Spotlight: Cove Capital Investments, Debt-Free DSTs and the Optional 721 Exchange

The Torrance sponsor has lately bought properties out of lender and seller distress and uses its master-tenant role to re-lease space while investors hold.

November 10, 2026

Cove Capital Investments is a Torrance, Calif.-based sponsor of Delaware statutory trust offerings for 1031 exchange and direct cash investors, and the firm says the majority of those offerings carry no mortgage debt. Cove buys the properties in all-cash transactions, which takes lender foreclosure, cash flow sweeps, balloon maturities and defeasance costs out of the investment. The firm says the absence of a lender also leaves it free to choose an exit without timing a sale around loan terms.

Co-founders and managing members Dwight Kay and Chay Lapin lead the firm, and its offerings are sold through FNEX Capital to a selling group of broker-dealers, registered representatives and RIAs. As of June 2026, Cove reported $1.08 billion in sponsored transactions, 132 properties totaling about 4.03 million square feet across 36 states, roughly 2,700 investors, and $193 million in capital returned since inception.

Optional 721 Exchange Exits

Cove describes forced UPREIT rollups as increasingly common in the DST market, and its recent offerings, including the Essential Net Lease Industrial 114 DST and the Saddle Creek Kansas 109 DST, carry a 721 exchange path that stays fully optional. If a rollup is proposed, investors can review the destination REIT's leverage, dividend coverage, floating-rate debt exposure and any tax protection agreement, then decide whether to contribute their interests.

Acquisitions Out of Distress

In July 2026, Cove acquired a 170-unit San Antonio apartment community through a lender's REO disposition, at a price the firm says was below both the appraised value and the outstanding loan balance. The Cove San Antonio Multifamily 119 DST seeks about $15.8 million in equity.

In August, Cove bought a fully leased, 64,607-square-foot Class A headquarters building in Southfield, Mich., from a distressed seller. It closed the purchase on its own balance sheet before launching the Southfield Corporate 118 DST, which let it offer the seller a certain close without outside financing. Cove plans roof, HVAC, elevator and parking lot improvements during the hold.

Asset Management Through the Master Tenant

Cove acts as master tenant on its DSTs and uses the role to re-lease space while investors hold. At Parkdale Commons in Waco, Texas, owned by the Cove Parkdale Commons Opportunity 62 DST, it signed a 10-year triple-net ground lease with 7 Brew Coffee for a kiosk on unused parking area, adding $75,000 a year in income that was not part of the original business plan.

At the Burleson Small Bay Industrial 112 DST, Cove began converting gross leases to triple-net within three months of completing the raise, and in July 2026 the firm reported that four recent small bay industrial lease transactions added a combined $73,759 in annual net operating income. At a Louisiana property in one of Cove's debt-free funds, it extended a dialysis operator's lease about three years early, through December 2032, with a 14.9% increase in base rent. Cove says its DSTs are structured so that 100% of net sale proceeds go to investors, which means value added during the hold flows to them.

Full-Cycle Returns and How They Are Measured

Cove reports an 11.01% average annualized return across its full-cycle DSTs. Its footnote defines each offering's return as total distributions plus net sale proceeds, less original invested equity, over the life of the investment, and the 11.01% figure is a simple average of those individual offerings. As of June 2026, the firm also reported a 5.10% current average distribution rate across its active DSTs and said it has never sold a property at a loss. Cove's principals invest their own capital alongside investors in many of its offerings.

The firm's newest offering, announced Nov. 3, 2026, is the Cove Birmingham Industrial DST 129, targeting about $11.3 million in equity. Its 90,465-square-foot distribution facility in Birmingham, Ala., is fully leased to a multinational courier rated BBB by S&P, which has occupied the building since it was built in 1997 and recently extended its lease for another 10 years.