May Update with Justin Ford and Bob Irish

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(07:43) Bob Irish: Bob Irish here with our monthly call with Justin Ford of PAX Properties. Today, we'll update you on all the standalone investments in Florida and keep you abreast of what's going on in the CAP plus diversified income fund. I say it every month. I'll say it again throughout real estate booms and busts. Tax properties has never failed to produce a positive result for investors or missed a mortgage payment.

 With that said, Justin, how are you? I'm doing great, Bob.

(08:11) Justin Ford: It's been an amazing month since we last spoke. So we have a lot of good things to catch up on.

(08:17) Bob Irish: Yeah, I mean, our last call, I thought the month of May was going to go down in history as an amazing month, and it has come to pass. So why don't you fill us in on the details?

(08:30) Justin Ford: I will. Well, you know, in December 2024, that was a very merry month of May as well. That's when we sold Melbourne. Very good return and just a bunch of other things. It returned over $20 million to investors. Since February, we've been a series of refis and a couple of asset sales that, again, should return about $20 million to investors. And this, in February, you'll remember, we closed the important refinance of the Swan.

 And that returned some money the fund had lent out, all the money the fund had lent to that, plus a little bit of money to PAX, which had lent out a lot of money to the swan at zero interest. But this month we closed two major refi's and one asset sale. So it's been a tremendous month. I'll start. Let me start south and we'll just start in Vero since that's our southernmost property. Yeah, Vero.

(09:21) Bob Irish: Let's talk about Vero. We won't have to talk about Vero anymore after this.

(09:25) Justin Ford: The last time we'll be talking about Vero, except when we finally reminisce. So, yeah, I think it was two weeks ago. We closed on a $7,050,000 sale of Vero. We bought that property for $2 million almost 13 years ago. We put three or four into it and then more over time. We had, you know, in our history, we had COVID, which set us back for a little bit. Last year, we had the whole hospitality market down 50%, even though we were beating the market.

 But with all that, we did very well at Vero. So after paying years of distributions that averaged in the low to mid-teens, we're now distributing the last bit of remaining investor capital plus capital gains. The IRR will be the total IRR will be in the low to mid-teens. And we're doing those distributions next month. So, Vero, our oldest, longest owned property, is now with new owners. And we're making our final distributions next week.

 I mean, yes, next week, we can make those distributions. Well, sign R to Vero. Adios Vero, yes, indeed.

(10:31) Bob Irish: Great.

(10:33) Justin Ford: If we go north, Bob, we'll go to Ocala. Sure. And that fits in the refi framework too, because we did a refi at Ocala. That was the SBA loan. We refinanced our current debt. We had like a $5.5 million loan, and we turned that into a $9.1 million loan. And with the difference, we returned a little over $3.5 million to investors. Plus, we had deferred distributions there until we could close this loan.

 And and no cala vera was down 50 the hospitality market we were again we're beating our competitive set but but the market was down it was compounded by that equine flu and things like that uh but yet we were still able to close this sba loan for 9.1 million dollars we turn over three and a half million dollars to investors for the individual investor they got caught up on all prep so now they've been earning uh I think between eight and ten percent um since inception Yes, that's it.

 And they got 43% of the original capital back as well. And it's built a number one rated hotel in the market. So things are looking really good at Ocala. And the market is starting to come back. It's not at its previous highs, but we're starting to see more activity around the equestrian center and just general travel. So we like what's going on at Ocala.

(11:53) Bob Irish: Tell me about the horses. Are the horses okay? That's what I want to know.

(11:59) Justin Ford: I think they're doing well now. They're getting over that equine COVID. All right, cool.

(12:05) Bob Irish: I just wanted to cover that base. So let's move to Tallahassee.

(12:09) Justin Ford: Yep. And the first one we'll talk about there also is a refi. So that's the monarch. So the monarch was the last of the two properties we converted to hotels. So the monarch, the fund went at extra money in the beginning. I'd lent out to various places, including to Monarch, which again, when we hit with COVID, we couldn't come back as a hotel, so we converted. And also, the fund even led a little bit out to Vero.

 So Vero, when it sold, also sent back because again, Vero was down 50%. The market was. So, and the fund got paid good interest on that, 8%.

(12:47) Justin Ford: closed the monarch loan yesterday finally so that monarch loan paid back everything to the fund uh between the swan and vero and the monarch uh the swan in february vero two weeks ago and the monarch yesterday which funded today uh the fund now has 3.4 million dollars in cash nice yep so um and it and it now has no loans out to any any entity at all um it will use up 1.2 million of that next week when we close the elevate refi because the amount of the loan we're getting is about 8 million and we have like a 7.7 first and we have like 1.3 in investor notes that we have to pay off plus some closing costs.

 So the funds cash will go down to 2.2 at that point. But I'll revisit that in a moment. Let me just finish talking about monarch and Tallahassee. So not only did Monarch do that and did it close this very important refi. It's also progressing tremendously on the lease up finally. We are now, even though we finished building A a couple months ago, building B, we have yet to finish. We were this close and then an inspector made us do something with the electrical engineer.

 So we're probably three weeks away from building, finishing the second building. And we're working hard to get that done as quickly as possible. The real delay is just having the city stamp the plans we resubmitted for the change that was required. But we're already, we are 14% leased and 22% pre-leased. And that's amazing. Just at the very beginning refi, we're already at that number.

(14:21) UNKNOWN_SPEAKER: Wow. So that's very, very strong. And we're getting lots of increase. So, Monarch is looking good.

(14:28) Justin Ford: The loan that we have is a 15-month loan. And the busiest leasing season is June, July, and August. So we're kind of the time is. Kind of really good. September is a decent month, but then October tends to get quite slow. So the goal is by the end of September to be somewhere in the 70s in occupancy, 70 to 75. Meanwhile, across town, we have the Swan, which is a similar play. So the Swan, again, we closed that refi back in February, and that property is now 81% leased and 85% pre-leased.

 And the challenge, again, and because we're entering into this season where there's so much demand, a lot of it's demand for August, but we'll even accept the leases now for August. But some of it's July, of it's moving in even May and June. But the trouble there is we have a little bit higher turnover there than with our normal apartments. And the reason for that, we're tracking it very closely. We have like, you know.

 Non-when someone doesn't renew, we ask them, you know, why is there something we need to do? And very, only very rarely is it something with us. Like, for instance, it took a long while for the plumber to get the cylinder washer-dryer rooms right. So there was a couple people that, but really, it wasn't, or we were under construction for a while, whatever. But the vast majority has nothing to do with that.

 It's that they're moving to another gig or they're finishing school. Again, we're not a student property, but we have a lot of we have a significant probably 30% of our population is associated with the university, either as a senior or as a grad student or someone who works there and so forth. So it turns out that that tenant base is a little more transient where your average tenant might stay in a place let's say two and a half to three years.

 It looks like this base is more close to a little under two years or so. So that means that not only not only if we're 85% pre-leased, we'd have to to lease another 16 units that's 10 of 160 units we'd have to lease another 16 units to get to 95 right but because we have we'll probably lose around 10 but we actually really got at least 26 units right which is part of that's normal that's just a higher percentage here we have where we have shorter term tenants but again it's a beautiful property we've increased rate uh rent since we started and now we give some concessions and now we gave some concessions in recent months when it was slow, but now those concessions are being discontinued because the demand is strong.

 So, at Swan, I expect Swan to be in the mid-90% occupancy by the end of July, perhaps by the middle of July, because we have just such strong traffic. And that puts us in the position to do the next thing at Swan, which is to start to talk to lenders about going to a permanent loan. And that permanent loan would. Would probably close, let's say, around October, November. And then we go from interest rates to 10.5% to hopefully 5.5%, depending where the market is right there.

 We're this close to stabilizing SWAN operationally. And then very shortly after that, we expect to stabilize it financially. So that'll be a big. Just a big milestone from that property that was hit by COVID the day after we finished all the renovations and won the top award and went to number one. You know, so yeah, so that'll happen there

(18:32) Justin Ford: So that's the story with Swan. It's looking very good.

(18:43) Bob Irish: Sounds like there's great momentum there, Justin. Yes, truly.

(18:47) Justin Ford: Yeah, I'm very, very excited about it.

(18:49) Bob Irish: Do you have anything new to add about Renaissance?

(18:55) Justin Ford: No, I mean, Renaissance were 95. Occupancy. We will know by the end of this month, we're supposed to learn if we're going to get $100,000 reduction in our real estate taxes because of that abatement we applied for based on our naturally occurring affordable rents. But other than that, it's a pleasant, Renaissance is a consistent, just a good performer, paying 10% since inception. Yeah, no, Renaissance is doing great.

(19:24) Bob Irish: Okay, super. Let's go to Oklahoma. I want to hear about these refi's.

(19:27) Justin Ford: Okay, great. So, Apex, uh, oh, yeah, you know what? I forgot about Apex. We closed the Apex Refi. I don't know, Christopher. I don't know, Christopher could tell me, Christopher, when do we talk to Christopher like he's the control room? It's the uh, this, whatever it is, Howard Stern show but the uh um we closed the apex refi I think it was a month and a half ago I think we talked about it already yeah and that was important and that returned that returned money to the fund when we closed the apex refi that was at um a million dollars to the fund yeah so that's in total toll so that 92 unit and um apex you know apex was a was always a good performer but it had been in the low 90s.

 We're dipping to the 80s. But since we added a part-time leasing agent, she has paid for herself. We're averaging high 90s right now. We're 99% pre-leased. Great. I think 97% leased. Again, we have good lower-cost debt on it. So Apex is in really good shape. And yeah, that refi we closed, I'd say maybe seven or eight weeks ago, right?

(20:32) UNKNOWN_SPEAKER: Yeah. And then next would be Oklahoma City, our 126 unit elevated apartments.

(20:39) Justin Ford: And that's the one that we're going to close. We're scheduled to close next week with North Marco Group. We've done a number of loans with. That will, again, bring our bridge debt cost from about 10 and a half, actually 11 when you blend the rate to perhaps low sixes. We were looking at mid-fives, but you know, interest rates have gone up over recent months. Apex is a little higher than we were expecting as well, but that's life right now.

 And so, but we'll close that loan, which scheduled close by the end of next week. It's the new loan comes in at about 8.15 million. We pay off like a 775 first mortgage, and then we have about 1.3 in secondary debt there from when we finished construction a while ago. So we'll use basically about 1.2 million of the funds money to fill that gap, you know, plus the financing closing costs. So that will bring the funds cash from about 3.4 million currently to about 2.2 million by the end of next week.

 So and elevate also in the high 90s, either 97 to 98%. And it's consistently posting mid to high 90s. It's a great looking property in a great location. Uh, and it'll soon start to cash flow as we put the lower cost permanent debt. So, elevate's looking very good. Oh, that's great.

(22:02) Bob Irish: Let's uh, let's go to more, Oklahoma.

(22:04) UNKNOWN_SPEAKER: Yep, so ascend, right, 146 units.

(22:08) Justin Ford: Um, the last refi. We've already been approved for it by HUD. I mean, technically, I think there's it's They have a committee, and then they seem to have another committee, which has another committee, which has another committee, and that committee might have a committee. I don't know. But it looks like we're green late to close. And that's expected to close either very late June or very early July.

 But that will be, again, the way it was underwritten just a couple of months ago, we're get as much as $14.4 million. But again, since interest rates have gone up, that may decrease the amount of money we get. Again, because when your interest rates go up, the amount you have to pay goes up, and therefore the amount they can afford to lend you and you still cover the debt goes down, right? Right. Yeah.

 So the, but, and because of that also, HUD wants to see really strong liquidity. And, PAX has lent out a lot of money to these properties as well. And PAX's liquidity is still, PAX still has like $3 million lent out. Maybe a million and a half actually at zero interest. But PAX received over through the sales and other refis, got a bunch of its money's back. So PAX has a couple million dollars in cash.

 The fund has 3.4 million in cash, but again, it'll have 2.2 after the elevate refi. So we're going to hold on to that money until we close the ascend loan, right? Okay. And once we close the ascend loan in July, we can catch up on distributions. So we have deferred distributions at the fund. For eight quarters. With that 2.2 million, depending on how aggressive we want to be, we'll catch up at least four quarters of at least a year, perhaps five quarters worth.

 And then, should we close the sale of the Fort St. John out parcel, that'll give us another 900,000 or so, then we could catch up another two, maybe even three quarters. So we will, at the very least, we're get. Caught up on four or five quarters. Investors in July, if someone has invested, let's say, a hundred thousand dollars, should expect to receive by the end of July at least a seven thousand dollar check, catching up on a whole year's distribution and maybe a bit more than that.

 And then every quarter after that, seeing distributions as well, because now all will be a permanent debt across the board, the entire portfolio. And should we close that out partial sale for Port St.

(24:27) UNKNOWN_SPEAKER: John?

(24:27) Justin Ford: They'll get another chunk of catch up, two or three quarters more. So, which I guess is a transition to Port St. John, anyhow. Yep. So, yes, thank you. I do say so myself. So, the you know, we only have one bay vacant, and so we're 94% occupied. All these is operating. Their Dollar Tree is be in there soon. I think a pro forma NOI is probably around $630,000 going forward. If we not if we, when we get that vacant bay leased, um, it's a uh, and we're about to double down on that.

 I'm about to, I'm about to take it away from our broker. I've been talking to him about it. He's a good guy on a lot of things, but they're not making the progress we need here. If he doesn't make it soon, we may take it and market it ourselves. Um, we have what's called a co-star subscription, and we have certain tools we can use because leasing that out, including the cam that we would receive and the um.

 Is the common area and maintenance contribution, and the actual base rent, that would boost the NOI by about $100,000. So you go from $6.30 to $7.30, you know, that's almost a 20% bump in NOI. So that could be very, very big. So we really want to work on that. But 94% is nothing to fry about. It's a very strong number in occupancy. The area continues to grow. The sale of the out parcel, Mervey's oil.

 Just came and asked for another 90-day extension, which we're grant them probably. I'm going to double check on any backup offers. I don't think we have strong backup offers right now or parties strongly interested. So we'll probably grant them that. And should that close, that'll close right now. It looks like it would close at the end of the third quarter. Gotcha.

(26:13) Bob Irish: Okay. Hey, I want to go back to the distributions from the funds once more. You said that the investors are going to receive cash. And I was just wondering, do investors have the option to just reinvest their distributions into the fund? Or is that not an option at this point? That's interesting.

(26:35) Justin Ford: In the stock market, a lot of people might be familiar with a DRIP plan.

(26:38) UNKNOWN_SPEAKER: Exactly.

(26:38) Bob Irish: Yeah. Yeah. Dividend reinvestment plan.

(26:42) Justin Ford: That would be nice. We hadn't thought of it, really.

(26:44) UNKNOWN_SPEAKER: And we've had investors come and offer us. Significant contributions of more equity.

(26:49) Justin Ford: And we said, thanks. No, we're not taking equity right now. We to just fix and stabilize things. But after we get the ascend loan done, then we've really executed the master plan of getting everything strong and stable, not only operationally, but financially. Yeah, for the most part, we still have to finish the lease outside of the funds, but in the funds, certainly.

(27:13) Justin Ford: maybe at one point, we'll offer that, but right now we're just going to distribute cash. Uh, and at one point, we uh once once everything's stabilized, Bob, we may be looking at new acquisition opportunities since there are deals out there, right? Um, in fact, I'll tell you this: the lender who lent us the money for uh Swan and for Monarch, same lender. You know, I actually speak directly with the principals there, and I met him in Miami here, and I met the other guy in Tallahassee, one of the partners.

 I like him a lot, especially the older guy, just because, you know, he and I have the young guy is great, but he, but the older guy and I both been around for 150 years and exchanged stories. So, but the but also one of the things we spoke today, I thanked him for the pushing the loan through because those two loans we just did were not your average loan, right? Because they were permitting us to return loans we had made to these properties.

 To the fund and a little bit to PACs, but mostly to the fund. A lot of investors, a lot of lenders won't do that so much because they think you're really trying to return equity on a property that's not stabilized yet, right? But they knew it was that and that it's a related entity, it's not the same, but it's a different entity. And so these were good loans. We had other people offering to make those loans as well.

 I really appreciate these guys. And one of the things of these relationships, these guys are bridge lenders, so they're used to lending on properties that are in distress that need to be fixed up, right? Right. That's where a bridge loan comes into effect. And they run into guys who are in that position all the time. So they're going to be feeding us deals to look at that may be good deals for us to buy.

 And even more recent vintage, where I want to buy now stuff that has a two in front of it, you know, built in 2000 something, you know.

(29:01) Bob Irish: yeah, and uh yeah, so um you've got you've got a bird dog out there.

(29:08) Justin Ford: A serious one. I mean, a guy gets loops of a lot of deals like this because they lend hundreds of millions of dollars. So yeah, so that I'm looking forward to that. But on the distributions now, it'll be cash.

(29:19) Bob Irish: Gotcha. Okay. So we had an investor ask us a question after our last call. It said he asked if you could elaborate on the details regarding the structures of the REFIs and the reasons you chose those structures. Additionally, can you discuss the criteria for using interest-only financing. So maybe you could give us a brief answer on that.

(29:46) Justin Ford: Sure, that was our friend Brian sent that in. So generally interest only you use on most bridge loans are interest only, right? Because you're not paying your debt from operations. You're paying your debt basically from money you've borrowed or set aside or to because you're using the bridge money to get the property where it is self-sustaining, right? Right. Like Swan right now is close to breaking even, 80 81% lease, 85% pre-lease, it's just barely, it's still a little bit in the red because it's covering your high-interest debt.

 So you only want to pay interest only during bridge things. Now, there's during renovations or lease up, right?

(30:29) UNKNOWN_SPEAKER: Mostly during those types of periods.

(30:31) Justin Ford: Construction, grounded constructions is typically interest only during that period as well. Now, there are some people who will give you interest only on a stabilized property, one that's fully occupied, whatever 95% plus. And we did that at Renaissance. When we at Renaissance, we have a 4% loan for Fannie Mae that we put on probably five years ago, I think. And they give us the offer of interest only for six years.

 And we took it, you know, because, and it paid off because it helped us like times like COVID, you know, when the when the rental collections went down and so forth, a good thing that we'd have to throw in extra money every month to amortization. It helped us during on Renaissance, we have actually a 10% PREF that we pay to investors. It's a fairly high PREF. And we've been paying it since inception.

 So to meet that PREF more comfortably, keeping an interest only made sense for us in that case. But all our other properties are you have are amortizing like the elevate loan we're closing next week. The Ascend loan will be closing at the end of July. There aren't amortization schedules. Typically, they're 30-year schedules. So it's paid down to zero over 30 years. The HUD loan gives you more leeway.

 It gives you a 35-year amortization schedule. So the amortization portion of your payment is not as big.

(33:19) Justin Ford: Sorry, we're back. We had a technical interruption for a moment. But HUD is 35 years amortization. Other ones Greystone are 30 years. Banks, we had a banks loan at Apex 25 years. Long and short of it, interest only typically on construction stuff and very rarely on the permanent stuff.

(33:41) Bob Irish: Well said. Justin, you've been working really, really hard.

(33:47) Justin Ford: Yep.

(33:48) Bob Irish: And I just have to ask you: now that May is done and these refis, a lot of them are in the bag or close to in the bag, what are you going to do? You're going to go on vacation somewhere? Going to take some time off? I want to see you. Get rested up because you've been busting it, man. I appreciate that.

(34:06) Justin Ford: At the end of June, Christopher and I and Christopher's brothers, Amon and Justin, we're all going to be in Ireland. We're going to get together. We do a guy's trip, try to do it every year. So we're spend some time over in Ireland and Dublin and Galway. And I'm going to shoot over to Amsterdam for a couple of days. Never been there. And other than that, my car is nine years old, you know, and the one previous to that I drove it till 330 000 miles so yeah after after the sale of vero and all these I think I might get myself a newer car you're gonna get rid of the alpha no I'm keeping the alpha it's staying there that's my that's my main squeeze but I'm I you know I like convertibles Bob i've had three ragtops in my life and uh we live in florida and it's beautiful half the year and in the evenings it's beautiful so I want to get a ragtop so that's probably do sometime in July.

(34:57) Bob Irish: So that's down the line, Justin. You're going to Ireland, you're getting yourself convertible, you deserve all that stuff. Hey, this has been a great call.

(35:04) Justin Ford: It's good to see you again.

(35:05) Bob Irish: Anything you want to add before we sign off?

(35:08) Justin Ford: No, no, always a pleasure to speak with you, Bob. Thanks so much. Take care, Justin.

(35:12) Bob Irish: See you next month. You too.

(35:15) UNKNOWN_SPEAKER: Okay.