March Update with Justin Ford

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UPDATE FOR MARCH 

-Bob Irish

Bob Irish here with our monthly call with Justin Ford of Pax Properties. Today, as we usually do, we're going to update you on all the standalone investments in Florida and also keep you abreast of what's going on in the underlying investments in the Cap Plus Diversified Income Fund. I say it every month, but it's important, especially in the markets we're in right now, And for our more recent investors, throughout real estate booms and busts, Pax Properties has never failed to produce a positive result for investors or missed a mortgage payment. Justin, with that said, how are you?

- Justin Ford 

I'm doing great, Bob. I'm sitting on the porch of our former Seven Hills Suites, now the Swan Luxury Studio Apartments. And you can see over my shoulder here, beautiful pool area and fire in the Pergola area over there. And when we get to this, I'll tell you about the progress we're making here, but we also have nice weather, which in Tallahassee is touch and go. So we're doing our talk here from the porch today.

-Bob Irish

Oh, that's great. That's great. Boots on the ground in Tallahassee. Hey, let's cover the standalone investments in Florida first. Let's talk a little bit about Vero Beach, what's going on there.

- Justin Ford 

So Vero, as you know, So, we had an offer, which was a good offer. And so, we received a contract, we marked it, and we sent it back to them. And they took about a month to get back to us, basically with no changes. So, they were, I think, buying time. They're going for what's called a SBA loan. We liked the buyer, we liked the offer. But since that time, the results we're getting at Vero are really dramatically improving. It was a very difficult year for Vero. Vero's performed beautifully for, I mean, very well for 12 years, just about. We've averaged distributions there in the mid-teens, cash on cash. But last year was a very tough year in the hospitality market. All the hotels went down significantly. And we started to really come back in December, January, February. So while she's waiting, I'm getting my new financials. And we're starting to get a few phone calls from a few other people. So now we told them, you're going to have to sit on that PSA for a little while. We're going to decide if we want to just continue to operate and listen to some other folks. But all in all, it's quite good. Again, rebounding performance in the market overall. We're a TripAdvisor top award winner again in 2024. I think we'll win it again in 2025. And we have a good offer that we're ready to sign. And we're going to wait and look at a couple more offers that we think may come in that may be better yet. So we're pleased where we stand right now with our oldest held property, which we bought in September of 2013.

-Bob Irish

Wow. That's great news on Vero. It's always nice to have a little competition for the, yeah, good deal. Hey, let's, let's move up to Ocala, Equus, another fabulous place. Yeah.

- Justin Ford 

Equus again, I think it's still rated number one in the market. Depends, sometimes one, sometimes two. And when last we spoke, I told you that, you know, Equus was a top performer for us. It was making almost a million dollars a year in profit. And then, but we knew it could do better. And finally it broke through at the end of 2024 and made just over 1.2 million. So big jump. And I just got my February financials and our T12 is over 1.3 million. And then I just got our forecast for March. And we think our T12 at the end of March is going to be around $1.34 million, another $40,000. So really strong growth. It's a great market. It's a beautiful property. Our team, we renovated it really well. We have really good seasoned management there. And they finally really learned to keep their expenses in line with help from our director of operations. So yeah, really, really like what's going on in Ocala. And we think the market's gonna remain strong there for quite a while, so we expect we may continue to do quite well for quite a while.

-Bob Irish

Well, I love the trend line. I love the trend line. Let's go to Tallahassee and talk about the Monarch.

- Justin Ford 

So, the Monarch is, we have started to make dramatic improvements in construction there. Now, our goal is to finish that in two months. Shakespeare said, I think he might've said kill all the lawyers, also should've said kill all the engineers. We have one or two that hold us up with the simplest mistakes, like wrong address, things are kicked back sometimes. But we've been moving every single way possible. I've been up here now eight weeks straight, sometimes three days, sometimes four days. Right now I'm on an eight day stretch and then I'll be back up again. And we're really moving. On Monarch, I will say, and we'll cover this when we talk about Swan in a moment, the rental market is strong and there's a lot of good developments that can talk about the rental market once we talk a little bit about Swan.

-Bob Irish

Okay, let's talk about Swan, where you are at right now.

- Justin Ford 

Exactly, you picked up on my segway, thank you. So, Swan has four residential buildings, each building has 40 units, over here is the first building, we used to be called building A, and now it's called building one because the post office required that. And we finished that a few weeks ago, and now it has 40 units, 39 are rented out. And the one that's not rented out is just the model unit. And that, by the way, is where I sleep when I come up here right now. So I have to get up early anyhow, but I gotta be up by 9 a.m. With all my stuff and I make the bed and everything else so they can show the unit. Pretty soon we'll have electricity in the other buildings. I'll be staying in building three. When I come back up here after I leave next week, I'll be back the week after that. So that filled up right at our rents. It's very strong demand and we'll be starting to lease up three we expect by the end of next week. The electrician, we just had some big electrical work that we brought in the city, put in a transformer. We ran new power, put in all new main electrical boxes, new risers. All this sort of heavy construction stuff, new meters and all this kind of stuff. They're not individually metered, it's metered for the new building. But long story short, I believe building three is going to be like building A, perhaps in four to six weeks, it'll be 39 or 40 of those units will be rented. 

The demand is looking really, really strong here. And then after we go to one and three, four is the one that's ready after that. And then number Number two is the last one. And number two, we're making lightning progress. Three and four are basically ready to rent. It's just the final electrical stuff. And those will be done in one week and two weeks respectively. But the demand is there that we are releasing as we go, as soon as we have a property building ready, we're leasing. And we know that we're actually a bit under market. I really have, I'm highly confident. I'm usually very conservative on my rental projections. That we'll get a hundred dollars more within a year on those units. And that's, you know, $16,000 more a year. And it's almost a hundred, call it $200,000 more a year. That goes basically straight to your bottom line. You know, and if you're working on what's called a six cap rate, you know, that's another $3 million in value. We think that that's really where the market is because no one right now is renting at what we are, which is $795. Plus 195 for the utilities, which makes it at, you know, $990 all in. And also, Bob, I have one of my associates working hard on applying for what's called affordable housing, different sort of tax breaks. One's with the Bond Authority of Leon County, City of Tallahassee, another's with the Florida Housing Finance Corporation. And these things could reduce our taxes here. And we'll talk more about how taxes have soared too. And they could reduce also the way that when eventually we sell this property, we could pass that benefit on to the next buyer, which will increase the amount that a buyer is willing to pay. Yeah, so we've already filed some applications.

 I have a call with the bond authority this Monday. And when you look at what are called the income chart limits for this type of affordable housing, it keeps going up. Our base rent's 800 right now. To people making 80% of the area median income, a rent of like 950, a base rent for a studio. So, we have so much room still to move. And we're also going to apply for that of all things at Renaissance, our well-established property over here. We'll talk about that in a moment. And by the way, one last thing I'll say is affordable doesn't mean subsidized. It just means another term is naturally occurring affordable. We have one of our tenants here is like a pharmaceutical rep, you know, people associated with the university. So it's not a section eight or subsize anyway, it's just naturally occurring. Another term for that is workforce housing, that type of thing. So, yeah, the concept is really being proved right now and we just can't wait to deliver more inventory and we expect to have 40 more units next week and 40 more after that, the week after that.

- robertirish 

Well, building one certainly bodes well for the rest of Swan, that's for sure. Hey, let's go across the street. Let's talk about Renaissance, 

- Justin Ford 

Sure, so Renaissance, 168 unit apartment building, which we bought in mid-2017, finished renovations late 2019.. 

 That also hit a record NOI in 2024 of $1.2 million.   We just got February financials, and now we're over 1.25 million. So we picked up another 50,000. And the projections for March are like Ocala. We think we may approach 1.3 million there. So we just created a really great product. And at both, you know, at Ocala and at Renaissance, we have really good managers and they've improved as they've gone along. So, Renaissance is doing well. And Renaissance, even though our manager there has really pushed rents, when we first bought that property, it was a real total dive. It was in really bad shape. But the one bedrooms are like $550 or something. Our smallest one bedrooms right now go for $1,045. And yet, they still fall into a matrix of affordable one bedrooms. So we're actually gonna apply for the same tax abatements there that we're applying for at Monarch and Swan, because one bedrooms, two bedrooms, three bedrooms have higher limits, of course, in which you can qualify for these things. So we're really pleased with the performance and we're optimistic that we may also be able to reduce expenses in a medium in a meaningful way on the tax front. We'll know that soon.

- robertirish 

Great. Hey, let's go to Oklahoma. But before we go through the individual properties, you and I were talking earlier. I know that there've been some challenges, some macro issues with these properties. Why don't you talk a little bit about that before we get into the individual properties?

- Justin Ford 

Yep, sure. So as I mentioned, we've faced four major headwinds. Right? Interest rates have doubled, which was okay for Apex. We locked in a low interest rate. We locked in a low interest rate at Port St. John, but Elevate was a renovation. And so was Ascend, a major renovation. So we had to use what's called bridge capital. You can't lock in. Bridge capital is very expensive. At Elevate, it's about 11 and a half percent. And at Swan, it was close to that as well. I'm sorry, at Ascend, it was close to that as well. But then we refinanced with investor capital at about 8%. So, interest rates doubled since we basically started those projects. 

Insurance, just crazy. In some of our properties, it's basically tripled in four years and doubled in a couple. I'll tell you that insurance, for instance, at Port St. John used to be $67,000 a year, 68, and now it's 161k. So, it's sort of- The market in Florida, there are very few carriers in certain parts that you kind of have to be a taker of whatever they'll give you. But we're working on cutting that back. We've already started to cut it back on a few of our properties. We've also started to work with a new broker in a very specific way that allows us to see if we can really, really cut down on our insurance in a strategic way. We've tried this before, insurance is a convoluted sort of protected market. If you have an insurance agent, another insurance agent is blocked from quoting a lot of the carriers. The one agent goes and blocks all the carriers, and then you have to do all this back and forth. And so we finally figured a way where we believe we may be able to circumvent a little bit that process and start to really bring our insurance back down, not to the 68,000 it was, but bringing it down 30 to 40% on a lot of these properties, that's our goal. So that's a real challenge. At the same time, some governments, no good deed goes unpunished. We'll talk about real estate taxes. 

Elevate, when we bought it, real estate taxes were around 60,000 a year, and now it's only gone up to 73. That's a 20% increase. But Ascend, we also renovated a lot, and we have this being appealed. They raised our taxes from about $56,000 to $155,000. They basically punished us for taking this horrible property, renovating and making it nice, and they slapped on another $100,000 bill a year. All our properties have seen increased taxes, increased insurance, increased interest rates, and then of course, your general inflation and your labor and your cost of materials. We'll talk about property level. We're performing well and we're making it through. But this is a very challenging environment. It's because of this, until we refinance both elevate, bring down that interest rate and pay off that high level debt and ascend, we are holding off on investor distributions in the fund. And that's gonna be probably the end of this year, maybe the first quarter of next year. But all those returns are deferred. When the day comes and we start distributing, when the day comes we sell, all those returns must be caught up of PAX shares in a single dollar of any potential profit at all. So we're highly motivated to continue to do that. But yeah, it's been a four horsemen market, all marching against this, you know, taxes, interest rate, insurance, and general inflation, but we're gonna make it through. And we're now, as we'll talk about the individual properties, we'll talk about our refinance prospects in the next few months.

-Bob Irish

Well, let's start with the good news for Ascend. What's going on here?

- Justin Ford 

So Ascend, we really worked at getting that leased up after we initially had a lot of bad tenants came in that were only hosting physical occupancy and not economics. So we cleaned house, changed management, sent one of our guys out there for four months and brought it up. And now we're at 94% occupancy. 94%? 94%. Wow. Yes. So now we're at the numbers we need to be where we can start talking to insurers. I mean, I'm sorry, to lenders. I would love it if interest rates didn't keep up where they are, but we'll see. We'll know in the next two or three months where we're going to be. But even if we went in today's market, we'll bring that rate down from about at least 8% to 6%. In a $9 or $10 million loan, that's meaningful. But if we could bring it down to five and a quarter, which is where rates were heading, say, back in November, that would be even. But we have the performance now, we have good management, we have good collections. So we're really, really happy that Ascend is finally performing the way it should.

-Bob Irish

Well, that's great news, Justin. Let's talk about the 91 doors at Apex. 

- Justin Ford 

So Apex has always been a performer in the mid-90s and it remains so. And on that property, because we bought it, it was our first acquisition, and the renovation was lighter, we moved more quickly. We have an interest rate there under 5%. For another, I think it's almost two years. So that property is performing well. Again, it's also seen its taxes doubled for some reason, but again, we're gonna appeal that, see if we can bring it down a bit. We generally appeal as a matter of course every year, but we're appealing some of these specifically, very specifically. But again, it's in the mid 90s, it's performing well, it controls its budget well, so Apex is doing well and we like the Tulsa market. Long-term.

-Bob Irish

Let's shift gears and talk about Elevate. Elevate's right up there with Ascend and the others.

- Justin Ford 

It's about 94% to 95% economic occupancy. And we're starting to talk to a lender. We worked a lot with a group called Northmark. We're going to talk about Fannie and Freddie. And we're going to be giving them our March financials in about two weeks. And with those March financials, we're going to sit down and we're going to probably start the application process for refinancing Elevate and we're gonna shoot the close of the loan on that sometime around between July and September. Okay, good deal.

-Bob Irish

All right, let's talk a little bit about Port St. John. So Port St.

- Justin Ford 

John, you know, when I was talking about the Shakespeare quote, maybe kill all the engineers, different type of engineers over there, don't wanna kill the great guys, but they did frustrate me. So over here, there's an electrical engineer, that's been a little frustrated. Over there, the civil engineers gave us plans, which we started to market, it's conceptual. And then they said, oops, that doesn't work. And then they gave us another, which made it more expensive and maybe more expensive to accommodate. I'm gonna recap a little bit what the situation, it's an out parcel that we're trying to make developable by reconfiguring how the stormwater is retained and drains off. And so the first concept, great. The second concept was more expensive, maybe almost made it unmarketable. Then they met with the city and the city said, gave it another concept that said that the other two won't work. So, they should have met with the city a long time ago is my position, but they have their own reasons why. But long story short, we do have a major car wash chain still interested. We sat down with them and with the engineers. Now we're doing a geotechnical boring to check the water level and the soil and to see what the prospective costs of developing this land would be. And that would affect the cost that this major car wash chain will offer to us. At the same time, we have another major sort of gas station chain also interested in making an offer. So that's still alive, but it's gone through a few back and forths, but we like that. Meanwhile, again, And the thing there is we may be able to sell that and make an extra 800 to a million dollars without impacting the value of the rest of the center at all, right? And the rest of the center is doing very, very well. Aldi's has begun the renovations. I think their schedule is to open in a month or two under the new Aldi's and they're still paying their lease in the meantime. We have one of our small bays, we have a UPS franchise willing to take that up, which we're that will only leave us with one bay that we still have to lease. And we have some interest in that, but no LOIs yet, letters of intent. But overall, Port St. John is doing well.

-Bob Irish

Well, that's a great report, Justin. And thank you for addressing some of the challenges in making those distributions in the fund, because I know a number of investors have been asking about that to maybe starting those sometime next year, which would be great. Anything else to add before we sign off here?

- Justin Ford 

Yes, Bob, we probably have what is the last investment offering for Pax for 2025. It's another high-yield first mortgage note.  We did one like this back in June July with the Ascend Apartments that was during lease up. Today we’re at 97% economic occupancy, actually a little higher than when I talked about earlier today. I thought we were at 94 but we are at 97% right now. Ascend we filled that and because we're at see now will probably pay a send off and 3 to 4 months with a Fanny or Freddy note so we have a different note coming up now and that's for the Swan luxury studio Apartments, where I am today, 160 units multiple award-winning hotel that's now best in class luxury studio Apartments, gated community, best in class finishes, amazing amenities. This note will pay 8% the first year it's extendable to a second year for 10% payments in the second year. It has a minimum six-months guaranteed interest so if we have to pay off quickly because we could lease up in these 2 to 3 months here if we paid off quickly, still get a minimal six months interest. It's low to moderate leverage 65 to 70%. It has corporate and personal guarantees Pax properties, Swan the borrowing entity the property itself, and myself, Justin Ford and Pax Properties as well and of course it's back by a first mortgage so it's a very attractive investment and if you would like to participate, please email me at Justin@paxproperties.com and copy my son Chris at Chris@paxproperties.com. In the subject line just type High Yield first mortgage investment and I will get right back to you with the agreement, the note offering , and the subscription document you can review it and if you're interested we will reserve your spot. We should fund as early as May 1st. We look forward to putting that together, Bob 

-Bob Irish

Okay, sounds great. Justin, thanks for spending time with us and continue to enjoy your time in Tallahassee at the beautiful Swan.

- Justin Ford 

Thank you, Bob. Always a pleasure.

PS: 

Make 8% to 10% a Year Secured by a 1st Mortgage 

On an Award-Winning Property Backed by Personal & Corporate Guarantees

In July Pax investors put nearly $10 million into a high-yield first mortgage for our Ascend Apartments in Moore, OK. Today, Ascend is at 97% occupancy and the mortgage should be paid off within three months. 

Yet while that opportunity no longer exists, we have a new high-yield opportunity that may be an ideal alternative to the rocky financial markets in 2025.

The property this time is Pax's brand-new Swan Luxury Studio Apartments in Tallahassee, Florida's state capitol and home to two major universities.   To get an idea of the quality of these new residences, I encourage to visit www.swantally.com.  

Renovations are complete on nearly half the property and will be complete entirely this month. At the same time, all the units so far completed are already leased out at our full pro forma rents or above.  And we have a waiting list for the next units to come online next week.

Investment highlights include:

· 8% to 10% Yields

· Monthly Payments

· Six Months Guaranteed Minimum Earned Interest

· Collateralized, 1st Mortgage Position

· Moderate Leverage (Maximum 70% Loan to Value)

· Secured by Our Newest Renovated Apartment Community in a Growing Market

· Corporate and Personal Guarantees

· Backed by Pax Properties' Perfect Payment Record for Over 23 Years

· Investment Minimums of $100,000

· Accredited investors Only--First Come First Serve

· Once the loan is paid off, the ability for you to invest in our next equity offering for The CAP Plus Diversified Income Fund

If high yields with moderate risk appeal to you, I invite you to find out more.  Please send an email to me at justin@paxproperties.com with the subject line “High-Yield First Mortgage Paying 8% to 10%.” Please copy my son Chris at chris@paxproperties.com.

We’ll email you the investment summary, subscription document and operating agreement.  Should you care to invest, please let us know at your earliest convenience so we can hold your spot.  Over a dozen of our debt and equity offerings have sold out.

I look forward to the prospect of investing successfully with you in this first-mortgage note, backed by myself, Pax Properties, and the new Swan Luxury Studio Apartments.  – JF