Anyone have experience with 37th Parallel Properties?

[NJDoc]

I see that 37th Parallel Properties may be ramping up for a new asset purchase. I have not pulled the trigger and worked with them yet. The last project they funded , I passed on as the projected returns appeared rather low compared to other commercial real estate projects I am involved with. That said, I do like their ideas and business model. Although they seem a bit overly paranoid about screening investors, which makes me wonder if they have had trouble in the past.

Has anyone invested with them ? Feel free to private message me if you are more comfortable with that approach.

 

[The White Coat Investor]

NJDoc wrote:

I see that 37th Parallel Properties may be ramping up for a new asset purchase. I have not pulled the trigger and worked with them yet. The last project they funded , I passed on as the projected returns appeared rather low compared to other commercial real estate projects I am involved with. That said, I do like their ideas and business model. Although they seem a bit overly paranoid about screening investors, which makes me wonder if they have had trouble in the past.

Has anyone invested with them ? Feel free to private message me if you are more comfortable with that approach.

 

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I would agree they are very fastidious about screening investors. I don't think I've ever had as much interaction with a firm that I've never invested with! I'm obviously waiting for details, but suspect I'll be in on the next investment, at least at the minimum amount.

[Molar Mechanic]

I participated in Hillcreste with them. Too soon to give any real feedback, but I ran the advisor my advisor my practice uses and he had no issues. I think they are legit. I think their method of getting paid leaves me conflicted.


They essentially don't get paid until the investor gets their money back, but their cut isn't small. I decided to forget about their cut and just invest based off the expected return. If I make what they propose, I'll be happy with the deal, be regardless of their cut. I don't want a role in management.

[The White Coat Investor]

Molar Mechanic wrote:

I participated in Hillcreste with them. Too soon to give any real feedback, but I ran the advisor my advisor my practice uses and he had no issues. I think they are legit. I think their method of getting paid leaves me conflicted.

They essentially don’t get paid until the investor gets their money back, but their cut isn’t small. I decided to forget about their cut and just invest based off the expected return. If I make what they propose, I’ll be happy with the deal, be regardless of their cut. I don’t want a role in management.

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Yea, the fees look a little different than the 4 basis points on an index fund, but bear in mind you're not buying a mutual fund that owns businesses that all have their own expenses. You're buying the business, and it has its own expenses. So really apples to oranges.

[NJDoc]

Yeah, my issue with them is compared to other private equity real estate companies I actively invest in , their estimated returns were something like 2% below the competition, both on per annum cash on cash and on project IRR. If I recall correctly, the last project was a value add opportunity, and those should carry a higher return once renovations are finished, etc.. I ran it by one of my old real estate buddies who is a big mucky muck managing director in multi family acquisitions in TX and he was not impressed with the returns. So, this means one of two things to me: 1) They are not buying right or 2) Their fees are sucking the lifeblood out of the returns for their investors.

Not to mention, I can't get away from their paranoia about screening investors, it's like they are scared the SEC is coming through the door any moment. It smacks of amateurism and is completely incongruent to the several PERE firms I have money with. I reached out to them yesterday, and they want me to go back through their silly phone call screening process, because last time I told them what I thought about their returns and I guess I am persona non grata...lol

There are so many companies out there buying and selling commercial real estate it's amazing. Not every sponsor is going to have the magic touch or the solid team. Maybe these guys are up and coming, but they had to run a dog and pony fund raising show for the last deal, which once again scares the heck out of me that we are back to 2007.

OK - well thanks for the catharsis, as they say on Shark Tank..."I'm out". I just needed to "talk" it through I guess, no reason to take lower returns than the competition, when the competition are solid professionals.

Caveat emptor

 

 

[disneydoc]

 

I also called Dennis Bethel and we are trying to schedule a 15 min phone intro call.

We have a Contract on my (ex) Office & may clear around $ 675000 post 110000 in Taxes

I do not know if his Syndicated multifamily Commercial holdings will pass the IRS muster of Like Properties for a 1031 Exchange, although at times I think just pay the 110000 & add the proceeds to our Index Funds with Vanguard. This suits my retired lifestyle fine, but I do not know how passive is Dennis's Syndication of properties.

Has anyone here in the forum done the 1031 Exchange, would like to know their take on it.

 

[The White Coat Investor]

NJDoc wrote:

Yeah, my issue with them is compared to other private equity real estate companies I actively invest in , their estimated returns were something like 2% below the competition, both on per annum cash on cash and on project IRR. If I recall correctly, the last project was a value add opportunity, and those should carry a higher return once renovations are finished, etc.. I ran it by one of my old real estate buddies who is a big mucky muck managing director in multi family acquisitions in TX and he was not impressed with the returns. So, this means one of two things to me: 1) They are not buying right or 2) Their fees are sucking the lifeblood out of the returns for their investors.

Not to mention, I can’t get away from their paranoia about screening investors, it’s like they are scared the SEC is coming through the door any moment. It smacks of amateurism and is completely incongruent to the several PERE firms I have money with. I reached out to them yesterday, and they want me to go back through their silly phone call screening process, because last time I told them what I thought about their returns and I guess I am persona non grata…lol

There are so many companies out there buying and selling commercial real estate it’s amazing. Not every sponsor is going to have the magic touch or the solid team. Maybe these guys are up and coming, but they had to run a dog and pony fund raising show for the last deal, which once again scares the heck out of me that we are back to 2007.

OK – well thanks for the catharsis, as they say on Shark Tank…”I’m out”. I just needed to “talk” it through I guess, no reason to take lower returns than the competition, when the competition are solid professionals.

Caveat emptor

 

 

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Soo.....you going to name all these great syndicators you're investing with?

[Complete_newbie]

The White Coat Investor wrote:

NJDoc wrote:

Yeah, my issue with them is compared to other private equity real estate companies I actively invest in , their estimated returns were something like 2% below the competition, both on per annum cash on cash and on project IRR. If I recall correctly, the last project was a value add opportunity, and those should carry a higher return once renovations are finished, etc.. I ran it by one of my old real estate buddies who is a big mucky muck managing director in multi family acquisitions in TX and he was not impressed with the returns. So, this means one of two things to me: 1) They are not buying right or 2) Their fees are sucking the lifeblood out of the returns for their investors.

Not to mention, I can’t get away from their paranoia about screening investors, it’s like they are scared the SEC is coming through the door any moment. It smacks of amateurism and is completely incongruent to the several PERE firms I have money with. I reached out to them yesterday, and they want me to go back through their silly phone call screening process, because last time I told them what I thought about their returns and I guess I am persona non grata…lol

There are so many companies out there buying and selling commercial real estate it’s amazing. Not every sponsor is going to have the magic touch or the solid team. Maybe these guys are up and coming, but they had to run a dog and pony fund raising show for the last deal, which once again scares the heck out of me that we are back to 2007.

OK – well thanks for the catharsis, as they say on Shark Tank…”I’m out”. I just needed to “talk” it through I guess, no reason to take lower returns than the competition, when the competition are solid professionals.

Caveat emptor

 

 

Click to expand…

Soo…..you going to name all these great syndicators you’re investing with?

Click to expand...

Yes. Please share your asymmetric investment advantage to the rest of the world for free!

 

(Hint: Charge a referral fee; cuz why not! All the cool kids are doing it these days)

 

I haven't personally called 37th parallel but I bet they are charging quite a bit for aquisition + asset managment + liquidation and carried interest. This goes back to my original criticism of WCI on his RE blog post. People can read that and form their own opinions. Don't want to get into it again.

Anyways, as NJDoc says, buyer beware!

Reading btw the lines NJDoc has had decent RE experience and figures he is quoting are lower vs the market/some funds I know who aren't local here where I live.

My 2 cents.

[CREGuy]

disneydoc wrote:

 

I also called Dennis Bethel and we are trying to schedule a 15 min phone intro call.

We have a Contract on my (ex) Office & may clear around $ 675000 post 110000 in Taxes

I do not know if his Syndicated multifamily Commercial holdings will pass the IRS muster of Like Properties for a 1031 Exchange, although at times I think just pay the 110000 & add the proceeds to our Index Funds with Vanguard. This suits my retired lifestyle fine, but I do not know how passive is Dennis’s Syndication of properties.

Has anyone here in the forum done the 1031 Exchange, would like to know their take on it.

 

Click to expand...

Are you referring to a 1031 in general or specifically into something through 37th Parallel?  If it's the former then yes I have extensive experience.  If you're looking to sell a property and plan on rolling the proceeds into another property, you're throwing money away by not doing a 1031.  You'll have a timeline to commit to, deadlines to meet, etc.  In a worst case scenario you elect to do a 1031, and can't identify acceptable properties in the required timeframe and/or can'T close in the required window and you pay the taxes that you would have paid regardless.  Ideally, you identify and secure the exchange property prior to closing on your current property so you eliminate some of the lead time and worries over meeting the timeline.  If you're planning on (or even considering) rolling this into another property, you'd be throwing away 110k.  Worst case scenario, you can't find a suitable replacement property and you tie up your proceeds for a little while and have to pay the fee for the 1031 administrator (usually ~$1000).  If you need more info feel free to PM me.

[disneydoc]

Please help & comment on my Presumptive Calculations of Taxes on this sale (Closing April 2nd 2018) -

http://www.wgcpas.com/tax-alerts-2015-articles/405-tax-matters-tax-implications-of-depreciation-recapture-when-selling-real-estate

Cost Basis of Building (Land not included)    =  445000

Depreciation taken including 2017                 =  206000

                                                                          ________

Adjusted Cost Basis                                       =   239000

Depreciation Tax @ Flat 25%                         = 206000 x 0.25               =  51500

Capital Gain=735000(785000-50000)-445000 (Cost Price) = 290000

Long Term Cap Gains Tax 290000 @20%                                                =  58000

Total Tax to Pay                                                                                        = 109500

Net Proceeds after Tax  = Sale Price -TOTAL TAX

785000 - 109500                                                                                       = 675000

- No State Tax in Florida

- Sale Price of $785000,

- Selling Costs of $50,000 (including Realtor Commissions, Title Insurance, Doc Stamps, Attorney Fees)

- Gain of $735000

THanks in advance

 

 

[CREGuy]

Your numbers look pretty accurate except I think you're off by 50k on what you're going to net.  You're going to net about 625k (you forgot to deduct the 50k in transaction costs).  The reality is you simply have two options:

 

Don't do a 1031, take a 110k tax hit, and have 625k to do whatever you want with.  You can invest it in stocks, stick it in the bank, buy gold/guns/stick it under your mattress, etc.

Do a 1031, where you'll avoid the tax hit, have 735k available to invest in another property.  That gives you the ability to purchase another asset that ranges in price from 735k (all cash) to  about 3.675M if you levered up with some financing.  The difficult part is simply identifying a property closing and then closing on it while following the timeline of the 1031.  You have enough capital available that you should have enough viable options available to you to find a replacement property.  If you were a client of mine, I would suggest pursuing a 1031 and start looking for a property that would provide long term secure cash flow from a credit tenant with little to no Landlord responsibility.  Again in a worst case scenario, if you can't find a suitable replacement property, you simply end up paying the taxes you would have otherwise.  However, if you do find another property that you want to pursue, you don't throw 110k away for no reason.  It's really not a complex transaction, you just need a good broker to help walk you through it and help you find the replacement property.  The sooner you start the process the better.  You have to have the 1031 in place prior to close (you can't have possession of the funds, they have to stay with the intermediary).  The sooner you start looking for a replacement property the better as well.  Ideally you would find the replacement property before you even close on your current property.  Again you just need a good broker who can help you identify possible properties, help you analyze the properties, and walk you through the process.  There are quite a few "layers to the onion" here so I could go on and on with the various details, but it's a lot to type!

 

In short the only reason to NOT pursue a 1031 is if you definitively do not want to purchase another property (keep in mind your replacement property doesn't need to be an office building, it can be any property being held as an investment, including retail, industrial, MF, self storage, etc.).  If you're even considering another property, I would pursue a 1031.  Worst case you pay the taxes you would have anyways and you have the money tied up for a few months longer.

[xrayvsn]

I have invested quite a bit with them (100k investments each in Whispering Winds, Hilcreste, The Depot, and a corporate bond offering they had) and have not had any issues whatsoever.

 

I really wanted to have real estate exposure apart from the REITS (which I also have decent amount in) as there is less correlation with stocks with syndicated deals than REITS which are essentially real estate flavored stocks

I hope to continue to put money with them so that at one point can have a good passive stream of income that could serve as a baseline for my retirement.

It is difficult with these kind of offerings from any company because you have to take a leap of faith initially and hope that they are reputable etc.   Everything I have read about 37th parallel has been positive and so far my experience with them has been outstanding.

I may not get the full returns I would have if I had sole ownership in properties (which with multifamily apartments I would have never would have been able to afford regardless) but I also don't have to deal with the headaches of managing such properties and for that I am willing to pay the premium.

 

[Dennis Bethel]

37th Parallel Properties has been in business for more than 10 years and has an outstanding track record. While there are a lot of ways to make money in real estate, we only do one thing. We buy large apartments in stable areas and hold for the long term for cash flow and equity growth.

As you can imagine, there are a host of people out there who want to invest in real estate, but their goals could be different than ours. Maybe they want to buy office, retail, or industrial. Maybe they want to fix and flip. Maybe they like raw land or want to develop. Some just have a shorter time frame than us or a higher risk tolerance.

Whatever the case is, our investments are not right for everyone and we certainly want to avoid a mismatch for those investors who are looking for something that we don’t provide.

With that said, I don’t find the process onerous in any way. Basically, there are just three steps. The first step is determining if you are accredited or not. Our offerings fall under the SEC regulation D, rule 506(c). Therefore, we can only offer to accredited investors. Other investments may use different compliance frameworks or not worry about being SEC compliant at all, which could present its own set of risks.

Step two is a phone call with our Director of Investor Relations. He is obligated to cover a few regulatory items with you and then will spend as much time as you need to answer your questions. This call typically doesn’t take long, but really, it’s tailored to the investor’s needs and the questions that they have.

If our offerings seem consistent with what the investor is looking to do, and they understand this asset class including the long-term nature of our investments as well as the general lack of liquidity inherent with real estate, then step three is completing a 2-5 minute secure online suitability form.

Again, that form is part of our obligation under the regulatory matrix that exists to ensure that we remain compliant. Once that is done, the person has the opportunity to see our deal flow and invest in projects that make sense for their portfolio goals.

I do agree with the original poster that there are other companies that would be happy to take your money regardless of whether or not you understand this asset class or their business plan.  

We just take a different approach.

Commercial multifamily investing, the way we do it, is a long-term relationship. We’re not looking for every investor. We are just looking for those where we are a good match. And ensuring we’re a good match requires a small time commitment.

In the end, however, we believe it’s worth it. We have a 100% profitable track record with our multifamily investments, happy clients and a high reinvestment rate.

[The White Coat Investor]

Molar Mechanic wrote:

I think their method of getting paid leaves me conflicted.

They essentially don’t get paid until the investor gets their money back, but their cut isn’t small. I decided to forget about their cut and just invest based off the expected return.

Click to expand...

There's a ton of variability out there on this issue, and no real standard. I think the key is to align interests as much as possible. But there is no doubt that once the manager is incentivized enough to do as good a job as possible, every dollar paid in fees is a dollar out of the investor's pocket.