June Update with Justin Ford

Bob Irish 

Bob Irish here with our monthly call with Justin Ford of Pax Properties. Today, we're gonna 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, but it is important. Throughout booms and busts, Pax Properties has never failed to produce a positive result for investors or missed a mortgage payment. With that said, Justin, great to have you back. How are you?

 

Justin Ford 

I'm doing great, Bob. Thank you. And thanks for joining me. You're in Utah, right?

 

Bob Irish 

Yeah, yeah. We typically come out to Utah, Park City for the summer, get away from the Florida heat. And you don't look like you're in Delray Beach right now. Where are you?

 

Justin Ford 

I'm in Bogota, Colombia with my three sons. We came down once a year. We were doing this trip with the father and my three boys. We chose Columbia, they hadn't been here before, and Medellin was our first stop. It's the greenest city I've ever been in, really beautiful. And then we did horseback riding the next day outside of Rio Negro, which is a beautiful, more rural place, a little bit outside of Medellin. And yesterday we climbed Cerro Tusa, which is the tallest man-made pyramid in the world, apparently. It is a little more than a kilometer or so up, but it was fairly steep. And then today we're in Bogota, the capital, and we fly out tomorrow night. So it's been a great trip.

 

Bob Irish 

Oh, that's fabulous, Justin. That is fabulous. And isn't this technology great? You're in Columbia, I'm in Utah, and here we are chatting. It's just unbelievable. Well, let's, why don't we run through the properties, kind of give us a quick overview. But one thing before we do that, I know that last month, Pax Properties distributed something on the order of $20 million to investors. And I don't know what the rest of your investors are doing with that money. But I can tell you where I put a big hunk of that cash, and that's into the Ascend First mortgage. And so I have to ask you, is it too late for investors to participate in that? Because that's a great deal.

 

Justin Ford 

Yeah, no, thanks. So we paid out nearly $20 million over the last six to eight weeks, I'd say. At Melbourne after the sale and other money went back to the refinancing we did. Immediately, investors pushed over $5 million back at us. Our minimum is around $6 million. We have  about 4.9 million funded. We have another probably 600 or something that's coming in the next, we expect in the next few days or early next week. So yes, we could use more just to fill up the minimum. Pax has it of course, but we prefer to keep Pax's powder dry. So investors should, I do know that when we send out these, a lot of people miss their emails. So it's very important that they check their spam folder or whatever else, but it's a 36-month note that we expect to pay off in about 12 months, 12 to 18 months, but it could go as long as 36. It pays 7% plus a point for the first year. So that's a minimum of 8% for the first year. Of course, the point helps because if you pay off early, if we get a good permanent loan and pay off early, the point increases the yield. From 12 months to 18 months, it goes up to 8%, from the 18-month mark, it goes up to 10% if we go that longer. So we're incentivized to pay off sooner, but we still have space in the loan. It's a first mortgage, so it's a low leverage loan. It's less than loan to value, and it's on a really great property, Ascend Apartments, which is 70% right now leased up, and we expect it to be 90% leased up in September. So those who are interested, we'd ask them to just put in an email, First mortgage, Ascend Apartments, and just email myself and Chris, you know, Justin@paxproperties.com and Chris@paxproperties.com. And we'll get them the docs right away.

 

Bob Irish 

Well, the rate beats the heck out of what the banks are offering right now. And even money markets, depending on which one you're in, barely touch five. So it's a great deal.

 

Justin Ford 

Not only that, Bob, but I do think, and I haven't had to make predictions, but I do think there's a good possibility that rates will be going down over the next year. That's one of the reasons for this refi. We didn't want to go to a more expensive bridge loan. So to have this kind of yield in an environment of declining interest rates for a while, I think it adds a little more value to the first mortgage loan.

 

Bob Irish 

Absolutely. Hey, Justin, let's walk through the properties in Florida. Do we want to talk about Vero Beach? I know that you have a thing going on there with We're getting paid even though you're, fill us in on that.

 

Justin Ford 

So Vero is, we were going to master lease it to a group that would pay us something like a quarter million dollars down payment and then pay $55,000 a month, which is more than we net right now on Vero after paying them after all operations. So it's a very good deal. And they were committed to spending half a million dollars on CapEx in the first six months and another half million in the next six months. And their CapEx plan they provided, they're going to expand the center pool, so it's going to be more of a resort style. They're installing showers, they're painting their rooms white, which is modernizing the place. They're doing a lot of very smart things that they've done at three or four hotels. We're now pushing back our start date to August 1st, I'm sorry, September 1st. And however, they believe they can show us they're going to spend a million dollars, not in the first year, but they'll spend a million dollars in the first six months of their renovations. So the strike price on that, that they would buy it is $8.2 million. We just sold Melbourne for 16 million. Melbourne is 100 2room suites and 40 junior suites roughly. So it was about 240 hotel rooms or 240 bays. Vero is about 117 bays. So we're selling Vero, which is about half the rooms for a little more than half the price, but we're master leasing it for very, very good terms. So that looks very good. And again, even if we decide not to do it for any reason, but so far everything's lining up, everything's checking out. The hotel continues to do well. It beats its index most weeks and most months, meaning it makes more per room than its competitive set, and we have a really good, solid team there. So Vero is doing very well.

 

Bob Irish 

Well, it's kind of disappointing not to talk about the Chateau Ghetto anymore. So we'll skip over that. And where do you want to go? Do you want to go to Tallahassee or do you want to go to Ocala?

 

Justin Ford 

Let's go to the next hotel, Ocala. So the Equus Inn, yeah. So the Equus Inn, you know, when we sold Melbourne, we won TripAdvisor's top award there just before we sold it. And so we won it for like every year we owned it after our renovations, like seven or eight years in a row. Again, the most visited place in place to sort of decorate it in that way. Equus just went from number two on TripAdvisor to number one. It's number one in the market on TripAdvisor.

 

Bob Irish 

Oh, yeah.

 

Justin Ford 

Yeah, it's been there before. And it won TripAdvisor's highest award again, I think for the third year in a row. So, as a group, Pax Properties has now won the Traveler's Choice Award, which puts you in the top 10% of hotels worldwide as rated by their guests. We've won it 16 times. So, and Equus is number one and won it again. And the numbers at Equus are just super powerful. Here we are sort of what's supposed to be shoulder season, we're booking a quarter million dollars in sales every single, no, $300,000 in sales there in the shoulder season. We'll soon be at an equidistant $4 million hotel. Vero, which has been performing very well for us, has never grossed $3 million.This is on track to gross $4 million. So it's an award winner. We got good management there. We're highly stabilized. We just refined, put on some good debt there, some more portable debt. And we are just really, really raking in strong revenue. So things are going very well at the Equus in Ocala.

 

Bob Irish 

Hey, that's great. Let's go to Tallahassee and talk about the two hotels up there that we're turning into residences. How's that going?

 

Justin Ford 

That is going remarkably well. My associate George helped us put Procore software in there. We got a good project manager. We now have an assistant project manager, a young man named Parker. These folks are just knocking it out of the park. We are really more organized than we've ever been. We sort of You know, when I built my business, it was ready, fire, aim. That's how I built my business. I couldn't wait for things to... There was so much opportunity back in 2008, 9, 10, you know, that I just grabbed stuff, you know, and figured it out as we went. But now we're actually doing the old-fashioned way, ready, aim, fire. And we seem to be hitting the mark.

 

Justin Ford 

Seven Hills has four residential buildings, and three of them could be all done, except for the cabinets and countertops, by this time next month. And Casa Bella has two residential buildings, and one of them should be done by this time next month. And then the countertops and the cabinets should come in at the end of July. So by August, we expect to have, you know, maybe a third of Casa Bella rooms fully renovated, and sometime in August, and probably half of Seven Hills fully renovated, with the kitchens and everything else, because right now, We've run all the rough electric, all the rough plumbing, and in these rooms, we're now putting up the drywall, and we're skim coating it, and we're painting it. So it's ready, just waiting for the kitchen to go in. So we're really moving well there, and we have strong demand for these properties. We've verified that in quite a few ways, especially our pre-marketing. So we really like what's going on at Casa Bella. We're still shooting by the end of the year at Casa Bella and Seven Hills for both of them to be at 90% leased up as new apartments. Very aggressive, but so far we're on track. Yeah.

 

Bob Irish 

Beautiful. Let's go across the street. Talk to me. I assume things are just copacetic at GSA.

 

Justin Ford 

They are. We got hit with a tornado there. So we, yeah, we got hit with a tornado and we had to spend about $15,000 in tree removal and all that kind of stuff. But, you know, no one was hurt. There was no major structural damage, but we got whacked with that. And, but our management there was doing great. We're usually between 95 97, 98% economic occupancy. And the real great thing our manager has been doing is she's been steadily pushing rents. So we're from a pro forma of like 2.2 million to 2.3 to 2.4 as far as revenue. We're still going to be on a proforma of around $2.6 to million in revenue. So that's very, very strong. And we just want to make it a better product. So we recently reinvested around $30,000, maybe $35,000. We're putting up a security gate.

 

Justin Ford 

It's a nice community, but still by adding a security gate, it's going to make it much nicer. So you drive in and out with security gates. And by the way, we did the same thing with Seven Hills. So that's how we've made it a private community. And we're making GSA that way as well. It will help maintain and continue to push rents as much as the market permits, even while we maintain high occupancy. So GSA is doing just remarkably well. You remember we put on almost a $17 million first mortgage-fannie Mae loan. About two years ago, we returned two-thirds of investors' equity there. Should rates continue down, GSA is strong enough that we may put on what's called a supplemental Fannie Mae loan, maybe add another $2 or $3 million in Fannie Mae debt. And maybe return the rest of the investor capital. That would be our next, so now you're playing entirely with the house's money. Of course, we've been paying 10% yields for years now, since inception, basically, with some gaps, but then we caught up, right? During construction, we had gaps, but then later we caught up with the refi and all the 10% preferred pref..

 

Justin Ford 

Again, a lot of this depends on the interest rate environment. If it stays the same, we're doing fine. But if rates should start to move the way they could over the next year to 15 months, we could be returning the rest of an investor's equity capital sometime in 2025.

 

Bob Irish 

Great. Let's go to Oklahoma. What's going on there?

 

Justin Ford 

You know, the winds are just whipping down the plains, as they say down in Oklahoma.

 

Bob Irish 

Everything's okay?

 

Justin Ford 

Everything's okay. Yeah, not those winds, but the winds of good fortune have been there with us. So, you know, Apex continues to do well, 97% occupancy. One of our team members is out there right now showing up. The last few things we had to do, technicality mostly on certain CapEx that we've been renovating for a long time, there were a few items that we were held up on. But that's being taken care of, just a railing adjustment and redoing some balustrades and finally getting the individual electric metered. So he's out in Oklahoma now, finally getting those things completely knocked off. Then you move over to Oklahoma City, where you have Elevate. So Apex is 91 Tulsa, Elevate is 126 units in a great location in Oklahoma City. We must have at least 40,000 cars a day going right by us. And we have now that beautiful exterior and we have really good signage and so forth. And we've been over 90% occupancy going on three months soon. And I think we're gonna be hitting 95% our projection is sometime this month. So Elevate is reaching the stage of really truly stabilized. So we may be refinancing that within the next year, maybe with Fannie Mae or Freddie Mac. If we refied with Fannie or Freddie right now, we'd probably get something around 5.6% interest, which isn't bad, but we're gonna hold it. I think there's a good chance We're going to have a four tag on that, you know, maybe 4.9 or something if we refire within the next year or two. And of course, the lower your interest rate, the more money you can borrow, right? Because, you know, let's say the maximum you can pay every year in interest, I'm just going to use round numbers, a million bucks, if your interest rate is 6% versus 5%, They're going to lend you less because you have to pay more on 6%, right? So we expect to get more proceeds, but by waiting a little bit, lowering our actual cost of capital and returning some equity to the fund. Again, we think 2025 could be a year. We've already seen interest rate spreads go down, Bob. So you have a trade which is made up of an index and then a spread, right? And the index, you know, is pretty much tied to what happens in the treasury market, right? But we've seen those spreads really start to narrow. So the market really is starting to see the interest rates may go down. And if it does, 2025 could be a year when we return some more capital to investors just to refinance and Elevate is a really good candidate where that may happen.

 

Bob Irish 

So we've kind of covered Ascend. I know you've got 146 units there. Any more details on the Ascend property?

 

Justin Ford 

Just that we're, you know, like I said, we're at around 70% economic, economic, actually expect to be at 90% September. We're entering, you know, the summers are usually a strong release period as well. So again, and the notes pay 8% this year, 8% the first half of the following year, and then 10% after that. Again, I do think that we will pay it off within 12 to 18 months, but if we hold it longer, your coupon jumps up to 10% at a time when the treasury could be sub four again. So we think that's a good opportunity.

 

Bob Irish 

Let's finish things up at Port St. John. Any more news on the out parcel? We talked about that last month.

 

Justin Ford 

Yes. So we spoke to an engineering group. They did a study. They can move the drainage. I think it'll cost about $900,000, but we know how these folks are. If they say 900, we can do it for less, significantly less. They have to use the big, the fat numbers.

 

Justin Ford 

But even at $900,000, we would net lease that property for at least $100,000 a year. So the numbers really work out, just the straight yields. And again, you don't incur the cost unless you get a serious company that's credit worthy comes in, signs an agreement with you, and then it's basically an exchange of costs, right? And so that looks very promising. So now we did the next step. We're spending another, I don't know, I think it's 5,000 to 7 or $8,000 to do conceptual drawings, right? So they're going to do conceptual drawings for a casual restaurant, like a quick service restaurant. They're going to do one for a bank. And one for a car wash. This will help the marketing for our brokers. We think that we're going to really increase the value there by developing the South parcel. I think we'll increase it by, when all said and done, at least $1M. You know, for something that we bought for $7.8 million, that's a good 14, 15% increase in value. And I think we can do that. But that's not the only thing that's happening in Port St. John. The new owners of the Winn-Dixie chain is Aldis. Aldi bought them. And now they want to convert our Winn-Dixie to an Aldis. Arwin Dixie takes up around 50,000 square feet roughly of the 80,000 square foot shopping center. All these will take up less, but they want to sublease, but they're responsible for all 50,000. So they want to sublease the rest. So that gives us an opportunity for us to help them save money and we can make more money. So we're negotiating on that. Planet Fitness has just renewed their secondary anchor. And again, we're getting around At least think 12, it's about a 10% bump there. So, you know, again, it's just really, really great at Port St. John's. And we're looking for more grocery record retail just like this because our experience has been, you know, fantastic.

 

Bob Irish 

This has been a great call. Again, that Ascend mortgage is something that I think everybody listening ought to really pay attention to. And you've given them instructions on how to get in on that deal. Anything else before we sign off?

 

Justin Ford 

Nothing at all, Bob. Just enjoy Utah. And I'll be back in Florida in just a few days.

 

Bob Irish 

OK. Safe travels, Justin. Good talking to you.

 

Justin Ford

All right. Thank you, Bob. Take care.