August Update with Justin Ford
and Bob Irish

Transcript

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 abreast of the underlying investments in the CAP plus diversified income fund. I say it every month, I'll 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. Justin, with that said, how are you?

UNKNOWN_SPEAKER: Nice to see you. Great to see you, Bob. I'm doing very well. Thank you. Things are going well with us.

Justin Ford: It's just the theme is we're waiting a lot, a little bit of a waiting game, but I'm very happy what's happening overall. And it's good to be coming to the end of summer here.

Bob Irish: Yeah, I know everyone in Florida is looking forward to the end of summer. Why don't we divide the call up into two sections today? Let's talk about things from an operational standpoint first, and then the second part of the call, we can talk about the refis and the waiting game that we're playing on a number of those. Does that make sense?

Justin Ford: That makes great sense. So operationally, we reported last month when we did our call that we were doing well and we're doing even just better. So, we have five stabilized apartment communities and one that's in lease up. So, those five stabilized apartment communities out in Oklahoma, Apex, 91 units, the Tulsa is at 96%, even though we're without a general manager, by the way. So, because a property manager, because he resigned about five weeks ago, I mentioned that.

 

 But we have such good backup and support that we continue to maintain high accuracy and perform well, even while we're. We found a new guy and then he had a family issue and so forth. So for to me, it's a really good sign when you're not just strong at the property level, but you're strong supporting the property when the property goes through key management change or something like that. So Apex is at 96%, Elevate is at 96%, and Ascend is at 98%.

 

 So Oklahoma's, they're just roaring forward. And then we get over to our other apartment communities, Swan, which we recently, last month, we told you about we 90% threshold. Today we're at 97% pre-leased, actually.

Bob Irish: So we're talking straight A's here.

Justin Ford: I know, I know, absolutely, absolutely. And then across town at the Renaissance, our 168-unit traditional garden style community, which we've owned now for a little over nine years. That's at 97%. So just really strong performance across the board. Our one apartment community that is still in Lisa is the Monarch, and that's 35% leased and 38% pre-leased with really good momentum. So that's the operations of the apartments, but I guess we should also talk about the hotel and the retail as well.

 

 Well. And again, even in the different sectors, Equis, you know, anyone could go on TripAdvisor right now, look at the Equisin, click on it, and you'll see it's still rated number one out of 40 hotels in Ocala. And I just looked at the Razed Star report, and the market is still down from last year by about 12 to 15%, depending whether you're looking at one month, three months, a year, et cetera. Yep, we're outperforming our comp set by about 12 to 15%.

 

 But we outperformed last year too. So we're still down relative to last year, even though we're beating our comp set. And again, maintaining excellent customer reviews, which is crucial in the age of social media, of course. And what I realized is a 12% drop on, I think like last year, we're probably like 3.7 million or something like that. And when your revenue drops 10%, 12%, you're basically cutting your revenue by about 400 grand.

 

 And what happens is at that level, all that 400 grand was going to the bottom line because you've already covered all your fixed, all your payroll and everything else. So it has a bigger impact on the bottom line. However, so the you know, on the bottom line, it's down instead of 12%, it's probably down 35%.

UNKNOWN_SPEAKER: But that's okay because we've been in such a strong position for such a long time.

Justin Ford: As you recall, a few months ago, we returned 43% investor capital. We got caught up in all deferred pref. And we resumed paying 10% distributions. And going forward, because we're outperforming, we'll continue to pay 10%, you know, annualized distributions on a quarterly basis. So the Equus is doing really, really well. I'm very proud of our team there.

Bob Irish: Oh, that's great.

Justin Ford: Great. Yeah.

Bob Irish: Well, that's a great report card operationally. Do you want to switch gears and talk a little bit about the refis?

Justin Ford: Yes, we'll do that. Actually, I'll just mention that Port St. John operationally stays at 94% occupied. And then, but we're just waiting to see if we can sell that out parcel and lease up that last space. But that's more of a waiting game. They did extend on that. So, but still 94% we're making, the money we've expected We're trying to see if we can make that almost a million dollar windfall on top of it, which goes right to the fund.

 

 The Port St. John is part of the fund. So we'll know hopefully by next month. We've extended out to about mid-September right now. The issue there is, I'll remind folks, all these restricted Murphy's oil to about 500 square feet of space for the beer and wine that they sell in this basically gas station. And so the issue is, does the aisle square footage count?

UNKNOWN_SPEAKER: All this stuff.

Justin Ford: So this little detail is turning out to be an issue that's dragging us on for quite a while, but we hope to have that resolved by the end of next week. There's a big retail show going on in Orlando, so a lot of the players are kind of involved there. But we're hoping by the end of next week, and we may have good news a month from today. We will let you know. But that's it on the operational front, Bob.

 

 I can talk to you now about the financing.

Bob Irish: Okay, I did have an idea for that space in Fort St. John. I know you've gone through two or three arcades there, but the latest thing are these. Claw machine arcades. I don't know if you've Read about it. Yeah, and they attract a whole different group of people than your typical pinball, you know, weirdo guys. Yes, claw machine arcades. I'll send you something on it, but it's big and they're generating a lot of revenue.

 

 So, anyway, I would look at that.

Justin Ford: I will look if it's anything that doesn't black out their front window for the first part of it, that I think that's a plus. That's what the arcade used to do. But we're not permitting that. But yeah, I'd love to look at it. Very interesting, intriguing.

UNKNOWN_SPEAKER: So, let's talk about the refies. Okay. So, the big one is to send.

Justin Ford: We have two refis pending. You know, we refied Apex, returned, I don't know, six or seven hundred thousand to the fund there. Part of what enabled us to do that. We did a couple of big refis in the two hotel conversions, hotel to apartment conversions in Tallahassee, and that returned money the fund had lent and made good returns on. So we achieved a lot of things, but Ascend is the big one. That's a $14 million refi, 13 and a half to 14, depending on where interest rates end up.

 

 When we finally lock the rate this month, September. That we finally got everything. We're just waiting for a closing date from HUD. And the way they go is once they've checked off that they have everything from the lawyer and this detail on the survey and whatever it is, then they set a 30-day clock. It's possible that they can close before 30 business days, but we got them everything or the team, the legal team and all that about a week and a half ago.

 

 So right now they're thinking it's the first week of October and that right around. That's right around Bob, that we make distributions for the third quarter, anyhow. So we're hoping it'll be maybe the last week of September, very early in October. But by the certainly by the time we talk next, about a month from now, you and I, I'll tell you we just closed on it or we have a closing date within the next seven or 10 days.

 

 That's the goal right there. But moving slow, never at the pace I want, but we're moving ahead.

Bob Irish: Ah, great. Good deal.

Justin Ford: So the second refi is also would be the third of the three refi's in the fund, and that's Elevate in Oklahoma. We'd run into a problem there when shot down for a fanning loan because of some underwriting concerns that we thought were wrong with the balance sheet, global balance sheet. But we told them that's when it's getting paid back. And the next month all paid back. It was all transparent. It's only operating agreement, all stuff.

 

 But when they turned down that loan, then we went to another lender of ours who we've done business with. He had the same, what's called B-buyer, paper buyer. And since he was connected with lender, we didn't realize that created a complication. So the long and the short is we're with a group, a guy who at Walker Dunlop, who I've done a lot of business with when he was at Greystone and another shop that he had his own.

 

 And we're going to a CMBS lender. And that we should have an estimated closing day on that probably in late October, I'm saying. But we're moving ahead there and the property is performing very well. So certainly by Halloween, those will be completely refied and the sand will be closed in early October. So you'll recall we resumed distributions for the fund.

UNKNOWN_SPEAKER: last couple of months ago.

Justin Ford: And in October, we'll make another distribution for the third quarter. How much we'll to catch up will depend on exactly how those loans close and the sale of the out parcel at Port St. John. If we can make that, get that to closing, which I think we will. But in the interim, we're going to resume paying those 7% preferred, just as we did last quarter. Those are the two big refis and right now it's a little bit of a waiting game but we're pushing as much as we can.

 

 

Bob Irish: Sounds great.

UNKNOWN_SPEAKER: Yep.

Justin Ford: We have actually I'll mention one more thing sorry about that. We have one more refi that we're start that we didn't do yet which is the swan has been on a bridge loan you know around 10 and a half percent plus yes cost but because now it's been you know 90 plus for 30 days or so. We are talking to certain of our lenders about starting a bridge to HUD program because the HUD gives us the most money there.

 

 And the bridge would bring down our cost from the current bridge by about three basis points, which on what could be a $13 or $14 million loan is significant. And then move into HUD, which gives us the highest proceeds. Because the goal in these two hotel to apartment conversions that we're basically still saving from COVID is to to pay down the debt and then slowly increase the value and eventually exit and make investors whole on those deals.

 

 We were whacked with COVID, basically just after we launched and brought the property to number one in the market. But so that refi is moving ahead there and we think it's gonna be a great 2027. And right now we're just doing a little. Counter quarter to get these final refunds done.

UNKNOWN_SPEAKER: Great.

Bob Irish: Well, Justin, I think we've covered it all. Anything you want to add before we sign off? No, nothing at all.

Bob Irish: Always great talking to you, Justin. And I look forward to speaking with you next month.

Justin Ford: Thanks. Take care.