May Update with Justin Ford

 - Bob Irish 

Bob Irish here with our monthly call with Justin Ford of Pax Properties. Today, as usual, we're going to update you on all the standalone investments in Florida. And keep you abreast of the underlying investments in the Cap Plus Diversified Income Fund. I say it every month, I'm going to say it again, throughout real estate booms and busts, Pax Properties has never failed to produce a positive result for investors or missed a mortgage payment. With that said, Justin, how are you? Nice to see you. 

 

 - Justin Ford 

 Great to see you, Bob. Thank you.You know, Bob, I got to tell you, I'm not loving the heat right now, and I'm usually not like that, but I  might turn into one of these guys that, you know, during the summer heads up to North Carolina or over to Europe or something. I mean, right now is, uh, my dog's not very happy either.

 

 - Bob Irish 

Now it's, this is, this is the hottest, uh, May that I can remember. I mean, I don't, I don't even feel like going outside. 

 

- Justin Ford 

I do go to the beach every morning early, like around, I don't know, six 30 and I go in that night around seven 30 and Those are great times to go to the ocean, only a mile away from my house.

 

 - Bob Irish 

So I'm getting a little bit of a break. I don't want people to feel too sorry for me. I don't think people are going to feel too sorry. Hey, Justin, I'm kind of remembering last year, our year-end call. There was something you said that I thought was rather prescient. You said, stabilize in 25. We're not even halfway through 25, but I think we're almost there, aren't we?

 

 - Justin Ford 

We are certainly getting there, Bob, very much so. And we're on track to be stabilized fully in 2025 and in many different ways. We've talked about renovations, then you talk about lease up, right? And then you talk about finance, right? Because when you're in renovations, you have high cost of debt, you have bridge debt on it. So you refi after that. So we're looking pretty good. We'll get into the details as we start to go through the properties. But by the fourth quarter, we should be stabilized in 25.

 

 - Bob Irish 

Beautiful. So why don't we start in Vero Beach? What's going on there?

 

 - Justin Ford 

So Vero, we're still at contracts so far so good. We're looking, I think we're about two and a half weeks away from knowing whether they'll get their loan or not. It's contingent on the SBA loan. So far, so good. We've supplied all the docs. And what I like about that is it's our oldest owned property. September, this coming September would have been 13 years we own it. We've done very well. We've delivered good returns over the whole time. We've actually made that property better as we've owned it. The first five or six years we owned it, we renovated everything else, but we never won an award. Now the last five years, we've won the top award four to five years. And we consistently perform well, and we're selling for a good price, and it will free us up as far as our portfolio overall. Last year, we sold Melbourne, so it gives us a little more bandwidth to really continue to do even better on the other properties in the portfolio. But if it doesn't close, we're good because we performed well. But I give our chances better than 50% right now. We'll know by the time we have this call next month.

 

 - Bob Irish 

Okay, good.

 

- Bob Irish 

I'll look forward to hearing about that. Can we go up to Ocala if that works for you?

 

- Justin Ford 

Yep. So Ocala is doing well. It's long been our best performing hotel. I think it's around a million four in NOI. This May, we were always outperforming the previous month. This May, it looks like we're going to do exactly the previous year, same month, previous year. So April beating April of 24, et cetera, which is great because your top and your bottom lines are growing. This May, We're basically gonna do the same we did last May. There's a few reasons for it. One of them is a major baseball tournament is actually moved to June now. So we're gonna pick that up in June. But the really interesting thing is, and then also we lost some local negotiated rates. Those are the local businesses that send their electricians or their salesmen to be with you like during the week, stuff like that. We lost a little bit of that. But the amazing thing is our revenue for just in May, every other month it's been higher. It's actually down from last year, but our NOI is the same. So even though our revenue is down like 18%, our NOI is the same because we've made tremendous strides in becoming much more efficient operators. So, you know, June, I think our numbers are going to be, the top line numbers are going to be much higher. And therefore I think our bottom line numbers are going to be very, very high. So not always perfect in Ocala, but even when it's not good. It's pretty good and it's been a great story overall and I'm really liking how things are going there. 

 

 - Bob Irish 

Super. Let's move over to Tallahassee. Do you want to start with the Swan or the Monarch? 

 

 - Justin Ford 

Let's start with the Monarch because it's a little bit farther away from being done.. So the Monarch, we had some tenants there. We decided to like a ten or something like that. We decided to let them go. They, you know, nice enough people but didn't really fit the profile of the new tenant base that we there's only a few left. And we are, if you walked into the monarch today, if you were not experienced in construction, you might think we were, you know, seven or eight months away from being done. But the truth is we're probably six to eight weeks from being done. I mean, if we get a few favorable tailwinds, because we're doing everything we can so that the minute we dispass it, So we're sort of connecting the power has been the big thing there. But we're doing all the work behind the walls. We're getting past these major inspections that let us button up things except for the final inspection. So right now at Monarch, we have close to zero revenue, of course. But I do think it's quite possible that we could be done with that by the end of July. Start leasing one of those buildings in July, early July. That's the goal. And we like our prospects for leasing up because of what's going on at Swan.

 

 - Bob Irish 

And that's a nice segway to Swan. Right. What's going on there? I know that one building is completely leased up. What's going on with the other three? Right. 

 

 - Justin Ford 

Right. So we have five buildings at Swan. We have a beautiful lobby. And then we have the four residential buildings. We finished the first residential building a couple of months ago. Very soon, we're 100% leased up there, even leased up the model. And then the second building we're working on, and we just kind of got that delivered to us a couple of weeks ago, I'd say. And we moved people in in early May. Probably we moved them in a little early, but we make all these concessions. We tell them it's in construction. So we had to iron out a few kinks. But right now we have eight units leased there. So on a lease basis, we're at 30% occupancy. And on a pre-lease basis, we're at 34%. And we have eight applications pending. And we're going to finish. We're going to totally, totally finish that building probably in the next one or two days. I'm flying up there again tomorrow morning. And the third building is supposed to be a week to 10 days after that, and the fourth building a week to 10 days after that. So the velocity there, the lease of velocity is really strong, the demand is really, really strong as well. I believe we have a good shot of being 90% plus their lease stop sometime in September, maybe even sometime in August. And again, that bodes well for the Monarch, which has really nice product. The Swan, I think, is just better because of the property itself. But Swan is an excellent product. It's across town. So it will serve as a little bit of a different segment of the market. Swan Success is boding well for Monarch as well.

 

 - Bob Irish 

Great. So anything going on at Renaissance we need to know about? Things seem to be on autopilot there.

 

 - Justin Ford 

Yeah, Renaissance always does very well, you know, with the top and the bottom line numbers. And oddly enough, we were probably averaging less part of the last year, sometimes high 80s, sometimes low 90s, right? And now we're more consistently in the mid 90s, 94, 95. The reason the low 90s would even work for us was because we were pushing rent so much and we were good at collections. So even in the 90s, we were getting record revenue, record NOI, but now we're starting to combine that with, you know, typically we budget around a 92 and a half percent occupancy at a property like that. And now we're at 94, 95. So the Renaissance, we like what's going on there. Continue on the path we're on, I may go up for what's called a supplemental loan. We have a first mortgage there of $16.7 million loan with Fannie Mae at 4%, interest only, fixed for another six years. We might be able to have Fannie give us another $2 or $3 million. That would return probably half of investors' capital. We've already returned, I think it's 60% of their capital three years ago, four years ago perhaps. And also we would pay off, some secondary, small amount of secondary debt we have. But we'll know that by the third quarter of this year, but the top and the bottom lines keep growing.

 

- Justin Ford 

So that's the trend we like to see.

 

 - Bob Irish 

Wonderful. Let's go now to Oklahoma.

 

 - Justin Ford 

Oklahoma, we'll start with our longest owned property there, which is Apex. That's mid nineties. It's kind of more the same as what we said last year. That was the one property where we didn't push rents for a while. And that was really, we left it to management and we realized it was an oversight, previous management. And now we're pushing that. So, uh, so the top line started to grow there and the bottom line, um, more so, but that's always been good on occupancy and always pretty good on expenses efficiency. So, so now we're actually pushing rents there. That's the last one where we're a little behind on pushing rents. 

So we think that that property, we're going to refinance that soon. Um, and we'll talk about refines in a moment. I think we have four, maybe five major refis coming up. Wow. Yeah. That property, Bob, when we first finished it, we bought it all cash because we had more cash than we could use in the fund. And then after we finished renovations, we pulled maybe, I can't remember, maybe $4 million out in the form of a loan at around 5.5%. That loan was fixed for three years, I think it was. A couple of months ago, it started to float. So once from 5.5% to a little over 9% today. So we've already been approved probably in the high fives of Fannie or Freddie. We're sitting, we're starting the process, but I'm really waiting to see what happens in the market. You know, bonds have been going up, right? The 10 was going up probably 80 basis points the last two months or something like that. It would be lovely if a bunch of the pending things out there in the macro environment resolved and all of a sudden those started to trend down. We would right now, we're going to refine enough to bring our interest rate back down close to where it was and even pull some cash out to return to the fund. But if we get that little break in rates, we'll put an extra half a million dollars and lower our cost of capital. So we won't be able to lock anything in until about mid-June anyhow. I'm lighting incense every day in the meantime to see if the gods of finance are kind to us. 

 

Bob Irish-

Where do you want to go next?

 

 - Justin Ford 

Let's go to Elevate. That's the one we bought after Apex.

 

 - Justin Ford 

So Elevate is 126 units, finished renovations a little over a year ago, about a year and a half ago, I'd say, and got to 90% a little over a year ago. And that was a property that was averaging also low 90s for a long time. We're now averaging more like high 90s. I think last week was the last update I got on that. We're 96, I think, and 97 or 98 pre-leased. We've been pushing rents there. You can't push them too hard there, but we've been pushing to get an extra $40 to $60 per unit. We're in a really good spot there. We had some roof We'd never replaced the roofs there. We did some roof repairs. We had some strong winds. So we have a couple of roofing guys who are employees of ours, who are maintenance guys and so forth. They work as professional roofers in our life and also with us. So I just sent one of our guys out there to manage the repairs. We saved a lot of money. We probably repaired like 10 roofs, but saved a lot of money in the process. And I think doing a really good job probably for probably for 30% of what a company outside company would charge us. So on the operational side it's looking it's looking very good. We're happy with the way Elevate's going and that's another refi that's coming up. That refi that that mortgage is a bridge loan somewhere around ten and a half or eleven percent and and we are We're going to pay that off. It's due August 10th. We're going to lock in our whatever we are. We're going to pick our course by late June. So about a month from today. And again, we're hoping that interest rates are favorable as well and to come down a bit. But we'll be refinancing that by August.

 

 - Bob Irish 

Yeah. Okay. Okay. Good deal. We've got one more property to talk about..

 

 - Justin Ford 

Yep, that's Ascend.

 

- Bob Irish 

That was the- 146 units as I recall.

 

 - Justin Ford 

Exactly right, well done, well done. Ascend, you know, that was a tough one because when we were doing the renovations, they managed to replace all the balconies and all the patios, so we couldn't lease up apartments, but it actually dropped our occupancy a lot. And also it was during the time that everything went up, rates and insurance, all this kind of stuff and real estate tax there. So that was a very tough one for us. And then we had a problem leasing up. When we started to lease up, we got a spate of bad tenants and we changed the people out there. We changed the strategy. And as I told you last month, we were doing great. We were in mid nineties, I believe I told you last month. And this, this month we're constantly around 98, 99%. Sometimes we'll have one or two units available and our collections are dramatically better. You know, right now, any, we probably have maybe any, at any time, three or four, you know, people we have to work with. Um, but those people stem from before our, our change in, in, um, in management out there and our change in, uh, just, just what we're willing to tolerate to tell you the truth. And, uh, so I think going forward, I think it sends going to be consistently averaging high nineties. And, uh, that's, that's where we have, uh, um, a first mortgage on it. We have an investor first mortgage at 8%. I think it is for a year or 15 months. And if we extend it beyond that, it goes to 10%. So it's a collateralized first mortgage position. That one, we're not in a rush to refire because it's not due until at least a year, maybe a year and a half. But we are looking at the market. We're looking for our spot. If we see rates come down after one or two more months of the performance we've had, we'll be able to get a nice refi there. When we do all these refis together, all these refinance loans, we'll return, we're going to pay off a lot of bank debt and stuff like that, but we'll also return probably, oh, at least 12 to $15 million of investor capital. Wow. Yeah. And this time last year, remember we sold Melbourne, we did some refis. I don't remember if you recall, we returned about $20 million of investor capital last year.

 

- Bob Irish 

You recall, I got a little piece of that.

 

 - Justin Ford 

So yeah, so Ascend thankfully, really, really good. I was out in Oklahoma last, what was it, 10 days ago, maybe two weeks ago. I was speaking in Dallas, then I went to Tulsa, drove from Tulsa, Oklahoma City, Elevate and Ascend. I met our new manager out there. I had only met her online. And her daughter's the leasing agent. Man, what two really great people, just amazing, you know. And we have the right support. We have a really good director of operations working with her. We have some other people, people help lease up out there. So I'm really grateful to our team and Ascend's doing well. And I like our prospects going forward.

 

- Bob Irish 

Fantastic. Let's talk, why don't we finish up on Port Saint John

 

 - Justin Ford 

Port St. John, some more roof issues there. So Port St. John is about 78,540 square feet, I believe. We replaced We have that. So we replaced, uh, I think we replaced 55,000 square feet right over the supermarket a couple of years ago. We used our own roofing company to do it and that's been fine. But also underneath, underneath that top part down by over the doors is what's called a mansard roof, right? That's kind of like the little, uh, you know, angular sloping roof that sheds, sheds the water off the building away from the sidewalk. And that was kind of old and needed some TLC. And, uh, it was kind of a can of worms. We wanted to fix it here and there. So we just went after the whole thing. And we just invested, I don't know what we invested there. I'd have to run $20,000, $30,000. And, and just we repaired a lot of the sheathing underneath, bought one pallet of tiles, one or two, moved some of the tiles around, painted the ones and so forth. It all looks great now. And again, you know, we're, we're vertically construction or home management and so forth. And sometimes I say we're vertically disintegrated. That's a fact. But doing it ourself, I got to tell you, it's probably a third of what we would have paid someone else. And we're going to do just as good a job and maybe better than a few of others would have. So that's good. Aldi's is opening soon. They bought Winn-Dixie and they're now putting up their new sign. I think they're opening next month. We're still working on selling that out parcel. We got the geotechnical results. Now we have to have a conversation with the engineers and figure out what they mean. I mean, actually read it, and it seems that they can do what the possible tenant wants to do. But we have to dig a little bit more into the details. So that would be nice. As I said, that might create $800 to $1 million extra value for us on that center. We just got a new tenant, a UPS franchisee. In one of the little spaces. And we have a few challenges. We have one thrift store that's leaving early. That's OK. We're working out something with them. They were only here till September, anyhow, due. And we have 150, 800 square foot space that we've been trying to lease for a while. And we're working on that. But nonetheless, we're still above 90% occupancy. So it's going well. I still love shopping centers when they operate like this one. Not without its challenges, but doing well overall.

 

- Bob Irish 

Oh, that's great to hear, Justin. Why don't we finish up? Are there any investment opportunities for the folks who are listening right now?

 

 - Justin Ford 

So last year when we did the first mortgage for Ascend, it was 8% collateralized with corporate and personal guarantee. And we filled it just under $10 million of investment. A capital fill that. And we were going to do the same. I sent that one notes, little PSs and so forth on some of our reports, and we got some interest. But I could see after a while that I wasn't sure if the interest was going to be strong enough to get as much money as I wanted, because I want to pay off SWAN, and I want to also pay off some of the secondary debt there, too. And I figured we're so close on SWAN, why don't we just raise up to $1.5 million to help finish Monarch. Swan has a loan on it that pays for it as well. And we'll just raise that low stuff because we may go with Fannie or Freddie Mac loan on Swan in the fourth quarter, the way it's performing right now. So we decided not to raise all that invested capital. Also Ascend, we may pay that off sometime in the fourth quarter as well when we refi that. So that would free up invested if we want to do something with swan. So basically what we've just done is we're raising up to one and a half million and 1% notes to help finish. Um, and basically we just been people on the waiting list kind of reaching out and shooting, shooting an email and a few people step in. Um, we're just kind of, uh, raising that kind of as, as we need it as we're finishing that project. But if we do the first mortgage, it would probably be, um, at the end of this year after we pay off percent right now, just have a few of the 1% notes left.

 

 - Bob Irish 

When you say 1%, you're talking 1% per month, right?

 

-  Justin Ford 

Yes, it's 1% a month. That's correct. 

 

 - Justin Ford 

We're good. We're not that good, Bob. Though back in 2020, you'll remember when we first finished Seven Hills Suites, it was so beautiful. We raised the mortgage for Seven Hills Suites at 4% with one point, I think it was. That's when interest rates were basically zero, remember that? Yeah.

 

- Bob Irish

I remember the good old days.

 

- Justin Ford 

Exactly, yeah.

 

 - Bob Irish

All right, Justin, anything else to add before we sign off? 

 

- Justin Ford 

No, if anyone is interested in those 1% notes, just shoot an email to me and just put 1% a month notes in the subject line, please, and we'll shoot them the docs, they can take a look at it. 

 

 - Bob Irish 

Sounds great, Justin. Always nice talking to you. I'll see you next month.

 

 - Justin Ford 

A great pleasure, Bob. Thank you so much.