August Update with Justin Ford

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Bob Irish: Bob Irish here with our monthly call with Justin Ford of PAX Properties. Today we're going to update you on all the standalone investments in Florida and keep you a breast of the underlying investments in the cap plus diversified income fund. I say it every month, going to say it again. Throughout real estate booms and…busts, Pax properties have never failed to produce a positive result for investors or missed a mortgage payment. With that said, Justin, how are you? It's nice to see you back.

Justin Ford: I'm doing great,…Thank you. How are you?

Bob Irish: I'm doing great, thanks. Justin, as I was thinking about our call today, I was thinking about our call last year about this time. It was the fourth quarter and the theme was stabilized in 25. We're three quarters of the way through 25. I'd like to kind of revisit that theme and…kind of find out where we are versus say where we were a year ago.

Justin Ford: Yea we've made great progress. It's been a struggle in many ways, but basically all across the board, we have made tremendous progress. We're stabilized in all but two properties, and one of them will be stabilized probably sometime in the fourth quarter before the end of the year. and the last one will be on its way to stabilization. And as I mentioned last call, we're also going to be moving on to the last stage of all that, which is besides finishing renovations and leasing up, getting that lower cost permanent debt on it. And so we're working right now, probably around $50 million worth of various refies. So I think to give it some structure, I could go most impactful, but let me do the old fashioned route.

Bob Irish: Yeah.

Justin Ford: I'll start south to north, I'll start with Vero, I think we started to consider selling Vero about last year we had an offer so we went through that fell apart it was a creative offer the guy couldn't come up with the down we had another person make an offer and recently that fell apart about a week ago she had some of the money she had a loan approved but she wanted me to hold a second note and when I looked at the details it was just too hairy but the good news is, as we said, Vero is a property that would be nice to sell. It's. We have a low cost basis on it. We bought this 114 room, 5 acre property for $2.2 million, Bob, back back where you and I were basically in college 13 years ago, and it produces great distributions. Right now we're in the slow season and it's a slow market right now in the Bureau, but the fourth quarter is going to pick up strongly and in the high season we will make a great deal of profits. So we’re fine, again, we're an award winner, so we're in good shape and all this kind of stuff, but we're also getting other offers. I took off the listing from the broker. We're receiving other offers. There's a number of which will sell it, which will be good for our investors. It'll be good for our bandwidth as our portfolio because we're looking at next steps soon. But that's where Vera is. If we go up next, we're going to go to Ocala, right? First of all, let me stop. We let's go to Melbourne because no, last time this time last year, we had already sold Melbourne, right? We bought it for two million. We sold it for 16 million, right?  We put seven million in, but also during the eight years we owned it, we distributed about $4.5 million in distributions as well, right on the top of the $7 million in gains. So that was a big one, but that was just before last year's call. Now we go up to Ocala, which is besides our other remaining operating hotel. It's still a number one in the market but last year it was producing somewhere around a million dollars in profit and this year it hovers between about a million. So we've increased profits more than 25%. That was an already stabilized property but we knew there was an opportunity to streamline operations more so that property is looking really really strong. And we go up north and we go to Renaissance again. Last year was probably producing about $ 1.1 million in profits and now it's 1.25  25 on a trailing 12. But if we take our last three months and we annualize it, it's looking at profits of about 1.5 million. dramatic increases at Ocala and in Renaissance in the NOI of anywhere from 20 to%. some really big moves and Renaissance last year we were pushing rents for a long time and so Renaissance was averaging about 90 point 90 and about 91% occupancy. Right now we're starting to fluctuate between 93 and 96. So while we've maintained higher rents, we're also getting higher occupancies. So we really like the projection for Renaissance going forward. And that's in Tallahassee where we have two other properties and those are the ones that really need stabilization.  for last year. the old 7 suites we turned from the worst rate hotel to the number one rated hotel that was hit by COVID. We're in the midst of converting it to apartments. Today it's fully converted. We're just waiting on our final buy and safety which should be done in about a week to 10 days, but we have our certificate of occupancy. so We're now 61% leased there. And last month, a month ago, we raised rents by $100. So that's 10%. Our rents were a,000 bucks all-inclusive, including the utilities. and in that underwriting, this property was on track to make about $1.1 million. Raising it $100 puts it on track to make around …almost $1.3 million in NOI. and so we raised it last month and I wasn't sure about it. It was on the initiative of the property manager and my director of ops. So I commended them for that initiative, but I was concerned. I was like, be ready to move it back down because we want to get leased up. if it's a choice between a slow lease up and a rapid lease up at a lower price, we're going to go with the rapid lease up. But we were averaging 16 units a month, which is about 10% occupancy a month that we're leasing. We raised rents by  $100 and last month we had 21 move-ins. So we boosted the rent and…We actually had our highest move in a month yet. So that was extremely strong. and now that all the construction is done there, all that crew is now over at our other conversion, the Monarch as the former Baymont, the former, right? and that was hit with a long CO.  So, that had CO and it after CO supposedly left, it stayed around at that one. So, we converted that one. and now we're shooting to have building A ready for lease up by the last week of September. That's where we are. and building B should be a month after that. Even though building A only has about 24 units, I think it is. and building B has 101. Nonetheless, by the time we are done with A, B will be done real very quickly because all the essential work has been done. It's just the final work that needs to be done and a lot of that has to do with final permitting and things like that. So, we do expect by the end of the year, Monarch will not be stabilized, but Monarch will be I'm going to say if we're done,…it's going to be about 40% occupied. And that'll be the only one that's not fully stabilized in 2025. That's the Florida property so far.

Bob Irish: Right. Yeah.

Justin Ford: Then those are And then after that, should we go to the fund?

Bob Irish: Let's go to Oklahoma because there was some stabilization going on there as I recall.

Justin Ford:  So, Tulsa, our 911 unit, that was already stabilized. But we've started to push rents…because we hadn't pushed rents there. and so that has improved and it stays usually in the mid 90s occupancy, 

Bob Irish: You're talking Apex, right?

Justin Ford: Correct. Yeah, the 91 unit Apex in Tulsa. So, that's still about 95%. So, that didn't need to be stabilized so much. It was already stabilized, but we need to push rents and we've been doing that. So we've probably boosted NOI and NOI by probably 15%.

Bob Irish: Nice.

Justin Ford: boosted revenue by seven or 8% so far but Elevate we had just finished construction and we were always hovering around the 90% occupancy elevate and we weren't hitting our budget at NOI we were coming close we weren't hitting it but Elevate now is averaging right now it's at 98% occupancy  look at 99 and we've been averaging the last few months mid 90s or above 95 even and we've pushed rents. So, not only has all the construction been done this time last year it had been done a few months before, but you always have some lingering issues. So, the lingering issues have been resolved. We pushed rents and now we're hitting our budget. NOI are coming, a couple percentage points close to it.

Bob Irish: Got you. Yeah.

Justin Ford: So Elevate is now performing to its potential and… it's in an amazing area with tons of traffic, a lot of big development going on. So, Elevate has gone from being technically stabilized but now reaching its potential. The big stabilization story in our Oklahoma portfolio was Ascend. So, yeah, that's the one where we finished renovations probably right around this time last year and we were leasing up.  No, we finished a little before then. Last year, we were leasing up and we got stuck in the spring going into summer. We got stuck at around 60% occupancy. We progressed early in the year. We got to about 60-65 and then we just stayed there for about 5 months. We'd bring in 10 tenants and we'd have to evict 10 tenants. So, it was just really bad management and it was a big issue. So, we had some great members of our team go out there. We got a new manager.We did a few things and really started to change it up around December. We first hit the 90s in March and now for the last five months in a row, Ascend has beat its budgeted NOI. It's consistently averaging it averages probably over the last five months around 96 97% occupancy.

Bob Irish: Right.

Justin Ford: So that is a dramatic stabilization story, from the mid 60s. Yeah. and that's been a very very big one. and then Port St. John has always been a good performer for us. That's the shopping center in Port St. John, Florida. the fourth property in our fund. And that one was 90 % occupancy. We lost one or two tenants and then we just signed a UPS lease that I was talking about last month. We signed another lease with a bait and tackle shop. We only have one space left.  And since last year, the Windixies became an Aldi's, right? Because Aldi's bought Windixie. And Aldi's is the fastest growing supermarket in the value supermarket space. and Aldi's now has a subtenant, it's kind of a whisper, so don't tell anybody. We think it's Dollar Tree, which is another very big attractor of traffic. We already have great traffic there.So, we think we're going to have success sometime in the next four to six months of finally getting that 5,800, square foot space filled. And that'll add in itself about $100,000 to our NOI. And $100,000 to the NOI is going to increase your value by about a million and a half basically. and we have the opportunity to boost that 5,800 sq ft to 11,000 square feet. If for instance an Ace Hardware comes to us and wants us to expand that space, we can do it. So we're still working on our parcel. We've had a study done by engineering that says basically we can do what we need to do. We have that out to a couple prospective people, but right now that's kind of just humming along. There's nothing imminent there, but it's out there.

Justin Ford: So the long and the short is we have indeed stabilized in 25 again we expect Swan to be fully stabilized by November end of November and…and Monarch to be well on its way in lease up to be 40 to 50% full by the end of the year. So, we've done that and it's exciting because there are some assets we'll sell going forward. and that 2026 will be a new phase for us. We think we're looking at new opportunities right now. We can talk about that a little bit if you like.

Bob Irish: The problem is going to get a theme that's going to be as memorable as stabilizing 25. I mean, new tricks in 26? Let me look at my rhyming dictionary after this call. I'll see if I can come up with something.

Justin Ford: We'll work on that. but it'll be interesting and I think it's going to be interesting to see what happens with the economy. We have the cap strategy where we focus on the things you can control. C cash flow, amortization, positive leverage.  Appreciation is nice to have, but you can't hang your hat on it. That's where you get in trouble. However, the long arc of history is that real estate does go up with inflation. In fact, it outpaces inflation typically by one and a half to 2% a year in the long run. And the other long arc of history tells us that when interest rates do decline, buyers step back into the market. so it's a very interesting point.  Right now our lending activity has picked up all across the board by 40 or 50% in the commercial space. cap rates have actually gone down a little bit which means valuations have actually increased the year and everyone on Wall Street is expecting lower interest rates despite all the drama between the Fed and the administration. But it's going to be very interesting to see if in fact we hit that cycle, we're going to focus on what we can control. But if we hit that cycle, we'll get a little favorable wind, which is not a bad thing to have after COVID and…skyrocketing interest rates and skyrocketing insurance and so forth. We'll take the favorable wind and if we don't get it, we'll still operate the way we do, which is, but keep an eye on the long term and execution. 

Bob Irish: Justin,…it's been a great call. And, anything else to add before we sign off?

Justin Ford: Just that the only thing I would say is we've had folks respond on a wait list. That's the note that they get paid 1% a month monthly payments and… if you still want to jump on that, please do. We still have folks on that list. A couple of them have been issued notes, but we just pull from that list as we need it when we're finishing a renovation, going for that type of thing. it prevents us from doing a large offer for a small amount. but it just gets people lined up if they want to collect very good income. There's an opportunity there. And again, just send an email to me and Chris. Yeah,…

Bob Irish: Yeah, I'm actually on that 1% a month program and…I got to tell you, I love it. Yeah, it's great seeing that check come in every month.

Justin Ford: Absolutely.

Bob Irish: Yeah, I love it. All right, Justin. Always good to talk to. I'll talk to you in a month or so.

Justin Ford: Sounds great, Bob. Thank you very much.