PREP Exchange Debuts Debt-Free 1031 DST with Vermont Supermarket Deal

PARK CITY, UT – March 23, 2026 – PREP Exchange, an affiliate of retail real estate operator PREP Property Group, has officially entered the 1031 exchange market with the launch of its inaugural investment vehicle, PREP Essential Net Lease I DST. The new offering provides investors with fractional ownership in a Vermont supermarket and introduces a distinct, all-cash structure designed to eliminate leverage-related risks. This move signals a growing appetite for simplified, lower-risk options within the increasingly popular Delaware Statutory Trust (DST) landscape.

A New Model for Risk-Averse 1031 Investors

The offering is structured to appeal specifically to investors utilizing a 1031 exchange, a provision in the U.S. Internal Revenue Code that allows individuals to defer capital gains taxes on the sale of an investment property by reinvesting the proceeds into a "like-kind" asset. For years, Delaware Statutory Trusts have served as a popular solution for these investors, allowing them to passively invest in institutional-grade real estate without the burdens of direct management.

However, PREP Exchange is differentiating its approach by launching a debt-free DST. Unlike many traditional DSTs that use leverage (mortgages) to acquire larger assets and potentially amplify returns, this all-cash offering completely avoids debt. The primary advantage of this structure is the significant reduction of risk. Without a mortgage, the property is insulated from lender foreclosure, interest rate volatility, and the challenges of refinancing a loan when it matures—risks that can become acute during economic downturns.

For investors, this debt-free model offers a trade-off. While it forgoes the potential for magnified returns that leverage can provide, it promises a simpler ownership experience and potentially more stable cash flow, as 100% of the net operating income is available for distribution to investors after expenses, rather than being partially diverted to debt service. This structure is particularly well-suited for investors who have just sold a property without debt and need to reinvest the full proceeds, or for those in or nearing retirement who prioritize capital preservation and predictable income over aggressive growth.

Anchored by an Essential Retail Stronghold

At the heart of the PREP Essential Net Lease I DST is a tangible, necessity-based asset: a Shaw's Supermarket located at 160 Paine Turnpike North in Berlin, Vermont. The property, built in 1996, spans approximately 89,702 square feet on a 35.75-acre lot and is not only occupied by the grocer but also includes a subtenant, O'Reilly Auto Parts, adding a layer of income diversification.

The stability of the anchor tenant is a cornerstone of the investment's appeal. Shaw's Supermarkets, founded in 1860, is one of the oldest continuously operated supermarket chains in the United States. More importantly, it is a subsidiary of grocery giant Albertsons Companies, Inc., providing a strong corporate backing. According to PREP, Shaw's is the number one grocer in Vermont by both store count and sales volume, cementing its dominant market position.

The tenant's long-term commitment to this specific location is evidenced by its continuous occupancy since March 1997. This commitment was recently reinforced with a 15-year lease extension signed in December 2024, alongside multiple capital improvements to the property. This demonstrates the tenant's confidence in the site's performance and long-term viability. Investments in essential retail like grocery stores are often favored for their resilience, as demand for food and household staples remains consistent regardless of broader economic cycles.

Leveraging an Integrated Real Estate Pedigree

While PREP Exchange is a new name in the DST space, it is backed by the extensive experience of its parent company, PREP Property Group. Founded in 2015 by Michael C. Phillips, a co-founder of the major real estate firm Phillips Edison & Company, PREP Property Group has built a reputation for transforming and managing retail real estate across the country.

The company operates a vertically integrated platform, meaning it handles acquisitions, development, leasing, and property management in-house. This model provides comprehensive control over its assets and a deep understanding of the retail landscape. PREP Property Group has two primary divisions: one focused on repositioning larger, underperforming assets like lifestyle centers and malls, and a Net Lease division dedicated to acquiring well-located, single-tenant properties.

The launch of PREP Exchange is a strategic extension of this Net Lease division's expertise. By creating a platform for fractional ownership, the company is making its curated, single-tenant retail assets accessible to a wider pool of 1031 exchange investors.

"We originally purchased this property in July of 2022 for a prior PREP-sponsored offering and have watched the tenant commit to this location with multiple capital improvements, a 15-year lease extension in December of 2024, and the recent addition of O'Reilly's as a sub-tenant," said Sara Brennan, Chief Operating Officer of PREP, in the company's announcement. "Shaw's Supermarket Berlin is an excellent candidate for PREP Exchange's first 1031-qualified offering."

Carving a Niche in a Competitive Market

The market for 1031 exchange solutions is robust, with established sponsors like Capital Square and ExchangeRight offering a wide array of DSTs across multifamily, industrial, and healthcare sectors. PREP Exchange's deliberate focus on a debt-free structure for its inaugural offering allows it to carve out a specific niche aimed at a conservative investor profile.

The legal foundation for using DSTs in 1031 exchanges was solidified by the IRS's Revenue Ruling 2004-86, which set forth strict guidelines that sponsors must follow. These rules, often called the "Seven Deadly Sins," limit the trustee's ability to take actions such as raising new capital or renegotiating leases, thereby ensuring the passive nature of the investment required for tax-deferral purposes.

By offering a product that eliminates loan-related complexities, PREP Exchange simplifies the due diligence process for financial advisors and their clients. It directly addresses a segment of the market that may be wary of the risks associated with commercial mortgage-backed securities and fluctuating interest rates. As more private wealth flows into alternative real estate investments, the demand for varied structures—from highly leveraged growth plays to stable, all-cash income vehicles—is expected to grow. PREP Exchange's first offering is a clear bet on the enduring appeal of simplicity and stability.