How Does 37th Parallel Properties Use Real Estate Debt?

And let's talk about the debt being used on the syndications and as well as, you know, the ones that are in the fund. Is that mostly fixed? Is that mostly variable? How much is variable? Where are you getting the debt from? Let's talk a little bit about that leverage risk.

So we're, we're not quite preferred with Fannie and Freddie, but we're close meaning just we've done so much business with them. We are primarily a fixed interest rate shop. There were some deals we did in 22 and 21 where at the time it made sense to go floating with rate caps. And so we probably, I think we had five projects that have floating rate debt with caps. And so that became interesting as they hit their caps and went. And you reset that market for estros and it impacts cash flows in the short run. But once the interest rates start to come back down, all those escrows get released, then your cash flows increase and you sort of get to play catch up. Grays harbor current deal is fixed rate debt. Bridgehead trade winds is floating rate debt. But those costs are actually already starting to come down. So I think you're going to see that, that floating rate debt, you'll actually see some of that come back in. It'll just depend on when the Fed gets to a low enough level. But for the most part we're a fixed shot. And for the most part we're getting 10 years return. If anytime we do five, we're having an expectation of getting incremental five at the tail end of that with We've got a MetLife deal, we've got another deal with Fannie, that's a five year deal, but most of them are sevens tens.

And how much leverage are you putting on most of the projects?

60 to 65. We're not a high leverage shop. We don't do bridge lending, we don't do medset. We're very boring about it. We don't want to create risk from the leverage perspective. And your three biggest risks are the manager of the market and your debt structure and reserves. And so you want to take, you want to have moderate leverage to get increased returns. When have the right reserves for your approach, you want have a manager that has success doing what you want to do in the best markets you can. If you kind of do all those things, you put the odds of success on your side, mix with one of those variables and your risk goes up.

Can you talk about the most challenging property that you're dealing with right now?

That would probably be heights of City View in Fort Worth. That deal was a floating rate project that just dealt with it was bought at a level pretty much at the low and had to ride all of the increase. So it's performing operationally, but because it's financing, it's just not distributing right now, which is atypical. I mean, prior to 22, I think we had a 90% distribution rate. We only had one or two properties that weren't distributing at any given time. We have another Fort Worth property Depot, which you're in. That one is just. There's so much supply coming in that market that until they stop generating new supply, it's just going to slightly trail the market until that slows down. But we still go ahead.

I think the cash flow on that one's been below pro forma. What's typical on the pro forma cash flows are most of them at pro forma, half above, half below. What what's happened in the last few years?

I would say prior to the interest rate increase we were probably at 80%, let's call within a percent of pro forma or above. So and that window is going to be just noise and then you have 20% that would be below. I think with the rate cap market, when interest rates went up, then we probably went to a third below and then a third just a little bit below pro forma and then a third act. So we just kind of shifted down a little bit and primarily driven by the ones that had floating right down.

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