At our December DIG Philly meeting, someone asked Fred Hubler the question every investor should ask: "Tell me what the risk parameters are. How could I lose?" His answer wasn't theoretical—it was his actual worst-case scenario from 19 years of investing through multiple market crashes.
The surprising part? Even his worst case wasn't catastrophic. It was just... longer than expected.
The Setup: $45 Million and Perfect Timing (for Disaster)
"It was a Gander Mountain owned building, $45 million building in like 2007."
Before DSTs existed in their current form, there were tenant-in-common (TIC) structures—the predecessor that DSTs improved upon. This was one of those deals from a major institutional sponsor, structured as a TIC.
The property: A Gander Mountain retail building worth $45 million.
The timing: 2007, at the absolute peak of the market, right before the financial crisis.
The tenant: A publicly traded company that seemed stable and secure.
Everything looked solid. And then 2008 happened.
When the Floor Falls Out
"2008 happened. Gander Mountain stock was a public company, hits the floor like everyone else."
The Great Financial Recession devastated retail stocks across the board. Gander Mountain, along with countless other retailers, saw its stock price collapse. But stock price shouldn't matter when you have a long-term lease on a building, right?
That's where the hidden clause came in.
The Mortgage Clause Nobody Expected to Matter
"Unbeknownst to me then, anyone then by the way... there was a clause in the mortgage that says 'If you are no longer public, we can call the mortgage.'"
Buried in the loan documents was a provision that seemed irrelevant when the deal was structured. If the tenant stopped being a publicly traded company, the lender could call the entire mortgage.
In normal times, this wouldn't matter. Even if triggered, you'd simply refinance with another lender.
But 2008 wasn't normal times.
"Which is usually not a problem except in 2008 when no one has any mortgages."
Credit markets froze completely. Banks weren't lending. Refinancing was impossible. The mortgage was called, and there was no way to replace it.
This wasn't poor due diligence or negligent structuring. It was an unprecedented perfect storm:
- Tenant stock collapse triggering an obscure covenant
- During the worst credit crisis in generations
- When refinancing options completely disappeared
- On a property bought at peak pricing
Temporarily Reduced Income (Not Eliminated)
The financial impact was noticeable but not devastating:
"The income went from 7%—it was built to be a 6-6.5%—went down to 2% for 2 years."
Expected scenario:
- Projected returns: 6-6.5% annually
- Actual early returns: 7%
- Everything performing above projections
Temporary adjustment:
- Income dropped to 2% annually
- Lasted for just 2 years
- Then presumably recovered as markets stabilized
Yes, 2% is significantly less than 7%. But here's the key perspective: Investors were still receiving income. The distributions didn't stop. They didn't lose their capital. They just received lower checks for a temporary period during the worst financial crisis in modern history.
The Extended Hold: Patience Required, Not Panic
"The hold wasn't the 5 to 6, it was 9 years."
The original business plan called for a 5-6 year hold period. Instead, investors waited 9 years to exit.
Here's the critical question: Is waiting longer actually "losing"?
The property had been purchased at peak 2007 pricing. Selling during the 2008-2010 crash would have locked in devastating losses. So the sponsor made the smart decision: Hold, survive, wait for recovery.
And that's exactly what happened. Investors had to be patient—more patient than they expected—but patience isn't the same as loss.
The Outcome: Capital Preserved, Investors Exit Intact
Hubler doesn't specify the exact final returns, but the implication is clear: Investors eventually exited after the market recovered.
This "worst case scenario" meant:
- Reduced income for a couple years (but income never stopped)
- Longer hold period than planned (but not permanent)
- Need for patience (but not loss of capital)
- Stress and uncertainty (but ultimately resolution)
Think about what this means: The worst case scenario went through the 2008 financial crisis—arguably the most devastating economic event since the Great Depression—and investors still got their capital back.
That's not a disaster. That's actually a pretty solid outcome given the circumstances.
For long-term investors building wealth, patience is a minor inconvenience, not a catastrophic loss.
After 19 years spanning multiple crises, if "extended hold with temporarily reduced income" is the worst-case scenario, that speaks volumes about the resilience of properly structured DST investments.
The boat didn't sink. It just took longer to reach shore. And when investors arrived, their capital was still intact.
That's not a warning. That's validation.
Delaware Statutory Trusts require accredited investor status and have minimum investment thresholds. Hold periods can extend beyond initial projections. Past performance does not guarantee future results. This article is for educational purposes only. Always consult with qualified tax, legal, and financial professionals before making investment decisions.
