How to Execute a 1031 Exchange with a Private Equity Sponsor Webinar Replay

Mike Law:

First National Realty Partners educational webinar. It’s great to have you guys on today. My name is Mike Law. I’m one of the managing directors here, and I’ll be your host for this afternoon’s event. Again, welcome. It’s so good to have everyone. Today’s topic is all about the famed 1031 exchange. The 1031 exchange, as most of you know, is one of the most useful tactics to defer taxes with real estate investing. And today, we’re going to cover how you can execute a 11031 exchange with a private equity sponsor, such as FNRP. All right, so let’s go ahead and kick it off. We’re going to start with a few shout outs.

Mike Law:

Go ahead and type in the city and state where you’re joining from into the Q&A box. You can find that Q&A box on the right side of your webinar viewer, or maybe on the bottom. Actually, let me go ahead and turn it on here. It’s located on the right side of your webinar viewer, or maybe on the bottom. Just type in the city and state where you’re joining from and I’ll go ahead and read a few of those off. Also, if this is your very first webinar, type in first timer or something similar to that so I can give you guys a special shout out. We love our first timers here and want to acknowledge those of you who are joining us for the first time.

Mike Law:

All right, I see them coming in. Let’s go ahead and read a few of those off. The very first person looks like Ben from Tampa, Florida. Welcome. Ben, it’s great to have you. We’ve got Paul from Marblehead, Mass., Glen from Spokane Washington, Brian from Woodmere, New York, John from Columbus, and let’s see, Emmanuel from Atlanta. I’m still searching for our first timer. We’ve got Chris from St. Louis. Welcome, Chris. Mike from Farmingdale, New York. Great to have you guys on today. Derek from Wichita. We got Bahavin from Fort Mill, South Carolina, Mark from Indianapolis, Michael from New York, New York.

Mike Law:

Derek is first timer. Don’t know you’re sitting in state Derek, but welcome. It’s great to have you on. Addie is a first timer. We’ve got Allen from Montpelier, Vermont, Andrew from Lake Oswego, Oregon. Addie’s from New Jersey. Eric from Zeeland, Michigan. Let’s see, we got lots guys. We had about 700 people register for the event today, so we got a big crowd on this afternoon. I’m not going to get to all these, but I’ll read a few more. Let’s see, Brad from Las Vegas, first timer at FNRP. Welcome, Brad. It’s great to have you. We’ve got a first timer, Joe from Newcastle, PA. Welcome, Joe. I’m going to look for some more first timers here.

Mike Law:

Tim from Florida, welcome. Let’s see, we got Elvis from Rochester, Michigan. First timer. Welcome, Elvis. It’s great to have you on today. You got Paul from Rockville, Maryland, my old stomping ground. First timer. Welcome, Paul. Let’s see, we’ve got Reno, Nevada. Dwight is a first timer. Welcome. Jeff’s a first timer from Midland, Texas, and the list is still going, guys. Thank you so much for the engagement and the responses. Really appreciate that. Let’s go ahead and jump right in. If you’re just tuning in, let me welcome you to First National Realty Partners educational webinar series. Today’s going to be all about how to execute a 1031 exchange with a private equity sponsor.

Mike Law:

My name’s Mike Law, and I’ll be your host for today’s event. All right, so we’re going to kick it off with some housekeeping notes to help guide you through today’s event. First, if you experience any audio or technical issues, especially on a mobile device, usually a quick browser refresh will take care of those issues. Second, the presentation today is expected to run for 30 to 35 minutes or so, followed by a Q&A session. You definitely don’t want to miss that. We got a great panel set up for today. If you’d like to ask a question, what you can do is the same thing you just did, type in your question into that Q&A box. You can ask as many questions as you like, as often as you like.

Mike Law:

We’ll do our best to answer your questions during the Q&A session. Please note that during our Q&A, we’re not going to be able to provide any advice about your specific circumstance or situation. FNRP strongly encourages anyone considering a 1031 exchange to seek the advice of your financial and legal advisors. All right, so onto some more disclaimers. This presentation for informational purposes only and should not be considered a solicitation to purchase securities. That can only come via private placement memorandum. Past performance is not an indicator of future results, and there is an element of risk in any investment. You could potentially lose your principal.

Mike Law:

We only work with so called accredited investors with income and net worth requirements as shown here on the screen. And then lastly, every attempt to disclose real and actual figures on any specific deal has been attempted to be made, but no warranty or representation is made to their accuracy, and terms are subject to change. All right, great. With that out of the way, I’d like to open up a couple of polls. Let’s see here. It looks like the polls are open, so I want to direct your attention over to the polls tab. I got two questions for you here. The first one is, how many private real estate deals have you’ve been involved with. I’ll go ahead and show that on the screen here. There’s a few questions.

Mike Law:

Go ahead and get your answers in on this one. Go over to the polls tab. It’s over by the Q&A tab in your Webinar Viewer. How many private deals have you been involved with? And then the second question here is how many 1031 exchange have you been involved with? The reason why we ask these questions is kind of twofold. It’s a great way for us to engage the experience level of our investors. It’s also a really great way for you to see the experience level and the participation on today’s event. Whether you have no experience with private real estate deals, or you have, you’ve done 25 plus, you can see that you’re in good company. You see there’s a pretty even spread.

Mike Law:

We have about 12% of our viewership today that hasn’t done any private deals. Then we have about 18% that’s done 25 or more. When we look over at the 1031 exchanges, you can see about 73% of those of you who are in attendance today have not been involved with a 1031 exchange. And then about 9%, looks like equal there, with one or even 10 plus. Hopefully that’s helpful for you guys and really appreciate the engagement there. Thanks for your responses, guys. Let’s go ahead and motor on here. As our way of saying thank you to those of you who are attending today, we’d like to furnish everyone who stays through the conclusion of the webinar with this accredited investor resource kit.

Mike Law:

It’s an awesome kit. It includes everything on the screen here. Two books written by FNRP’s co-founders and chairman Anthony Grosso and Chris Palermo, Value Added Real Estate and most recently The Art of Commercial Real Estate. And then three e-books that our content team put together, How to Use a Self-Directed IRA to Invest in Commercial Real Estate, The Single Best Investment, and then one of my favorites, The Ultimate Guide to Investing in Private Real Estate. These resources can be yours. All you need to do is type in the word tool kit into that Q&A box. If you stick around through the end of the webinar, we’ll get those sent right out to you. Just again, that’s toolkit for those resources.

Mike Law:

All right, so let’s cover the agenda here. In just a minute, I’ll be bringing on Mr. Drew Carpenter, one of the managing directors here at FNRP. Drew’s going to dig through how to execute a 1031 exchange with a private equity sponsor. First, he’s going to step through a quick overview of our firm, which will be a great intro for those of you who may be new to FNRP. Next up, Drew’s going to cover the 1031 basics. He’s going to touch on the rules, the timelines, the common structures that are used with real estate syndications. Next, he’ll cover some guidelines. That is a great segment where we hope to help you plan your next 1031 exchange.

Mike Law:

We’ll also help you guys jump through some of the hoops required for smooth exchange. Next, Drew’s going to touch on some of the pros and cons of working with a private equity sponsor, such as FNRP. And then lastly, we’re going to round out the webinar with the QA& session with our panel. Again, I’m really excited about our panel today. We have Mr. Mike Mirman, our vice president of investor relations on with us today, and also Mr. Richard Sutherland, associate council here at FNRP. Really fantastic panel that we’ve pulled in for today’s event. Without further due, I’d like to go ahead and bring on Mr. Drew Carpenter, managing director here at FNRP, to step us through today’s presentation.

Drew Carpenter:

Hey, thanks a million, Mike. Great work. Can you hear and see me okay?

Mike Law:

Yep. Got you loud and clear. The floor is yours, sir.

Drew Carpenter:

All right, fantastic. Thanks, man. Hey, everybody. How are you? It’s great to have you on today. I really can’t wait to walk you through what is just hands down one of the most effective tax strategies to grow wealth, the 1031 exchange. We’ll also get into how executing your 1031 with a private equity sponsor, like FNRP, can just be a fantastic alternative to going things alone. For those of you who already know a bit about the 1031 and the time constraints involved, you know that finding a deal and getting an offer accepted is really a bit like playing high stakes musical chairs. It can be very, very stressful and very expensive if the stars don’t align for you during those periods.

Drew Carpenter:

Now, private equity can just be a fantastic option to assist with that and really take the stress out of everything. Now, that that’s out of the way, let me give you a quick rundown of who we are, how we operate, and our track record. We define ourselves as a vertically integrated, opportunistic private equity sponsor. We’re based out of Red Bank, New Jersey, currently 9.75 million square feet in our portfolios, that spans across 20 states with over 40 institutional quality commercial retail centers currently under our management. We’re one of the largest sponsors, if not the largest sponsor in the grocery anchored retail real estate space.

Drew Carpenter:

We primarily buy grocery anchored retail centers, and we’re one of the most active firms in the niche, if not the most active. And that’s because we consider grocery stores essential businesses that really thrive in all economic and social conditions. Grocery stores haven’t been hurt by e-commerce and grocery tenants are generally incredibly creditworthy, which is why we believe that they offer one of the best risk adjusted returns that you’re going to find anywhere. We have over 120 real estate professionals here at FNRP. We realized very early on that being able to source talent nationwide was just a huge advantage. We’ve been a fully remote team since well before COVID.

Drew Carpenter:

Optimizing for competence over location has just served us very, very well. Up top, you can see our founders and chairman Anthony Grosso and Christopher Palermo. Our managing principals are Andrew Demardo and Ken Chapman. Our chief operations officer is Kurt Padavano. Jared Feldman is our chief investment officer. Deepika Bajai is our chief financial officer. Our chief marketing officer is Casey Stanton. Fred Batisti, our head of leasing. Zain Naqvi serves as our general counsel, and Joe Palermo, our head of investor relations. You can read everyone’s bio at fnrpusa.com. All in all, a great group. Honored to work with everyone here. We’ve worked on over 131 million square feet of deals.

Drew Carpenter:

Our leadership team has over 152 years of combined experience and has transacted over $24 billion of real estate. We often get asked, what makes FNRP unique? There’s a lot of sponsors out there. What makes you guys special? We believe it boils down to these three pillars you see on the screen here, our Dragnet Acquisitions Model, our investment thesis that we call Tenant Centric Value-Added Investing, and our asset management approach, FNRP 360. I’ll touch just briefly on each one of these. The first is our Dragnet Acquisitions Model. This is how we vet our properties.

Drew Carpenter:

We have a saying here at FNRP that’s become a north star of sorts that guides our acquisitions, that we want to look at 1,000 deals for every one we go after. Casting a very, very wide net and being incredibly picky about the deals we do go after has always served us very, very well. We’ve developed very specific criteria that we look for. All in all, we’ve developed 60 some boxes that need to be checked before a deal is even going to get advanced to our investment committee for consideration. If all those boxes don’t check, we’re going to throw that one back in the pond and wait for a better deal. They’re out there.

Drew Carpenter:

Consequently, in order to source enough deal flow to find the opportunities that check all those boxes, we take a nationwide focus. We leverage our relationships with the brokerage community, the institutional seller community, and the family owner seller community to source our deals. We run this Dragnet across the entire country, evaluating thousands of both on and off market deals, nearly all of which at the end of the day are going to fall out of the pipeline for one reason or another. Maybe the anchor tenant sales aren’t where we want them to be. Maybe there aren’t enough national tenants.

Drew Carpenter:

Maybe the population density isn’t strong enough, or just that the returns just don’t make sense at a certain price point. You see that a lot. And after taking all those factors into consideration, hopefully we’re left with just one deal that we believe offers the highest returns with the absolute lowest risk. We really look for that asymmetrical risk to return ratio. It’s hard to find, absolutely, but it is out there if you have the resources and the wherewithal to look. Here are some recent acquisitions that did meet arc criteria. McAlpin Square that was a Kroger anchored center in Savannah, Georgia. Sand Hill Plaza there in Newtown, Connecticut. You see Champions Village, that was a Randall Center in Houston.

Drew Carpenter:

Brandywine Crossing, that was a $65 million acquisition we made in Maryland recently, and Dauphin Plaza, Price Rite Center in Harrisburg. Finally, Tannehill Promenade, was just outside of Birmingham. That was a Publix-anchored center. The second thing that makes us unique is something that we like to call Tenant Centric Value-Added Investing, and really that’s just a fancy wave of saying that we leverage our relationships with our tenants to add a lot of value, both to their business and to ours. The first benefit that this focus on our tenants’ needs gives us is just a tremendous amount of intel about what these national tenants need to make a deal work.

Drew Carpenter:

When we’re looking at a deal and we see Kroger, for example, well, we already have seven or eight other Kroger deals in our portfolio, and we work almost daily with the heads of real estate at these national brands. This is just a huge advantage. Because we’ve cultivated relationships with most of the major national tenants you see out there, this lets us get the scoop on any particular deal very, very quickly. We know right away whether it’s going to check those boxes we need checked and if it’s right for us or not. Now, the second thing that our tenant centric approach does is quickly position us to add value by leasing up space at these centers very, very quickly, sometimes even prior to closing.

Drew Carpenter:

One thing about having a national platform is that we can show these national tenants multiple options within our portfolio across the country. Because of the fact that we understand these tenants’ needs better than most firms, it makes them really want to work with us specifically. And that’s something we’ve cultivated. At the end of the day, it means a win for them and it means a win for us and our investors. Here’s just a few of those national brands that we do have relationships with, Walmart, Walgreens, Whole Foods, Home Depot, Tesla, CVS, the usual suspects you find at your institutional quality retail centers in your neighborhood.

Drew Carpenter:

This slide really just shows a small slice of the tenants we do have across the country though. The final thing that makes FNRP unique is something that we call FNRP 360, and this refers to our vertically integrated business model. We’ve made the conscious decision to bring every single function in the commercial real estate process in-house, under our own roof, whether that’s accounting, property management, legal, leasing, asset managements, acquisitions or dispositions, we don’t outsource these roles like most private equity firms do. This allows us to move faster and more efficiently. In the end, we feel that nobody cares about our properties or our business more than we do.

Drew Carpenter:

There’s just no question that this vertical integration maximizes asset performance and it improves our returns. That’s why we’ve coined our insourcing process FNRP 360. So now that you know a little bit about us, let’s dig into the topic at hand here, 1031s, and why they’re such a valuable tool when used in conjunction with a private equity sponsor like FNRP. The primary benefits of a 1031, if you don’t know, are listed here. The ability to defer capital gains tax effectively indefinitely, increase purchasing power due to that deferred tax, and subsequently higher returns because you’re able to invest in more expensive assets, and also the tax-free transfer of assets and profits to your beneficiaries, which is not so often talked about benefit of 1031s.

Drew Carpenter:

Due to the power and popularity and, frankly, the complexity of the 1031 exchange, we built an entire department devoted to facilitating 1031s for our investors. We realized very early on that there was just massive demand for a solution to this problem of having to place your funds within the very tight 1031 timelines. 1031 investors come to us not only due to the performance and our track record of our investments, but also for our deep and fast moving deal pipeline that they can rely on for multiple attractive investment options, which can be easily identified and closed on within that 45 day identification period and the 180 day eligibility period.

Drew Carpenter:

To better cater to those investors, we’ve developed an industry leading 1031 platform that we’ve leveraged to process hundreds of individual 1031 transactions and over $74 million in 1031 transaction volume just since 2021 alone. It’s a very busy department for us. Our investors really feel at ease working with FNRP because of our experience executing 1031 transactions and their confidence in our ability to find and operate properties with good returns and comply with the IRS rules that do facilitate and govern a 1031 exchange. It’s really a win-win for our investors.

Drew Carpenter:

They get great returns on passive and stable investments, housing essential needs tenants who are likely to thrive no matter the economic condition. They also reap all the tax advantages of owning commercial real estate with the support of an experienced sponsor. The result is typically massive tax savings, phenomenal risk adjusted returns, and just a whole lot less stress when executing a 1031. Those are some of the advantages of leveraging a private equity sponsor to help you execute a 1031. But first, let’s dive into a brief primer on the mechanics of a 1031 and how they really work. You can see the legal language of the statute here. I won’t read it.

Drew Carpenter:

But to sum up, if you exchange like-kind investment property for like investment property and the rules are followed, you can defer the gains on your taxes. In plain English, that means that you could trade one investment property for another and not have to pay capital gains tax. This allows investors to continually trade up into bigger and bigger assets and grow their cash flow stream and net worth without paying any capital gains taxes, of course, as long as the rules are followed, which are numerous, but very manageable with the right help. It’s really hard to overstate how advantageous 1031s can be, especially considering the impact the taxes on your gains, what otherwise have on your bottom line.

Drew Carpenter:

To give you a brief rundown, you might already know this, but capital gains are taxed quite heavily, usually on four levels, sometimes five if you live up in the Northeast that’s fairly common. Here, though, you can see the current rates, which of course, no one has a crystal ball, but most would agree are expected to rise. This is what you’ll be hit with if you sell your appreciated property and don’t utilize a 1031. The first level is depreciation recapture. You pay 25% of any portion of the property or the value that you depreciated. Then the remaining tax, or excuse me, the remaining gain is taxed at 15 or 20% depending on your tax bracket. Third, the net investment income tax at 3.8%.

Drew Carpenter:

This tax applies to your income if your income is over 200,000 or 250,000 if married. Fourth is state tax, which of course, varies considerably. You likely know what the state taxes are in your state. As you can see, if you exit an investment with six, seven, or even eight figures in capital gains, the tax bill is going to be really, really significant. Nothing against Uncle Sam, but we want to try and help you avoid that. Now that we understand the taxes we’re deferring, let’s take a look at what’s involved in actually making that happen through a 1031 exchange. First, very important that all properties in the transaction are titled correctly. Getting this wrong can disqualify your 1031, triggering the full amount of taxes due.

Drew Carpenter:

It’s very, very important. Of course, you’re not going to know that you did it wrong until it’s too late. You don’t get a second chance on these things. To qualify for a 1031, the same tax owner needs to take title to the replacement property in the same name that they held title to in the relinquished property. If Beatles LLC relinquish a property, Beatles LLC must acquire. If Ringo relinquishes, Ringo has to acquire, and so on down the line. The next question we usually get is, can we still use single purpose LLCs, which, of course, are incredibly common and very useful in real estate? The answer is yes, fortunately. The IRS has allowed for that so long as you follow the rules.

Drew Carpenter:

In short, the entity must be disregarded for federal tax purposes. If that’s true, you should be in the clear. Of course, consult paid advisors to guarantee compliance, but you should be good. Bottom line is the important thing is the tax owner is the same on all the properties. The next thing I’d like to address is the definition of like kind. The IRS says that we must exchange like kind property to qualify for the 1031 tax treatment. What exactly is like kind? Let’s start with what it’s not. It is not a principal residence. You cannot shelter proceeds from the sale of your principal residence, or property held for sale. This means that most flips won’t qualify.

Drew Carpenter:

Of course, this hasn’t stopped many from trying, but we really wouldn’t recommend it. What does qualify as like kind is real property held for business use or investment and exchanged for the same. This description must hold true for all properties involved in the exchange. Fortunately, the definition of real property is actually quite broad. For example, you can trade land for an apartment building or a single family rental home or air or water rights or an industrial complex. You can also exchange any of those for fractional ownership of another real property. For example, you can exchange any real property held for investment or ownership share in a deal like we offer here at FNRP.

Drew Carpenter:

Like kind really makes more sense when you consider the fact that 1031 exchanges are not exclusive to real estate. They can be used for other things as well, machinery, boats, airplanes, even livestock and cattle. To sum up, you could trade real investment property for real investment property. You can’t trade real estates for boats or airplanes or cattle. Well, you could, but you’d have to pay taxes. The next thing to consider is the ownership structure of the deal that you’re looking at. Many real estate syndications are not structured in a way that meets that like kind requirement and they’re therefore not eligible for 1031 exchanges.

Drew Carpenter:

Structuring a syndicated deal to meet these 1031 requirements must be done intentionally. There are two generally accepted methods of doing so. The first is a DST, a Delaware Statutory Trust. This is a fairly new entity becoming eligible following a 2004 court ruling. The other is what’s called tenant in common ownership, often called a TIC. First, let’s talk about the DSTs. This structure is not our favorite here at FNRP, but it is good for a few specific situations. DSTs usually have lower investment minimums because they can admit up to 499 investors, which of course, can exercise 1031 privileges. DSTs are really a two layered structure. The trustee has sole control over the asset.

Drew Carpenter:

Investors only own beneficial interest in the trust. They retain no voting power or say in any operations. They also do not hold deed or title. By law, DSTs are 100% passive for everyone except the organization named as the trustee. The reason DSTs have become so popular is they’re simpler and more affordable to set up. They’re frequently chosen over a TIC for smaller deals by smaller firms. DSTs do have a lot of limitations, though. Legally, sponsors are not allowed to share in the profits in any way. No splits. No waterfalls. They can only make money by charging fees. This means that there’s no alignment of interest between investors and the sponsor.

Drew Carpenter:

Effectively in these kinds of deals, the sponsor is not affected by the performance of the deal whatsoever. They make all their money on fees. Also, DSTs can’t take on intensive value add or development. This is because they’re limited to standard repairs and maintenance only. Consequently, the returns are usually lower. DSTs really only work for stabilized assets. Furthermore, DSTs are forbidden from raising additional capital once the first funding round is closed. If major repairs are needed and the DST runs out of money, they’re not allowed to raise anymore.

Drew Carpenter:

If additional funds are needed for whatever reason, I mean, it happens, the only options available are converting the syndication to an LLC, which is going to trigger a ton of taxes, or letting the property go into foreclosure, which obviously is a terrible option. Now, finally, investors don’t hold deed or title when buying into a DST deal. Small changes in the tax code could potentially render them ineligible for 1031s. Again, no one has a crystal ball, but it is a consideration. The structure that we prefer is tenant in common, a TIC. And the reason that you don’t see TICs nearly as frequently as DSTs is because TICs are much more expensive to set up and operate.

Drew Carpenter:

So really only large sponsors doing large deals are able to employ them. TIC, in general, much more flexible. Since there’s no limit on the kinds of rehab, development, remodeling, or value-add initiatives you can pursue, you’ll find that the returns in TIC deals are typically higher. Sponsors are allowed to share in the profits in contrast to the flat fee structure that’s required for DSTs. Interest between sponsor and investor are aligned in TIC deals if they’re structured properly. Also, TIC agreements can be modified at any time, letting new investors into a deal who may need to place 1031 funds on short notice. This is one of the reasons we love TICs. Agreements can be monitored whenever, at any time.

Drew Carpenter:

Additional capital can be raised as well if needed. And since tenants in common do hold title, there’s less risk of regulatory changes. It could make this TIC structure ineligible for 1031 exchanges. Of course, many consider that a risk of the DSTs. Now, there are a few cons to the TIC ownership structure as well. TIC deals are limited to 35 investors who have the ability to 1031 independently of the group. That requirement does not cap the total number of investors though, because one of those tenants in common can actually be an LLC with unlimited members. Kind of think of an entity within an entity. It’s legal inception, so to speak.

Drew Carpenter:

Also, the TIC structure, much more expensive to set up and administrate. It’s really not a big deal on larger deals like we handle here at FNRP, but it can be prohibitive at a smaller scale. The reason why we have higher minimums for 1031 investors at FNRP is just that, it’s more expensive to set up and operate. Our current stated minimum for a 1031 investor is $500,000. And finally, lenders require a little bit more underwriting when lending to a TIC. Most will still end on a TIC deal. It’s not that big of a deal, but there are some additional requirements. For large sponsors like FNRP, we just feel that TICs are clearly the way to go.

Drew Carpenter:

The next consideration when executing a 1031 is making sure that the dollars amount of your transactions meet IRS requirements. Again, if you get this wrong, there’s really no second chances. For a full tax deferral, you must meet two requirements regarding the dollar amounts. You must invest 100% of all net proceeds and acquire property with the same or greater debt. Let’s take a look at these numbers and how they would apply to a hypothetical sale. So say you sell a $900,000 property. After you pay off your loan and transaction fees, you’re left with $540,000 as you see on the bottom right slide there. Here you can see the numbers. Excuse me. One more slide.

Drew Carpenter:

Here you can see the numbers for a hypothetical replacement property. In this case, you could see that after all the equity, you end up with, excuse me here, you end up with a $1.2 million property. Criteria number one is met. That’s great. You could also see that the debt load increased. Criteria two is also met. We’re all good there. 100% of the capital has been allocated. Now is the time and everybody says what’s a boot? Boot is proceeds from the sale of the first property that you did not reinvest. You don’t want boot. You’re going to be taxed on that boot. However, having boot won’t disqualify the entire transaction.

Drew Carpenter:

You’re welcome to cash out just some of the proceeds, head to Tahiti, but you will be paying taxes on that money. And that is what we call a partial 1031. Here’s an example of a transaction with the same property, but with a lesser valued replacement property. This would be a partial 1031 with taxable boot. The seller cashed out $100,000, had a great time in Tahiti, but did pick up a big tax bill. As you could see, we add the number cashed out, $100,000, to the difference in debt between the two properties, and that equals $140,000 of boot. And all of that boot is taxed, sadly. That’s how a partial 1031 works. Now, the next set of rules for proper 1031, involve the timeline of the transactions.

Drew Carpenter:

No one said saving money on taxes was easy, so please bear with me here. Onto the timelines though, the day the sale of your property closes, two clocks start ticking. The first gives you 45 days to identify your replacement property or properties. You can identify up to three properties in a standard 1031. There are some exceptions to this rule, but it involves several sets of cascading requirements. I don’t want to get too far into the weeds here today. Ask your qualified intermediary or tax attorney for those exceptions if you do need to go that route. And then the second clock starts ticking on the closing day of your relinquished property.

Drew Carpenter:

That clock gives you 180 days to close on your replacement property. One caveat on the 180 day clock, you see the bottom of the graph here on this slide, you get 180 days only if that date falls before your taxes are due for the year which you sold the relinquished property. An easy way of thinking about this is as long as you can and do file an extension, you really only have to worry about the 180 day rule. If you missed any of those deadlines though, you’re going to be, again, writing a big check to Uncle Sam. The other structure for 1031 is the reverse exchange.

Drew Carpenter:

Now, provided you have a capital on hand and you can buy the replacement property first, then you have 45 days to identify the property that you would like to sell or relinquish and 180 days to close on that sale. This type of 1031 very, very helpful in hot markets when selling is easier than buying, like we’re seeing today. Of course, one caveat is that you need to be able to carry both of those properties financially at the same time, of course. There are also some rules regarding the identification of your replacement properties. In short, those rules are you have to write the properties down. Be very specific. Deliver via mail, telecopy, or carrier pigeon. I think a telecopy is what the IRS calls a fax.

Drew Carpenter:

If you have a telecopier though, they will accept that. You also have to meet the 45 day identification deadline. Also, deliver your choices to your qualified intermediary. The IRS is very particular about how everything is documented. You definitely want a sponsor and a qualified intermediary who deals with 1031s regularly like we do here at FNRP to help you through that process. This next slide here details a few more rules and best practices. We’re almost done with the rules, I promise. Stick with me. First though, engage your qualified intermediary and tax advisor as early as possible, ideally well before the closing of the sale of your relinquished property.

Drew Carpenter:

Second, ensure that the sale contract is assignable and that the buyer is aware of the assignment in writing. Coordinate this with your equity sponsor and your qualified intermediary to get this accomplished. And third, this clause should clearly establish three things: the intent to perform at 1031, you need to release the buyer from liabilities resulting from the exchange, and notify the buyer in writing of the assignment to a qualified intermediary. Fourth, make sure to go ahead and tell your qualified intermediary before the sale of your relinquished property. Fifth, you want to identify your replacement properties before that 45 day deadline and do it correctly, as we spoke about.

Drew Carpenter:

Your qualified intermediary will assist here. And finally, you’re going to want to close on time. You’re going to have to close on time prior to that 180 day and tax filing deadline that we did talk about. That’s a brief outline of how a 1031 works. Admittedly, not exactly edge of your seat stuff, but well worth knowing should you choose to embark on one. Now, next, I want to stress the importance of using an experienced qualified intermediary. Given the complexity of 1031s and consequences of getting one wrong, the qualified intermediary you choose will play a large role in the outcome.

Drew Carpenter:

Oftentimes, buyers will shop around for the cheapest qualified intermediary thinking it’s just an IRS requirement to have one. And really the fact is, there’s a lot of 1031 deals that go bad every year due to inexperienced QIs or equity sponsors, and the result is often the buyer having to pay taxes on 100% of those capital gains. As you can imagine, that often adds up to tax bills that are six or seven figures. A good QI really shouldn’t cost more than a few thousand dollars at most, so it’s worth investing in a great one. Another consideration is that all of the gains from your relinquished property will be entrusted to your QI. They will hold those funds.

Drew Carpenter:

You absolutely want to vet them, make sure they’re competent to protect your funds while executing your 1031. That about does it for most of the difficult stuff here. Now, let me tell you how we can make all this easier and talk about some of the advantages of investing your 1031 exchange funds with a private equity sponsor like FNRP. Now, the first advantage is the ability to reliably find and enter good deals before that time runs out on your eligibility. The alternative, of course, is a single buyer, single seller transaction. We all know that those deals can go sideways before closing for a million different reasons.

Drew Carpenter:

Another buyer offers more, the property might not appraise, issues come up during inspection, financing, et cetera. In today’s market, vetting thousands of dollars or more that you’ll be able to find and close on your identified properties within that IRS timeline could be a real gamble. Finding and closing on a really good deal given the constraints is even more of a challenge. Private equity sponsors like FNRP are just very, very useful to ensure that your funds get placed before that clock runs out and to ensure that you don’t have to settle for a poor investment due to a deadline.

Drew Carpenter:

The reason being private equity deals will typically be already acquired via bridge loan, or they’ll already be under contract at the time of offering. They’ve already undergone professional due diligence, underwriting, and inspections, so it’s very unusual for these deals to fall through that late in the game provided you selected a competent sponsor. Additionally, most quality sponsors will have multiple deals on offer at any one time. Knowing that you have a reliable home for your 1031 funds and a professional sponsor to assist in the transaction just takes a lot of stress out of the equation and ensures that everything goes smoothly.

Drew Carpenter:

It also makes sure you don’t rush into a mediocre deal just to avoid that tax bill, which is something that happens all the time. Also, consider the other advantages of private deals: the ability to invest in necessity-based institutional tenants like grocery stores, which are going to thrive in all social and economic conditions, insulation from the boom and bust cycle of the residential housing market, the tax benefits, things like cost segregation studies and bonus depreciation, the ability to leverage your sponsor’s experienced underwriting and acquisitions departments. And lastly, many of us prefer passive investments. Private equity provides that without sacrificing cash flow or tax benefits.

Drew Carpenter:

When it comes to choosing the right equity sponsor, well, of course, there’s a million reasons that you need a good one. The sponsor’s ability to execute at 1031 is just one of them. The real beauty though of private equity is the symbiotic relationship between investors and specialized operators. Really what you’re doing is using a form of leverage. You leverage the systems experience and network of the operator to find the best deals out there and execute a well reformulated business plan. You get access to data and analysis that really only the major players in the space have access to due to their relationships and their scale.

Drew Carpenter:

And then in return for providing your capital, you receive a totally passive investment that comes with potentially less risk and little to no trade-off in returns compared to traditional non-passive real estate investing. When executed correctly, it’s a win-win. It really leaves both parties much better off. When you look for a firm, you want to find an outfit that has a proven track record, who has all the resources and relationships already in place. They need to know how to source and underwrite deals. They need relationships with the brokerage and lending communities, so that they’re sourcing the best deals.

Drew Carpenter:

When it comes to institutional quality assets, I can’t stress enough, this very much is a relationship business. You want to work with a team of well connected professionals. Because really at the end of the day, luck has no place in real estate investing. It’s relationships, systems, and experience. That’s what makes money. Finally, pertaining to the 1031 specifically, there are advantages of working with us here at FNRP, many of them. We have an entire department working full-time to help make 1031 stress-free for our investors. We have an in-house tax and legal team to ensure that all requirements are met so the exchange is not disqualified.

Drew Carpenter:

We also consult with qualified intermediaries and tax advisors prior to closing on our deals, so investors don’t have to worry that all the boxes are checked. Of course, this all comes free of charge for our investors provided they meet our 1031 investment minimums. All in all, we’ve received really great feedback from our investors, and it’s just been a win-win for everyone. With that in mind, we hope this left you with some valuable insights about 1031s, at least a rough primer, and the advantages of private equity. They really are an incredible tool when used together and correctly.

Drew Carpenter:

Really the best takeaway is to know that 1031s are very, very powerful, but they can also expose you to considerable a tax liability if they aren’t executed flawlessly. If you are within 90 days of closing on a 1031 transaction, we’d like to invite you to set up a call with us to explore our current deal pipeline. Our team can help analyze your situation specifically and answer any questions you might have, which should be numerous. This is a complex kind of thing. If you would like to set up a call, you can schedule that as soon as this week, I believe. You can do that at fnrpusa.com/call. Again, that’s fnrpusa.com/call, as you could see on the screen there. I know we had a great turnout today.

Drew Carpenter:

So thankful for everybody being here. It’s really great to be able to speak with you. Questions, comments, concerns, we’d love to hear from you. In the meantime though, I’m going to pass it back to our host for some Q&A. Thanks, again, everybody. Mike, are you still with us?

Mike Law:

I’m with you, Drew. Can you hear me okay?

Drew Carpenter:

Got you loud and clear.

Mike Law:

Fantastic, man. Thank you and wonderful presentation. Really appreciate it. Really in depth stuff today, guys. We’re going to go ahead and transition now to our Q&A segment, and we’ll spend the rest of our time together taking your questions. We have about 20 minutes or so for questions. I see we’ve had quite a few come in already. Thanks for sending those questions in. If you’d like to ask a question, now’s the time to get that question in. Again, just punch it into the Q&A box there and we’ll do the best we can to answer as many as possible with the time we have left.

Mike Law:

I’d like to go ahead and ask Mr. Mike Mirman, our VP of investor relations to come off a mute, and also Richard Sutherland, our associate council here at FNRP. Gentlemen, are you with me?

Mike Mirman:

Hey, Mike.

Richard Sutherland:

Hey, Mike.

Mike Law:

Hey, guys. Thanks for joining us this afternoon. You guys ready to jump into Q&A?

Mike Mirman:

Sure.

Mike Law:

All right. I’d like to start the first question here and direct this actually to you, Richard. The question, I saw this come from Steve most recently, also saw it come in from a couple other guys, but the question is, is a 1031 just a deferral, or is it a way to avoid the tax altogether?

Richard Sutherland:

No, it is just a deferral mechanism. You’re going to have to pay eventually, but just not right away.

Mike Law:

Awesome. Next question here I got, give me just one second, I want to make sure I call the right name. It’s from Vashal and the question is… Mike, I’d like to direct this one to you, please. The question is, is there a minimum requirement for the 1031 exchanges? Or if you’re already involved in one of FNRP deals, can you just take it over to another? Can you transfer your investment that way?

Mike Mirman:

The simple answer is for the second part yes. When you’re in one of our deals, you’ll have the option at the end when we go to dispose of the assets, either A, cash out, or B, rollover via 1031 with the rest of the group. As far as you know, that would be something separate to if you were coming in with your own sold property. For a 1031, our a typical minimum is about half a million.

Mike Law:

All right, fantastic. Thank you. Let’s see. The next question I got here looks like it’s from Vashal as well. He says, “Tangential question. For the examples of the same name and title,” if you remember the example of John and Yoko relinquishing the property, where John and Yoko have to acquire the next property. He’s asking, “To confirm, would it be possible for just one of them in that scenario to acquire the new one or to 1031 exchange?” Richard, would you like to take that question?

Richard Sutherland:

Yeah. The answer is yes. The type of exchange though, it often involves significant strategic and advanced planning to ensure a successful exchange. There’s a whole lot more moving parts involved in that, and it is going to be unique to each individual situation. Definitely check with your own tax attorney, accountant, or a financial planner to look into the specifics, the particulars of that type of transaction.

Mike Law:

All right. Next question I got here is from Tim and Tim’s asking, “Is there a minimum hold period on the asset to be eligible for a 1031?” Mike, you want to take that one, please?

Mike Mirman:

This question comes up a lot. That is something you most certainly want to consult whoever your qualified intermediary is and your real estate attorney, just to speak with them, because I don’t know if there’s a true holding period, but each scenario kind of becomes its own. I’ve seen places where they’ll say you should hold it for at least a year. Some people disagree with that. A lot of that in terms of minimum hold is going to depend on who you’re speaking with and who’s going to defend it in case you have an audit.

Mike Mirman:

I don’t know if there is a true holding period minimum, but you could run into an issue depending on your situation. Definitely want to speak to whoever your attorney, your accountant, and your intermediary. They will absolutely be able to guide you properly.

Mike Law:

All right. Excellent. Thank you. Next question coming is from Barbara. I think, Richard, this is a question for you here, I think. Barbara’s asking, “If an investment property is in a revocable trust, can a 1031 still occur if the property to be purchased is named the same?”

Richard Sutherland:

So long as the exchanger, meaning the seller on the one side, is coming into the deal and the trust is the same, then yeah. Revocable trust is just as good as an individual or a limited liability company or any other person or entity that would hold it. Again, it’s an identity of the title holder. That’s what we’re looking for here for a qualified exchange.

Mike Law:

All right. Beautiful. Next question for you, Mr. Mirman. Quentin’s asking, “I know you guys have a fund. Can we do a 1031 exchange into the fund?”

Mike Mirman:

Unfortunately, the fund itself is not eligible for exchanges in or out. You’re more than welcome to look at any of our offerings, the specific individual deals, but the fund itself does not work.

Mike Law:

All right. Excellent. I got a good question here from Nate and this is another one I think maybe for both you, but Mike, I’ll direct it to you first. Nate’s asking, “Are you saying that FNRP structures their deals as a TIC, or that if we have a TIC, we can participate in an FNRP deal with the money from selling a position in our TIC?”

Mike Mirman:

I would say the answer is both. We structure our 1030s as a TIC. And if you have your own IC and you’re going to roll in, your TIC would be the sole member of an entity that we create and would go in and purchase a piece of the property directly.

Mike Law:

All right. Excellent. Next question here I got from Larry. I know Drew covered this, but maybe you can speak to this. Larry’s asking, “Can I do a 1031 exchange from an LLC?”

Mike Mirman:

Yeah, sure. No problem.

Mike Law:

All right.

Mike Mirman:

If you’re the sole member, then it’s not an issue at all. And as long as, depending on your situation, the partners in the LLC also want to do an exchange, then yeah. It’s not an issue at all.

Mike Law:

Let’s see here, I got a question from Tim and he’s asking, “To clarify, residential typically requires two years with maximums protected, not taxed. Is that correct?” Richard, would you like to take that one?

Richard Sutherland:

That’s going to be a more unique situation and, again, falls sort of outside what we do here when it comes to that type of a deal. Having said it again, check with your tax attorneys to see. As Mike alluded to earlier, the holding periods, the IRS has said in the mid ’80s two years is okay, 12 months is sort of a benchmark. I know our holding minimum period is two years because we want to make sure that it’s safe and effective. That simply just as the documents lie, that doesn’t mean that the deal is going to be any different. But I would definitely check with your personal attorneys and accountants to make sure that you’re complying with what needs to be complied with for your situation.

Mike Law:

All right. Great. Thank you. I got a good question from here, a common question. I’ve seen it pop up a number of times. It’s from Tara Lynn. They’re asking, what’s the timeline before a new sale is made after a 1031 exchange? I think the question may a little unclear, but Mike, could you talk about maybe how and when investors should kind of start planning for a 1031 exchange, when they should maybe engage their QI, when they should start looking to us for leadership in identifying a replacement property? Can you just speak to those general timelines real quick?

Mike Mirman:

Sure. Look, if you know you’re going to sell a property and your intent is to do an exchange, you want to get a QI in place soon. Mostly because if you have any questions, issues that come up, you want someone that you can go to and answer any questions and help guide you through it. For our deals in particular, you want to be either closed or know you are about to close. Because if you’re looking at any of our current offerings, you want the timeline to fit within your constraints. You don’t want to look at a deal that you might want to go into, but you’re not selling for two or three months because the timing is never going to work out.

Mike Mirman:

At earliest, I would say a couple of weeks before or a few weeks before you have a hard close where you know the person you’re selling to or a group or whatever it is has no extensions and you know for sure they’re going to be able to close. If you have that in place, then two to three weeks before, that’s totally fine. Other than that, for the most part, either want to be closed or very close to it. This way, the timing works out.

Mike Law:

Absolutely. Mike, you mentioned getting access to our current offerings. I want to just go ahead and call out the link on the screen and the web URL on the screen, fnrpusa.com/call. If you’re within 90 days or so, Mike, do you agree with that timing? 90 days out is good timing?

Mike Mirman:

90 days out before they go to sell.

Mike Law:

Yeah, from closing.

Mike Mirman:

Look, I would say that is pretty early, but it’s not going to hurt you. If you were a month in advance two months in advance and you found an intermediary, you’ll be fine. It doesn’t take that long to put them in place. It’s just going to take, depending on who you are and who you’re comfortable with, you might want to interview a few of them to see who you think works best to fit your situation.

Mike Law:

Sure. Guys, there’s probably a couple different actions that you could take based on where you’re at in the process. If you’re outside of say 60 days or so, or even 90, and you’re just considering a 1031 exchange with it, what you’re going to want to do is take a look at our deal pipeline. Especially if you’re new to FNRP, get to know our deals, get to know our investor relations team and build confidence with us as a team. You can access our deals anytime by visiting fnrpusa.com and just click in the deal lobby link in the menu there.

Mike Law:

If you’re closer to closing, what you’re going to want to do is set up a 1031 discovery call with our team. And that is the button on the screen here and fnrpusa.com/call. All right, so let’s move on, take another question here. Let me see where I left off. This is an interesting question. I got a question here from Robert. Mike, I’ll send this over to you. The question is, do you build your own projects?

Mike Mirman:

Are you asking if we develop? The answer is…

Mike Law:

Yeah, I think that’s what they are.

Mike Mirman:

No, look, we buy properties that are typically going to be cash flow positive day one. We’re not buying a shopping center for let’s say five, 10 cents on the dollar. We’re buying things that are pretty healthy cash flowing situation and are at least mostly already occupied.

Mike Law:

Yes, that’s great. Thank you, Mike. I got the next question here lined up. We got about seven or eight more minutes and probably more questions than we’ll get to for the day. But the question here from Jonathan is, “How long is your investment period and what happens at that point?” I assume he means at exit. “Can you roll your investment over into a 1031 investment?” Mike, you want to take that one?

Mike Mirman:

Sure. Look, our deals range between let’s say three, five, sometimes seven years. We might get out and execute our asset management plan quicker than that. It’s possible that year and a half, two years and we’ll look to sell. As far as what you could do afterwards, we will give you the option to either cash out or you can roll forward via another 1031 exchange.

Mike Law:

Great. I got another question from Gabe here. He’s asking, “Is there cash flow income post exchange?” Would you like to speak on that, Mike?

Mike Mirman:

Sure. Look, almost every one of our deals that we buy, like I just mentioned earlier, they’re cash flow positive almost immediately after we take possession. You can have an idea. If you look at any of the deals, there’s usually a projected cash-on-cash distribution associated with any project. You might want to take a look, whatever equity number you’re rolling in or investing and kind of come up with an idea of what kind of cash flow you can expect.

Mike Law:

I got a question here from Bart. He’s asking, “Will I have to file an income tax return for each state from an investment return from a property in that state?” This is a question for you, Richard. Would you like to take that one, please?

Richard Sutherland:

My understanding is that, well, the entity here is going to be disregarded. The income should only flow to whatever the exchange or entity is. There shouldn’t be any taxable income as it relates to the state specific or any returns to be filed there. But again, this is something that you’ll want to check with your tax attorney on.

Mike Law:

All right. Guys, definitely for any of you guys who are considering a 1031 exchange, we definitely encourage you to work with your legal and financial advisors, first and foremost. Next question I got here is from Alex. They’re asking, “What is the minimum for 1031s at FNRP?” Mike, you want to take that one?

Mike Mirman:

Sure. Our typical minimum is half a million dollars.

Mike Law:

Do we flex on that at all?

Mike Mirman:

What’s that?

Mike Law:

Do we flex on that?

Mike Mirman:

I would say speak to someone here. Talk to whoever your IR rep is. Schedule a call and it is possible that we can accommodate you depending on the situation. Sure.

Mike Law:

I haven’t seen this question come up, but I think this is a question kind of in that same vein, but do we allow 1031s into every single deal that we do?

Mike Mirman:

For the most part, the only restriction we ever have is sometimes we have too many people that are trying to roll into a specific deal, so we might have to cap it at a certain number. But for the most part, any of our individual deals, for the most part, we can do a 1031 exchange. The thing that will not work would be into the opportunity fund that we have. But any of our individual offerings, you should be able to 1031 into.

Mike Law:

Excellent. I got another question here from Fred. He says, “The DSTs that I’ve seen have a rather underwhelming cash-on-cash return ranging from three to 7%.” That’s kind of what Drew alluded to in the presentation. He is asking, “What kinds of cash-on-cash returns do TICs provide,” or maybe talk about our deals?

Mike Mirman:

Look, most of our deals and any of our offerings that you look at when you see the deal room, you will see a projected cash-on-cash. I would say 3% is very low. We’re usually not going to be that low. Anywhere from six, 7% up to potentially as high as nine is possible and realistic based on some of the past deals that we’ve done.

Mike Law:

Excellent. Let’s see. We got a question here from Braden, a common question that new investors in this space ask. He’s asking about liquidity. Let’s see. What do you do if you want or need cash out from a deal after closing?

Mike Mirman:

That’s not going to be an easy thing to facilitate. All of our deals have some version of leverage on them, so it’s not as if you can just take your position. I mean, unless you find someone who’s willing to do so and get some kind of leverage against it. If you need cash out of a deal, I mean, these properties, they do cash flow, so you will earn some kind of an income. But if you needed to get rid of it, then you’d be looking at a sale just like you would if you needed cash out of a property that you want outright.

Mike Law:

Awesome. Thank you. Next question here is from Frank. Richard, I’d like to direct this one over to you, sir. Frank’s asking, “How does FNRP do a 1031 from one FNRP investment to another?”

Richard Sutherland:

You’ve already got existing funds in one of our deals. And if there’s going to be a disposition of that asset, we can roll those 1031 funds over. You utilize the same process essentially with the qualified intermediary to handle the transition and the transaction and the exchange of the funds. It’s pretty straightforward. In fact, much easier on our side, to be honest, and a lot less stressful for the investor.

Mike Law:

Absolutely. Ralph is asking here… We got a couple more minutes. I’d like to take maybe one or two more questions here. Ralph’s asking, “Are your 1031 deals drawn from the same pool as a regular FNRP investment?” Mike, you want to take that one?

Mike Mirman:

Yeah, they are. That’s exactly what you would be looking at if you were interested in doing an exchange. You look at any of our current interactive offerings and that’s where the availability is.

Richard Sutherland:

Just to build on what Mike said, I mean, the only real difference is how you’re getting your money into the deal. The deals are the same. It just depends on whether you’re coming in via the fund or via a 1031 exchange and the TIC structures that we’ve set up here.

Mike Law:

All right, great. I got a question. I’m surprised this is the first time I’ve seen a question about a qualified intermediary, but I want to read Julian’s question and pose it to both of you. I think both of you can offer some insight in this. But they’re asking, “Does the QI need to be an attorney or can they be a commercial lending broker? What additional criteria should clients look for when selecting a QI?”

Richard Sutherland:

Well, I can start with no, the QI does not have to be an attorney. There may be various state rules or regulations, but typically from my perspective, you want someone who’s experienced, who’s been doing this for a while, and who either has in-house or has someone well versed consulting with them for the IRS and Treasury rigs that go along with the 1031 exchange and they know how to move quickly. To me, those are the key factors for any good QI that I know I’ve worked with.

Mike Law:

Excellent. I got a question here from Braden and we’ll make this the last question of the day. I don’t want to keep you guys. The question is this, “If you require a minimum of 500K equity for a 1031, what about a straight investment?” I guess, a direct investment to one of our deals.

Mike Mirman:

Typical minimum for any of our deals is 50,000 and you must be an accredited investor based on the SEC’s rules.

Mike Law:

Beautiful. Well said. Guys, with that, I’d like to go ahead and wrap up today’s webinar. I want to encourage you, if you’re inside of 60 or so days from closing and you’re considering a 1031 exchange and you’re looking to identify a replacement property, please visit fnrpusa.com/call. We’ll give you a preview of our pipeline and connect you with a 1031 expert here at FNRP that can help you navigate that selection. And also if you’re outside of that range and interested in our deals, maybe you’re new to FNRP, visit our website, fnrpusa.com/invest or locate the access our deals or the deal lobby on the website there.

Mike Law:

Take a look at our current offerings. That’s the best way to engage with our firm. We have investors relations team standing by to support you guys, really focused on the boutique white glove support here at FNRP. We have a very talented team of over 120 real estate professionals to support you. We source everything in-house, as Drew mentioned, which really helps us work everything toward the enhancement and the efficiency of the investors. We really try to put ourselves on the same side of the transaction as our investors. And when we win, you win. Really appreciate you guys being on.

Mike Law:

Thank you to our panel. Thank you, Mike. Thank you, Richard, for joining us. Thank you to our investors for joining us today. I hope this has been beneficial to you guys, and we look forward to serving you guys in the future. Take care and have a wonderful day.

Richard Sutherland:

Take care, everyone.

Mike Mirman:

Take it easy.