent, growing the balance to ~$33.2M before it declines), so equity buildup is back-loaded and largely deferred to the latter half of the hold.
• Income is contractual ground rent with fixed 2% annual escalations under a 99-year ground lease, providing predictable, bond-like cash flow to service the self-amortizing loan and insulating the Trust from hotel operating volatility at the rent line. The qualification is that the rent payer is a single ground tenant controlled by Ashford Hospitality Trust, a highly leveraged, non-investment-grade hotel REIT, so the durability of that contractual stream depends on a weak-credit counterparty whose rent obligation nearly equals the Trust debt service.
• The underlying asset is a modern full-service Le Meridien in downtown Fort Worth, a high-growth market, steps from Sundance Square and the convention district, providing demand support for the hotel and, by extension, the ground tenant ability to pay rent. The reversionary interest gives the Trust eventual claim on the improvements; however, a special-purpose 188-room hotel carries meaningful re-leasing or repositioning cost and uncertain residual value, and the ground tenant holds a Year-35 purchase option that can cap upside.
• The senior mortgage carries a sub-6% fixed blended rate (5.82%) locked through a 2061 maturity and fully self-amortizes to a zero balance, eliminating refinancing and rate risk over the hold and converting contractual rent into equity over time. The structural cost is that the high leverage and matched rent/debt-service design leave a ~1.0x DSCR with no margin for rent interruption, so a ground-tenant payment shortfall translates directly into loan-default risk.

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

This is not an income investment but a debt-defeasance and 1031 debt-replacement vehicle: its reason for existing is to absorb high attributed nonrecourse leverage for exchangers with highly leveraged relinquished property, with return manufactured over ~15 years through self-amortization of a sub-6% fixed loan and a reversionary claim on a Fort Worth hotel rather than through cash yield or appreciation. The risk-adjusted profile is bifurcated: the contractual 2% ground-rent escalator and the matched, fully-amortizing loan give the structure a bond-like, low-volatility veneer, but the substance is high leverage (nearing 80% mid-hold under negative amortization) resting on a single non-investment-grade rent payer (Ashford) whose obligation nearly equals debt service, so coverage is razor-thin and the downside is binary. The absence of depreciation, the deferred and back-loaded equity buildup, the special-purpose hotel reversion, and the Year-35 purchase option all argue for evaluating this strictly on after-tax, hold-to-maturity terms; it suits a specific exchanger seeking debt replacement and estate-planning utility and is poorly suited to investors seeking current income, liquidity, or diversification. Feasibility hinges almost entirely on the ground tenant multi-decade solvency and the terminal value of the reversion, neither of which is reflected in the zero headline distribution rate.

Financing

Financing terms for this offering are summarized below.

Benchmark Comparison

Benchmark reflects the average of comparable Hospitality 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.