Doing 1031 Exchanges w/ 37th Parallel Properties

10:31 Exchanges are a big part of what 37th Parallel does. Talk about how easy that is to do a 1031 exchange. When a syndication or a fund wraps up with 37th parallel, sounds like it's pretty darn simple to go from. From one syndication, 37th parallel is running to one that. To another one that 37th parallel will be doing. What about going to like an outside fund or syndication? Do you help facilitate that?

So when you're in a single asset deal with us, that one will pretty much go. When we sell that project, it will 1031 into another project, and you'll get to evaluate what that project is and decide, do I want to be in the steel or not? If you don't, then you'll get bought out. Right. So we've done that on most of our deals the past six years. So you'll have that opportunity. Then once you have those funds, you can do whatever you want with them. Okay. If you require, if you have a significant enough portion and you require like a drop and swap, where you have to get a tick component, we can work with you, assuming it's enough juice, where it's worth the squeeze. Right. On the fun side, what we do that's a little bit different is we create almost like a 1031 model at the end of a fun life. So Both for Fund 1 and Fund 2, they're structured such that the end of fun life, some of those projects we may want to keep and recapitalize. Well, instead of just trying to close out the fund and creating a capital gain for every single investor in that fund, we can take those deals. The investor can put in their pro rata share of the deal, contribute that capital, we eject it from the fund, then it gets recapitalized, run on its own. It didn't sell. All right? So it's not creating a gain. And now you take that, and then that can 1031 later. So the idea is that every single case at the end, we want to allow someone to move into that capital gain deferred model. Okay.

So when the fund wraps up, it would be like part of the money would potentially be able to be 1031 exchange.

Yeah, because you don't know with all those deals whether you're going, let's say you have 10 assets, right. You might only want to keep, or it might only make Sense to recapitalize 5. So we don't want to say, hey, we're going to 1031, exchange the entire model, but we do at least want to do it here. So if you think about a traditional non DST fund, it's atypical to be able to do that. Typically when a fund closes it just wraps up the sponsors trying as quickly as they can to get the pref back, get to their promote and then close out and they basically make most of their money at the end. In this model we are still looking to do that, but we'll contribute our gain into a deal and eject it and into a tax deferred model. So it goes from a fund to. So it's 10 deals becomes five individuals and five sold. So you might cut your capital gains in half and you extend the rest.

But there's no anticipation that you'll be able to go straight from Fund 1 to Fund 4 or something without any sort of capital gains event.

Yeah, you'd have to create a different structure to do that. That might not provide some of the same tax advantages in the fund life too.

Have investors tried to 1031 exchange out of a syndication into a syndication run by another operator? Have they been successful being able to do that?

In the past we've had a couple of larger players do that where at the time that we were going to sell the deal, they wanted to move into a different market and we were able to drop them into a tick component where they could on their own. So they've got to manage their own timing. But if they need to structure to a tick component on sale then, then they can have that option. We just have to talk to that individual and see what the sizing looks like.

What about any options to 1031 in to a syndication with you or to 1031 into a fund coming from another operator?

Yeah, no, because we're doing exchanges all the time. But when we do them, let's say that we're bringing 30 million of equity into a deal to buy a $70 million project and it might need 5, 10 million of incremental equity. Well, we have folks who reach out to us all the time about hey, I want to do an exchange. Can exchange into one of your projects and they want to be in a single asset project. They don't want to fund. They want sort of address control. And we can absolutely do that. You have to match timing. You know, 1031s can, can they can be fun to deal with. So you never want to get a call and someone says hey, I've got $5 million and my naming window closes tomorrow. Right. But if we know in advance we can work with them to do that. We've done that probably a dozen times.

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