June Update with Justin Ford and Bob Irish

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Pax Properties Monthly Update with Bob Irish - Transcript

 

Bob Irish:  Bob Irish here with our monthly call with Justin Florida packs properties. Today we'll update you on all the standalone investments in Florida. Plus, we'll keep you a breast of the underlying investments in the cap plus diversified income fund. I say it every month. Here we go again. Throughout real estate, booms and busts tax properties has never failed to produce a positive result for investors or Mr. Mortgage payment. With that said, Justin, great to have you back. How are

Justin Ford: I'm doing great, Bob. Thank you. And you know,

Bob Irish: you?

Justin Ford: I'm going to turn off my phone while we talk because uh we are highly sophisticated on the video side, as you know.

Bob Irish: That's a good idea.

Justin Ford: Um it's great to see you,

Bob Irish: It's a good Yeah. Great to see you,

 

Justin Ford: Bob.

Bob Irish: too, Justin. Hey, why don't we uh talk a little bit about Vero? I was very happy to get a very large check uh not too long ago and I'm sure other investors were just as happy. So, let's talk a little bit about

Justin Ford: Yeah, always a bittersweet moment. We love just properties when we've owned a long time.

Bob Irish: that.

Justin Ford: We know the folks and we've been through ups and downs. It's always bittersweet. It's kind of nice. But yeah, we uh we sold it. We made a good return for investors. Uh we delivered an 11% irr  almost 13

Bob Irish: Yeah. Well, that 11% return might not sound great to people who own Nvidia,

Justin Ford: years.

Bob Irish: but uh the reality is that you returned an enormous amount of investor capital early on in that deal. So, and those people in theory could have bought Nvidia with that

Justin Ford: Exactly right.

Bob Irish: money.

Justin Ford: We returned half of investors capital after owning the property just three years.

 

Justin Ford: 10 years ago, then another 25% two years after that.

Bob Irish: Yeah.

Justin Ford: So, so eight years ago. Well, if you count distributions, investors were playing with the house's money probably nine years ago, right? So, they've been playing house ever since.

Bob Irish: Yeah.

Justin Ford: So, you could have redeployed that into other real estate, which a lot of our investors have with us or into the stock market or wherever you want.

Bob Irish: Yeah.

Justin Ford: So, yeah, that that does tell the story. And also, you know, I'm going to tell you this, you know, we dealt with COVID and that help that and the last two years the real market was down. we still produce those kinds of returns and people saw quarterly distributions averaging in the low to mid teens um on the cash invested um you know since

Bob Irish: Yeah.

Justin Ford: basically mostly since the last 10 years. Yeah. So it was it was a great investment.

Bob Irish: Yeah.

Justin Ford: I was very proud of it.

Bob Irish: Yeah.

 

Bob Irish: Great. It was a great investment. I'm very happy to have been part of it.

Justin Ford: Yeah.

Bob Irish: Hey, let's talk about Equis for a minute. Is it still winning all these awards

Justin Ford: at I don't know if that you should mention that we just won the Trip Advisors Top Award,

Bob Irish: and

Justin Ford: the Traveler's Choice Award, and I I think let's see, we closed on that in 2019, I think, or so 20. We finished our 21 we finished renovations, I'd say. We've won it every year we've been open since renovations. So, we've won Trip Advisor's top award at whatever it is, five or six years in a row. Uh we're still usually rated number one in the market. If we're not, it's one or two. Every time I check it's number one. So I just I just really so proud of our team there. That's our last hotel. We've had as many as seven hotels at one point.

Bob Irish: Get

Justin Ford: When CO hit, we had six hotels and we made it through all of it.

 

Justin Ford: Uh that's our last hotel and we just have a wonderful team there.

Bob Irish: out.

Justin Ford: That market is still down a little bit versus uh last year, but we still outperform our comp set and it's not as down as it was. It was down as 50% as much as 50%. You remember that that horse what I call horse co for a while. So that's that seems to be mostly in the rearview mirror and the market's coming back.

Bob Irish: Yeah.

Justin Ford: We're we uh when we did our refi, we returned we got caught up on all prep, right? We had some deferred prep while we're going through the refi. We wanted to hold on to cash and uh so we got caught up on that. So since we've owned it, investors have earned between eight and 10% every quarter cumulatively since then and we returned 43% of their original investment capital. So it's all about returning capital. Um

Bob Irish: Well, I yeah,

Justin Ford: this

Bob Irish: I think that that is kind of the theme uh for this year.

 

Bob Irish: I mean,

Justin Ford: Yeah.

Bob Irish: it's returning investor capital and you're doing we're you're doing it hand over

Justin Ford: Yep.

Bob Irish: fist. Uh, I mean across the board. Let's uh let's talk a little bit, you know, let's talk about Monarch and

Justin Ford: Great. Yeah. So, Monarch, which is the one where we're we basically are finishing construction.

Bob Irish: Swan.

Justin Ford: We kind of finished it, but we ran into this last snafu with electrical. Uh, yeah, I think I said this before. Shakespeare said in one of his plays, kill all the lawyers. Sometimes I say kill all the engineers or the building inspectors or both. But they threw a uh love him, but anyhow, so they threw a curveball at us, but we're still fine. We're already pre-leased there at around 20 22% I believe it is. And but we got to button up the second building. We're waiting for some plans back.

Bob Irish: Okay.

Justin Ford: The engineer did some things. I can't I don't understand.

 

Justin Ford: I don't understand why it takes 10 days to or 10 business days to get a comment back. But okay. But that is moving along. We're that one's going to be probably a fairly fast lease up because we have we have experience in the market. We've been doing the lease up at Swan. We've owned Renaissance for a long time which has been doing great. uh we have experience doing rapid lease up well doing lease up from zero to 100 which we which we're doing at Swan which we'll touch on in a moment and we have a little more bandwidth now that we've sold um we sold Vero our major constructions are done so we're bringing all our experienced team to bear so we think Monarch will be fully leased up by the end of the year and ready for a

Bob Irish: Okay.

Justin Ford: perm refi u in the first quarter and despite the occasional bumps we're still on that track

Bob Irish: Okay.

Justin Ford: so we're very happened with Monarch.

Bob Irish: Excellent.

Justin Ford: Yeah.

 

Bob Irish: and Swan.

Justin Ford: Yeah. So, Swan across the town is another u conversion of hotel to apartments

Bob Irish: Uh

Justin Ford: or two hotels that didn't make out of co were Swan and Monarch. I'll refresh people's memory that Swan, we took it from the lowest rate hotel in the market, number 62 to number one in the market. The mayor thanked us personally, asked us to build there, all that kind of stuff. And then COVID hit, right? too. So, we had put like $11 million into this property and we're about to make all this money and sales went to zero. So,

Bob Irish: Yeah.

Justin Ford: we've been rescuing it. I just want to refresh people's mind on that. And now we are we're the we're best-in-class studio apartments. I think we're probably the best luxury studio apartments in the southeastern United States under 1,500 bucks. Um it's a beautiful property. The rooms are gorgeous. We are now as of today 84% pre-leased. So, uh, we expect by the end of July, perhaps by the time you and I next speak at the end of July,

 

Bob Irish: Wow.

Justin Ford: um, we should be over 90%. And that's and that's really where you start talking to lenders about going to a permanent loan and so forth. So, we're on the cusp of having the Swan stabilized, not just operationally in, you know, with leasing in in the mid 90s, uh, but also soon after that financially, bringing the cost of debt way down from that high-cost bridge to that far more affordable,

Bob Irish: Right.

Justin Ford: more cash flowing permanent debt. So, it's going great.

Bob Irish: Yeah.

Justin Ford: I think I think we're gonna have really good news for you in a month on

Bob Irish: Fantastic.

Justin Ford: Swan.

Bob Irish: Fantastic. Anything to Renaissance is just a boring story every month.

Justin Ford: Yeah.

Bob Irish: I mean, it's like it's high 90s.

Justin Ford: Yeah,

Bob Irish: Things are going great. Anything to

Justin Ford: right. Yeah. Okay. Put your A+ report card on the refrigerator, honey, next to all the other ones. And uh yeah, that's kind of where Renaissance is.

 

Justin Ford: But I will say one thing about Renaissance is we have this wonderful property manager there and the leasing agent, too. And the property management with us probably four years le too supporting Swan and Monarch. So really we have a really good operational team, a good management team and uh so those the two folks there at Renaissance plus even their maintenance folks they have a good maintenance team and those guys come and help us sometimes at Monarch when we're finishing construction punch out things. So they're responsible not only for really good performance at Monarch we're in the we're right now we're about 95% uh but they're also responsible for helping us you know get Swan and uh Monarch to where they need to be. So very happy about uh the team at Renaissance.

Bob Irish: All right, you know what time it is. It's time It's time to go to Oklahoma.

Justin Ford: Let's go. It's okay by me.

Bob Irish: Let's go.

Justin Ford: Yep. So Shall we start in Tulsa?

Bob Irish: Yeah, let's start in Tulsa.

 

Justin Ford: Yep.

Bob Irish: Apex 91

Justin Ford: Apex 91 units and that right there uh we closed that refi.

Bob Irish: units.

Justin Ford: I think it was in February and uh and that refi returned a million dollars to the fund. We're we're holding that until we finish our refies on ascend and elevate which we'll talk about in a moment but that will going back to our theme that will lead to more return to invest of investor

Bob Irish: Right.

Justin Ford: capital and uh yeah it's performing in the uh it was used to perform in the high 80s low 90s now we're much more consistently in the in the mid 90s sometimes high 90s but certainly mid 90s and that's what it's doing. We have lower cost good debt on there. Um and um and it's we're just we think it's just going to be a good property for years to

Bob Irish: Fantastic.

Justin Ford: come.

Bob Irish: Let's go to more Oklahoma and talk about the 146 ascended

Justin Ford: Abs let's jump to elevate first.

Bob Irish: program.

Justin Ford: I like to go sequentially.

 

Justin Ford: We bought Tulsa first, then we bought Oklahoma.

Bob Irish: Okay. Fine.

Justin Ford: Actually, I think you're right. I apologize, Bob. Let's go to more because when we talk about, we'll go to more first because that that refi, we've been applying for a HUD loan. HUD loan is, you know, that's where they really put the stethoscope to and all that kind of stuff.

Bob Irish: Okay.

Justin Ford: It's a major government loan and it's got the best interest rates of all the agency loans typically. It's got the longest amortization uh period where most loans are on 30 years, some are on 25 with banks. This is a 35-year amortization.

Bob Irish: Wow.

Justin Ford: And it also allows you to have um more aggressive debt coverage, meaning you get a higher loan per value. So, we're getting in we got a final approval on our HUD loan. We've been working on this thing for almost eight months now. And um our tentative closing date is mid August.

Bob Irish: Excellent.

Justin Ford: And we were so when you go through a head loan, you have the lender and then you have the he government agency that approves it

 

Justin Ford: So the in-house we received the in-house approval on this probably four months ago. But now we've then they submit a formal package to HUD and HUD now signed off on it. I think it was last week. So and now initially we're expecting somewhere between 14 and 14.4 million loan um at about 4 and a.5%. But of course, over the last six months, interest rates have really dramatically changed that whole picture. So now we're expecting between a 13 and a half and a and a 13.9 million loan at interest rate of about five to five and uh 5.10, I'd say 5.1, but you know, it's still going to be enough to pay off all that debt, bring down increase cash flow by hundreds of thousands of dollars of that one property. And um uh and it may even return a little bit of money to the fund, maybe a couple hundred thousand. It depends on where the interest rate settles. We will lock that interest rate um between now and uh I would say the uh the first the second week of July and we should we should close in in uh in mid to late August.

 

Bob Irish: Okay.

Justin Ford: And once that's closed then then we are then we're ready to start returning uh capital to investors. And uh and we'll talk about that in a moment. But doing that is great. So now our all our all our uh four properties in our portfolio for the fund,

Bob Irish: Right.

Bob Irish: Uh we had talked about that a little last month.

Justin Ford: City.

Bob Irish: How are things going uh with the with a refi and with elevate

Justin Ford: Go ahead. Yeah. So we ran into a curveball there as I told you before. the underwriting at Northmark had some issues with um was some idiotic thing about our global um the secondary debt we took on to bring these properties through which mostly now have all been paid off. So the long and the and the short was um we switched lenders and but Northmark by the way the same one of that issue is the one that's lending us the $14 million on the HUD and more and that there's no problem and we passed an SBA loan and all that but you never know when you reach an under underwriting department what kind of particular views they'll take of a loan but we were staying with them too long.

 

Justin Ford: We should have gone with someone else but in their in their family department. So in any case now we have another loan lined up. We've received a few other offers. One was from the previous lender on our Oklahoma on our Tulsa property um Legacy Bank of Oklahoma. And we have another one called another offer from Midfirst. Uh a good offer from Midfirst in Oklahoma City, a local bank. It's about $ 8.1 million. It'll pay off all the debt. We'll have to come a few hundred out of pocket, a few hundred,000, but we bring the cost of our debt down, but we have a decision to make about that.

Bob Irish: Right.

Justin Ford: Um, yeah, because we got this detour,

Bob Irish: Okay.

Justin Ford: uh, we're going to have to extend our bridge loan a little bit, which is which is not the end of the world. It'll cost us around $30,000 to extend it, basically. Um, so we're going to have to extend the bridge a little bit. Um, but now it's becoming apparent that since we have to extend the bridge, rather than close this loan now and, you know, kick in a couple hundred,000 to close it, take a few hundred,000 with a fund to pay off what we need to pay off, we could close a HUD loan in July with this and instead of kicking in 300, we might be able to get back over a million dollars.

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Justin Ford: So it's going to be about the difference will be probably about a million8 swing of a million8 and that once again will let it will allow us to return a lot more capital. So we're waiting for some confirmation but we think on elevate rather than refi now and have to kick money in we'll be better off to refi in December and return more capital then.

Bob Irish: That makes sense. That makes a little sense.

Justin Ford: Yep. Right. And it won't it won't slow up us returning some money in August anyhow. we still be able to return money in August. We'll just return a chunk.

Bob Irish: Yeah,

Justin Ford: My hope is that depending on how everything shakes out. Again, the as you know, the markets are quite volatile at the moment with the interest rates up and down. But what it looks like is around August, we'll probably distribute anywhere from three quarters worth of um of quarterly distributions to maybe a full year of quarterly distributions. We we'll see how it all shakes out in the end.

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Justin Ford: Um and then we might be able to distribute another couple of quarters worth of distributions uh in December. But start once we start make that initial distribution in August, we expect to make distributions every quarter going forward. Um but it's a question of on on catching up how much we'll catch up. And we think that the right move right now is to to to refire in December and get more money at a lower interest rate and return more capital to

Bob Irish: Yeah. Well,

Justin Ford: investors.

Bob Irish: it's not like you haven't gone down the HUD road before. You guys know that. You know how that works.

Justin Ford: Yeah.

Bob Irish: So, yeah, that makes a lot of sense.

Justin Ford: Right.

Bob Irish: Makes a lot of sense.

Justin Ford: Yep, it does. It does. And that would only leave us with the only property we haven't touched on is our shopping center, which is also in the fund, and that's in Port St. John. And there's another opportunity to add more money to the tilt to return more capital to investors.

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Justin Ford: They've extended yet again, and we made them put up a little money um go hard on like $30,000 at certain point. It's not a lot of money, but we don't have a lot of leverage on this. But this again, this is this is um this is a little bit mana from heaven. We made it happen. But um you know, it's an we're looking we're looking to create unexpected value and we think we think it's going to close because they keep coming out. They just approved with all these their building footprint. Uh all these uh Murphy's wanted 3,000 ft. All these are grinding 2500. They agreed to the 3,000. They just signed another extension. So, we also think that by August, we might get another we might get net another $900,000 back to the fund from selling the out parcel at Port St. John's. So, again, a lot of good things happening. I I wish I wish uh sometimes I wish real estate was more like trading stocks. You could just point and click, but uh patience is required.

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Justin Ford: Things take a little bit longer than we'd like. Uh but all Bob, we are following the theme of returning more capital to investors.

Bob Irish: Right.

Justin Ford: As you know in Ocala we returned all that money in Vero returned the last thing like you said when we refied Monarch we paid over a million dollars of loans again we're on track to this year return I think it is it'll be over $20 million to investors this year including the ascent

Bob Irish: That's fantastic. Well, as I said up top, throughout booms and busts,

Justin Ford: f***.

Bob Irish: past properties has never failed to produce a positive result for investors. And uh this is this is great. I'm sure all investors are going to be very happy to get a return of capital and uh it's turning out to be a very good year in in what is a very difficult environment.

Justin Ford: Yeah. Yeah, it is. Yeah. And I'm and uh we just appreciate our investors so much. You know, they've uh I mean, Bob, you were not only did you invest in Bureau 13 years ago, but you invested with me like in 15 South D Street, which was like an 1100 square foot wood house in Lakew Worth and 500

Bob Irish: I

Justin Ford: South D Street and 131 North L Street.

Bob Irish: remember.

Justin Ford: I remember all these ones or something like that. So, there are investors like you who have been with us again and again and again and we appreciate all of you so much.

Bob Irish: Well, great, Justin. Uh, anything more to add before we sign off?

Justin Ford: Nope. Just uh have a great month.

Bob Irish: Okay, you too. And we'll talk to you next month. Thanks, Justin.

Justin Ford: Thank you, Bob.