February 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 gonna 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?

 

- Justin Ford 

I'm doing well, Bob. I'm up here in Tallahassee. So I'm sitting right now in our Renaissance apartments. How are you?

 

-Bob Irish

I'm doing great, doing great. Happy to be in Florida when I see the weather around the rest of the country. Sorry for all those people who are out there having to suffer, but it's pretty nice down here right now. Justin, I thought we might start south and go north. Why don't we start off with Vero Beach? Anything new to report there?

 

 - Justin Ford 

Yeah, so we got the PSA, which is a purchase and sale agreement from the potential buyer. We have done some edits and sent them back. I expect we may have an executed purchase agreement probably within a week, I'd say. We've worked out, I think, most of the important details. They're an experienced buyer. It's strategic to them as well. They have people, the family in Vero Beach, they'd love to have a presence there. It's dependent on an SBA loan, but they're the right type of operator for that. So I think we'll get the contract. It's a good number. And again, if for some reason it doesn't close, we're just doing increasingly good business. We're having a very good high season right here, which is February, March. So if for any reason it didn't close, we'll just continue to operate, grow those top and bottom line numbers from here. And I wouldn't be surprised if we shouldn't get a lot of offers that might even be better in the second half of the year. Should interest rates soften if this does not go through. So at Vero, the sale looks slightly probable.

 

-Bob Irish

Hey, good news from Vero Beach. Speaking of good news, let's talk about Equus. That's always a great conversation. Things still going well there?

 

 - Justin Ford 

Yeah, it is. As I said, we had previously come close to a million dollars in NOI, but we ended the year with just over 1.2 million. And we're still getting February's numbers in, but February looks like it's going to be a record February. I think January was better than the previous January also. So that record 1.2 NOI is climbing up into the 1.25 area, and maybe soon 1.3. And again, it's continued to be very highly rated. I think it's still number one. And it goes between one and two a lot. So we really like what's going on at Equus right now.

 

-Bob Irish

Ah, well, more great news from Equus. Let's talk about the two pivots. Let's talk about Monarch. Let's talk about Swan. What's going on there? 

 

- Justin Ford 

Yeah, so I've been up here for the last, I come up every week for two to three days, depending on my schedule, but full days. And we've been making a lot of progress there as far as addressing major bottlenecks and a lot of technical stuff. Like in Monarch yesterday, we were working on running the electric lines into the rooms and all this, we had a structural engineer and we had to cut all this concrete and do all this reinforcement with angle irons, all this kind of stuff. And finally we said, well, why don't we just go up instead of go across, go all the way up to the attic again and see if we can come down. The plans kept on changing. Because of the electrical mechanical engineer inspector and so forth. But now I think we're going to save a lot of time and money with that. The city just brought in the power pole for the new transformer for the front building. So nothing goes as quickly as we want over there, but it's going quicker than it ever has now because we're addressing some of the major issues. And we are significantly under budget there as far as money we spent. We're over budget in time, And time is definitely money in a property that's not producing income to pay for itself. But we're under budget in actual costs. And we're set up so that once we get that transformer connected, we now expect that building A, we're shooting to have it ready in about a month. And then parts of B about a month after that, then another month and so forth. So the overall completion goal, Monarch, is about four months from today right now. But we've just made real progress in some big hurdles and on an out-of-pocket basis, we're significantly under budget. So some promising news there. 

 

-Bob Irish

Well, that's great. So let's talk about Swan for a minute. 

 

- Justin Ford 

Yeah. So Swan, actually, we're farther ahead there. We have four residential buildings there. We just got the first building, A, or number one. It's now called number one because the post office, they have to have numbers instead of letters. So that first building, we've passed all the electric, all the final, and actually tenants, we have about 32, maybe 33 tenants who were previously living in the rooms that didn't have the kitchens. They are now moving into A. They're moving actually today and tomorrow. They should be all into A by Monday. So we'll have maybe five units left to rent in that building. And that means the B, the building the tenants were in, will now be ready and completely do all the framing and all the electrical and plumbing. And we expect that to go very quickly because three and four, those buildings, all the kitchens are already in there, all the plumbing's in, everything else. We still have to hook up the main electrical panels to those. Our primary electrician's coming in Monday for a week. His journeyman is running the job here. And we're gonna be doing the big connections of those main electric service to each of those two buildings. So the goal is to have building number three ready two weeks from this Monday and building number four two weeks after that. If we even come close to that, that'll be really, really positive because we'll have finally inventory to rent. And we have a lot of strong demand. That was always a beautiful property that we created. But again, after COVID, we got hit hard, we got launched. But since we gated that community, the feel of it is just so much better and people just love that. We have an amazing pool area and a pergola area and an incredible lobby right around Port Chauvin looking, nine sloping acres. But the gates make a big, big difference. As a matter of fact, to talk about Monarch for a minute, we're going to spend about $60,000 there gating that. Figure out how to do that. That was one of the things when I came up here and I walked it again, finally I just came up with this idea. And boom, we have a great way to gate that entire community that doesn't look weird because the way it was before, our initial way of trying to gate it, I'm not gonna go into too much of the details, but it would have made it look like almost a prison with gates and doors everywhere and so forth. So basically just moving the gate way back from the building on one side of the property creates this, it's been a really, really be really powerful. So, but we, our goal is to finish SWAN within two to two and a half months. And I think that's really doable, but that's where we are with SWAN right now.

 

-Bob Irish 

Well, our last call, the news was good from Renaissance. That's where you're at right now. Any big changes there? No, no big changes.

 

- Justin Ford 

There's some fluctuations right now. We're at 91% occupancy. We're pre-leased at 92%. And, but, you know, one of the major things is our manager really has built just a really great community here. And so, you know, we get high collections, you know, the very, very few delinquencies and only the very occasional case where you have to resort to an eviction. And she's pushed rents, you know, really, really, really strongly and consistently. So it's doing very, very well. And also, by the way, at Renaissance, we also installed a gate here about about three or four months ago, right? The tenants love it, you know, so there's drive gates and all this kind of thing. And I never used to believe in gated communities, you know, coming from a certain background where like, but I tell you, it just, it makes a real difference, especially when you're transitioning properties or you're in neighborhoods where, these neighborhoods are actually good, but there's still some, you know, some elements that can wander in and out of the property. And so we put gates here as well and just makes this already a really nice environment, actually that much nicer for everyone. So Renaissance continues to do well. Oh, that's great.

 

-Bob Irish

Hey, let's go to Oklahoma. Let's talk about Ascend. We've got 146 units there. What's the story? Well, that's probably the best news of the call today in that, you know, we were stuck at 70% for a while.

 

 - Justin Ford 

We brought people in and we had a bad batch. We had to evict a lot. So it kept us at 70% for a while. And then we but all of a sudden we moved up. Last we spoke, I think we were in the low 70s. Now we're at 83 economic occupancy, but we have nine people moving in this weekend and four by the middle of March. So we are 92% pre-leased. So we're at 83% leased and 92% pre-leased. So that's really, really powerful. And when I've looked to talk to other people and their lease-ups, depending on how big the community is, The year for lease up is not unusual when you start from such a low base. So we could have done better if we didn't run into that three or four month bad patch where we had to cleanse a lot of the irresponsible tenants. But yeah, so I think by the time March rolls around, we'll be about one year. And if we keep going at the pace we're going, which I think we will, we have one of our core guys from here, we've sent them out there for about three or four months. Manager there who's really working out well. Yeah. I think we could be mid nineties by the time you and I have our next phone call. So really good news there to send as far as, you know, getting that lease up strong. Um, the refinance will be, uh, you know, we have, we have time. We just put a first mortgage on it with our investors. Um, but the refinance there, we're really hoping for rates to come down a little bit to help us maximize the amount of, uh, uh, leverage we can put on and pay off the higher cost debt. But I'm really, really excited about the lease up and the management we have out there. So the best news we've had from Ascend in a very long time.

 

-Bob Irish

That is terrific news from Ascend. For Ascend, let's switch gears.

 

 - Justin Ford 

Let's talk a little bit about Apex. Okay. Apex is consistently, it's a good consistent performer. It's the smallest property in our portfolio, just 91 units, but occupancy is around, I think it's 93 or 94%. Collections are good. The property's well-maintained. We're trying to push rents a little bit there. We haven't pushed rents there as much as we have in other places. So we're trying to, you know, you can only do what the market will bear, but at our renewals, we'll do a little bit more. And that's really the story there. That's always performed well. We're just trying to move it from like a consistent B plus to see if we can score a couple of As and every now and then an A plus.

 

-Bob Irish

Hey, let's talk about Elevate. Elevate, also good.

 

 - Justin Ford 

Elevate's 93% to 94% also occupied. They had a little collections problem during the past year, not nearly like Ascend had, but that's really trimmed down. We've been working with people on that. You talk about standards. They expect us to cut the lawn and fix this or that, and we expect them to pay by the fifth of the month. And when they don't, we're going to work with them, be courteous and polite and all that kind of stuff. But you have to be on top of that. It's really about setting standards, because when you don't set standards, some of your tenants will say, oh, you know what? I think I'll buy that jacket instead of paying my rent this month, because they didn't ask for it enough last month. So it's not high on my priority list. We want it to be, as far as the regular bills, at the very top, putting a roof over your head is important. And we need that money. And we need that money to pay the taxes and the insurance and the payroll and all that good stuff. So yeah, so Elevate's another one where we're trying to push rents. So we're listening to the market there. So not, I mean, here in Renaissance, the manager's done amazingly, but over there, we're making incremental progress. And the area is just outstanding, that location. That we have. And there's a big development going on, a brand new modern development that's going to really even boost the area more. There's a tremendous amount of traffic by there. So we like to elevate and elevate. We have to refine by August. So we're starting to have conversations, because that's when our bridge loan comes up. We're starting to have conversations with perm lenders, and we'll probably be at application there sometime late April at the latest, I would say.

 

-Bob Irish 

Okay, good. Hey, let's go back to Florida. Let's talk about Port St. John 

 

 - Justin Ford 

Yeah, so yeah, that one's been, it's kind of been a real learning experience. We were able to carve out that little out-parcel. We have two people making offers on it. Murphy's Oil and Modwash, a chain of car washes. And in a good little area that we think we might pull a million dollars  out of, in a way that won't affect the rest of the center, because the rest of the center will still be 9.1 acres. And the buyer is still buying the income from the center, which will be the same. So we just created that extra value. All these is renovating right now. So they'll be open soon. We don't know who their subtenant is going to be. I think we think it's going to be Dollar Tree. We think it might be Dollar Tree there, which is fine. We're still looking at renting out that 5,800 unit next door that we had an engineering study telling us we could bump it to 10,000. We're right now a backup for Ace Hardware. It's less than a 50% chance that will happen, but because we did that work again, we're appealing to other types of regional national chains that can use more space. Yeah, promising things going on at Port St. John, and people contact us all the time about buying that. We have good income. We've increased the income. We've increased the value and we still have good debt. We probably have four years left on that. I think at four and three eighths or something like that, four and a half percent. We're doing well there and we'll just see what materializes going forward once Aldi's opens up. I think it's going to be a really, really powerful center.

 

-Bob Irish

When Aldi's is doing this renovation, is Winn-Dixie still open? 

 

- Justin Ford 

No, no, no. So they shut down, they shut down Winn-Dixie. Okay. Yeah. But they have to pay, you know, they have to pay their rent and all that. Yeah. So, and all these, by the way, didn't convert. They bought a bunch of Winn-Dixie's and then there's a piece in the news recently that they sold off a bunch of the Winn-Dixie's. But the ones that they're converting to all those, of course, they're keeping. We already signed the deal with them and they're in the middle of doing that actual conversion.

 

-Bob Irish

Okay. Gotcha. Hey, last time we were on the call, that there was still a little bit of, there was still an opportunity to get in to the mortgage. And so is that still a possibility or? Well, so we filled the mortgage a while ago.

 

 - Justin Ford 

The last loan we had was an unsecured but guaranteed promissory note at 1% a month. And that was to support the renovations at Monarch. And that one did sell out just after our last call. So we have nothing on offer right now. I will say in the future, as we go to these refis, since we have a lot of our capital committed right now, we may raise a million and a half dollars or something like that just for a short period. Again, it'd be a one-year note just to have the liquidity needed to close on the new loan. That could be something that comes up in the next two or three months. But right now, we're completely sold out of the previous offer.

 

-Bob Irish

Well, that's great, Justin. Always a pleasure talking to you. Anything you'd like to add before we sign off? 

 

 - Justin Ford 

Nope. Just have a great March.

 

-Bob Irish 

Okay. You too, Justin.

 

 - Justin Ford 

Good to see you. Take care.