June Update with Justin Ford

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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 a breast of the underlying investments in the cap plus diversified income fund. I say it every month, I'm going to say it again. Uh throughout real estate booms and busts, tax 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 you doing?
Justin Ford: I'm doing great, Bob. Thank you. I'm uh back in Tallahassee again. Flew in this morning. I've been here almost every week for the last seven months, I'd say. Um you know, back and forth. Um, occasionally I go elsewhere, but it's uh it's exciting news up here which we'll cover when we get to it.
Bob Irish: Yeah. Well, you know, our last couple of calls, uh, really we started talking about it late last year. The theme was stabilize in 25. And Justin, I I got a little sneak preview from you earlier uh before the call and I think our new theme should be thrive in 25. But more on that later.
Justin Ford: Yep.
Bob Irish: Let's let's do our normal rotation. Let's start off in Vero Beach. What's going on there?
Justin Ford: So, Vero, um, that market is slow, but we're performing well. Our our manager there is extraordinary. She's also a director of ops and so we're beating our competition typically by 20% somewhere in that neighborhood but it's still low the numbers are low because the market demand is low. Um uh so I'm not sure exactly why that is in bureau. I know a lot of uh tourism is down for many different reasons. Uh but we're still holding our own. We're still at contract. Um the in fact we're more than holding on as far as market share but uh we gave them a 45day extension because they're contingent on SBA loan. We had them boost the price a little bit. Not much, probably 25 grand, but um still it's a good price. We'll know whether they're going to get their loan and whether we're going to close this sale um in about six weeks. Um and um and if not, again, we're happy to hold. This is property we've owned for a long time. It pays itself. We've paid distributions in the teens cash on cash for years and years and uh and we think we'll have other buyers. We may be in a stronger market at a higher price uh towards the end of the year if indeed uh she should not get her financing. But uh but you know it's still looking pretty good.
Bob Irish: Well, it's a little off the subject, but aren't those SBA loans sort of notoriously hard to get.
Justin Ford: You wouldn't think that too because they're government agency. So,uh, obviously, no, of course. Yes, there are hoops. and then there other hoops. Yeah, there's a lot of hoops to go through. So, they are notoriously hard to get, but they're they're pretty good financing when you can get them. You can get a little more leverage than than, uh, typical. Um, so, um, she was the best offer and we we thought strategically was good for our portfolio. There's really good profits there. So, we decided to see if she could close it. you can't. Um, the downside is still still looking up because we're profitably and we may get a better offer afterwards.

Bob Irish: sounds good. Uh, you want to go to Ocala next? I always like hearing about Equis
Justin Ford: Yep. So, Equas is ECU is doing well. That market is little down and we've been a little underperforming our market the last month or two. Um, but um there were a few things. There were some local negotiated rates which uh I don't know they got other business or something. We've also had two new hotels enter the market because it's such a boom market. But even with that uh slight underperformance that we've been having, we're we're fixing that and we're still pretty close to 1.3 million in trailing 12 month net operating income which is about 30% higher uh than it was just a year ago. So even though we we we rose really really high, we're in the mid13s. Now we're down to about just under 13. I think we'll get back up to the mid13s and the mid14s and I and I'll give you a little uh color on that if you don't mind because I think people every now and then like to know how the sort of the hospitality business works. So we we have a pricing strategy. So typically when I first started it was just like make the rooms really nice and give it an incredible value and you'll fill up. That's kind of what we did. So you have you can go high occupancy, low rate or you can do high uh high rate and low occupancy, right? So there's two different levers, right? And then the goal is to maximize the revenue per available room or rev bar and that's the the uh the product of those two, one times the other. So typically Ocala is an upper midscale hotel. You know, it's so it's been rated number one in the market for quite a while now. It's true top award four maybe five years in a row. Um it's really really beautiful hotel and um so as an upper midscale we compete with hotels typically in the soft and shoulder seasons price between 130 and 160 I would say right and then in the high seasons between you know 250 and 350 so in your low and shoulder seasons you don't want to price too low because then you start to attract an undesirable element sometimes and also you um also you may create a perception of value issue right well why is it so Right. So in your high season often what we try to do is we push rate because everyone's pretty high occupancy. So we push rate all we can and we have what's called a comp set that we look at. We have about six hotels in that comp set including ourselves. We're the only unbranded hotel in that comp set. So the brands have an advantage and that they're part of that global booking network. You know whether it's Halian Express or or Quality or people like that. Um, but the operators have a disadvantage that they're paying about 12% of the revenue to the brand uh when they So, you know, if you're doing $4 million in sales, you know, you're paying a half million dollars a year for that for that marketing privilege. So, we would keep our rates kind of up out of that six, we might rate number two or number three in rate, probably three, actually, probably around three and maybe four. And uh and our occupy might be, you know, two or three. and our ref bar would be um pretty competitive to those those those higher uh upper midscale brands in the soft season. We got to we want to drop our rate so we capture more occupancy especially in a market where there's more supply now. So where do we drop our rate to? What's that red line where you can drop it to here and you're you're you're achieving that magic balance where you're maximizing occupancy without you know getting the wrong type of guest. And so what we do is we pick a stalking horse, right? It might be I I don't know who it is in Ocala but maybe it's like it's for the sake of argument let's say it's holiday and it's sweet or something like that or express, right okay wherever they are we're going to be 10 bucks below them and we're we're we're sort of there we're sort of there we're sort of there right so so we so we've so we're we're we're fine-tuning that strategy we're working on our group sales and our LNRs the local negotiated rates for businesses and again even though we shot up so fast and now we come down a little bit we're still 30% higher than last year and again we think we'll resume our march upward report in the next few months.

Bob Irish: Justin, that's great insight from the uh back of the uh check-in desk. I just I'm used to just seeing the the you know the check-in from my side, but that's great insight.

Justin Ford: So, you know, it's still doing extremely well for investors.
Bob Irish: Let's go to Tallahassee. Let's talk briefly about Renaissance because things are always going so great at Renaissance. We don't spend much time there.
Justin Ford: Yeah. So the the news I mentioned last time Renaissance is still holding. We were doing very well in you know occupies in the low 90% range because we were pushing rate. Um now I think we're pushing rate a little bit. We're basically leaving it stable in some units but our occupies now is more often in the mid 90s sometimes above 95%. So our trailing 12 NOI is usually between 1.2 and sometimes almost 1.3. Uh most recently it's about over 1.25 m and that's another property that since inception we've paid uh 10% cash on cash yields cumulatively since uh since inception there uh in addition to returning a big chunk of investor capital with our refi. So, um, Renaissance, uh, is is going well and, um, our next step is when we can push our NOI to about 135, we'll we're going to try to do what's called a supplemental loan and return either the remaining investor equity capital or or or most of that. Uh, but that should be probably early next year. But in the meantime, again, paying 10% cash on cash yields.
Bob Irish: Great. Um, let's talk about the two conversions. Uh, you want to start with the monarch or swan?
Justin Ford: Let's start with Swan. Uh because I'm I'm in Swan right now and Swan four residential buildings. We have a beautiful lobby and then we have four residential buildings. We have all sorts of amenities. Today I'm walking around with our construction group and we're looking downstairs where our former our former commercial laundry room was and we're going to convert that to storage space. And we think we'll get an extra, you know, a few thousand dollars a month that people can store their stuff there. Bike bicycles where they want them inside instead of outside, that kind of thing. We we u an old shed we had where we had some maintenance stuff and we don't need all that. We already have it halfway fence. We're going to finish the fencing and create the dog park there. And all this is in addition to our, you know, junior Olympic size pool our outside pergland fire pit, our indoor beautiful lobby with 14t ceilings, self-s served wine and beer bar with 30 selections, indoor fireplace, baby grand piano. I mean, this is a killer killer property and we're pricing it very aggressively and the results are there. We and also we just gated it. So it's a gated private community now too. So we uh we're we're almost leasing up as fast our units become available. Not quite but really really well. As of today we're 41% occupied and you know paying tenants and we're 46% pre-leased you know because we have another nine or so that are coming on soon moving in the next few weeks or so. And uh and then we have so we have two buildings that have been ready and and then the third building is going to be ready actually tomorrow or at least half it and then the uh the rest of it the day after that and then the um and then the fourth building we expect to be out in about a week.
We should to be completely out of it by July 4th. So independence day uh should be our independence from construction. We should get our CC certificate of completion for the whole thing. And I am quite confident that sometime in the fourth quarter we should be 90% plus occupied. And we have already decided to start testing pushing rents beginning mid July. Right now we're taking our um we're taking the rents that we have and we're we're advertising that they're only good till about July 15th or something and then they're going to bump up as much as $100 a unit which would be very significant with 160 units. But even if it's $50, it's going to be meaningful as well. So um you know we've stuck with this through thick and thin. You know this property was born went to number one from went from last place number one accolades from the city co hit uh and now we're we're bringing it back to life and um it's going to be it's going to be a good project. So I'm really excited about Swan right now.
Bob Irish: Oh, that's fabulous. Fabulous. Well, look forward to the update on our next call. Uh, let's talk a little bit about Monarch.
Justin Ford: So Monarch is about two months behind Swan, but we have no lease up there. So we had some tenants there. We decided a couple months ago. They were sort of slowing up the construction access and this type of thing. And also they really weren't the the profile tenant that that we have here and we want there, you know, more responsible neighbors, that kind of thing. So we we we let them go and they're they're probably all out in the last three or four weeks or something, which has helped us accelerate construction. So, um, if you went there, it looks like it's, you know, 50% done. But if you really understand construction, it's about 85% done. You know, all all the little, you know, drywall stuff is quick. That's, you know, patch, skim coat, paint, all that stuff.
It's really the stuff behind the walls. It's running the home run wires for the new PL from the for the new power that we're installing. Uh, these kinds of things. So, the the goal there is to have again, we have two buildings. We have the front building, which is A, and the back building, which is B. A has about I think 20 uh 18 about 24 units. We want to have A done um basically by late July and start to lease up there and then we'd want to have B done by late August and start the lease up there. Um and I believe I believe we're on track that what our our electrical part is a big part of that construction. and our electricians here. You know, I've done a lot of work there, but we got to start some of the heavy lifting there with the new uh main service panels and the home run wires going to the individual units and that will start this entire electric crew is slated to move from here to there and accelerate uh the progress on that key part um next week about mid next week. We expect that one to be moving really really uh at at maximum speed uh you know by the end of next week and again lease up start lease up in late July late August and we'd shoot for be 90% uh by the end of the year. That'll be a challenge but I think it's doable.
Bob Irish: And based on the demand you're seeing at Swan, you think the demand will be there for Monarch as well.

Justin Ford: Absolutely. In fact, in fact, Swan is benefiting a little bit from Monarch and that, you know, our our manager there who also helps with construction. When people come, he shows them, then he basically steers them over here and we get some some tenants here. But by the time that one starts lease up, this one will be we'll be 90% pulls. So, we won't be able to do that. I have to just keep them there and uh which we'll be happy to do. Uh yeah, so I think we're proving the concepts with Swan for Monach as well. 

Bob Irish: Excellent. Excellent. Let's go to Oklahoma.
Justin Ford: Oklahoma. So, uh, Apex in Tulsa, 91 units, our oldest owned one. Yeah. Consistently in the mid 90s, uh, pretty much posting it its own record, uh, revenue and NOI, keeping expenses in check. Uh, we're lining up a refi there. We have an offer already. Um, we had a good bank loan that recently went floating. So, it was under five and then it went up to about nine. But we're deciding to hold off because we really do want to see if we can get you know if if the market it started to drop a little bit. The 10ear went from 4.4 I think to 42 or something like that. I don't know exactly where it is right now but who knows what's going to happen but but by September if things are still stalemated we'll just go to the refi. We'll pull out actually some some capital pull out about $600,000. But I think that um if if if interest rates go where they were without the tariff stuff going on right now and and a lot of the international tension going on right now, you know, I think we could get 50 or 75 basis points uh lower, which would increase our proceeds, lower cost of capital and, you know, help us pull out maybe 800 to a million dollars out of that property. So, we're paying a little bit more for the next three months to see where things go. We I hate to say this, we can't imagine it could get much worse macroeconomically. I probably shouldn't say that. I mean, not I'm not the economy's good, but I mean, as far as you know, interest rates go. On the macro picture. But we're we we're taking a hold and see, but we got an offer sitting there waiting for us. Um we're just not pulling the trigger yet because we think we might get a little wind on our back as as far as all that goes, the Fed and and and the e economic and political situation.
Bob Irish: I agree with you. I’'ll be surprised if we don't see a cut coming.Um, all right. So, Apex, let's go to uh where do you want to go to?
Justin Ford: Elevate. We'll go to Elevate and because that's the next one that we stabilized a little about I don't know a little over a year ago and uh and that one is doing well again. That was often in the low 90s. Now we're in in the mid 90s and often actually last few months 97 98 even and collections are good. You know, our collections were higher than they should be for a while. Now they've really come down. The the the liquidies have come down. Um and uh and we're pushing rate. We're steadily pushing rate on renewals and and new uh and we have to of course because everything's become more expensive. But again, as I talked about, we we're starting to bring insurance down which is big. Um so on elevate we could go to perm the permanent loan like a Fanny or Freddy and drop our rate to under six% the high five% range uh by August. Um however again same situation where right now we have a bridge debt on it around 10 and a half% because it was from construction and lease up and all this kind of thing and I've approached them and they're going to come back and I think they're going to give us an offer to extend that loan and then we can sit on the higher rate for a while and then pick our moment when we go into uh into the lower costs and that loan I think they're going to give us a little late rate relief as well. I think they may come down 10 and a half to maybe I'm hoping eight and a half eight. Um and uh but that one we're we're waiting for our moment because once you lock into a Fanny Freddy, you got to be in it for a while, you know. So um if we're if we're eating a higher rate for a few months, we don't like to do it, but given the situation right now, we're kind of doing it. And the good thing is that the current lender if they do extend and you know we have a good relationship and I think they will uh it won't be an expensive transaction as far as cost for extension and uh and I think we'll get some rate relief and when we exit we'll be able to exit without a a prepayment penalty or something like that. So operationally doing great uh as far as finance goes which is part of the thrive in 25 we talk about not not only you know getting that those those higher top and bottom line numbers but then getting the lower cost financing on them.Uh that's that's going to come in a few months but operationally we're we're doing very well.
Bob Irish: Super. Let's talk about um the 146 unit ascend.
Justin Ford: Well, you know, I'm I was uh I wasn't born in 1990, so I don't generally use terms like crushing it or killing it, but that thing is crushing it and killing it. They are uh you know I mean they're flirting with a 100% often you know and they still have a few bad Apple tenants here and there but most of them again uh predate our our current management which has been magnificent over the last six or seven months and our director of ops have been tremendous a lot of support from the home the home team here going out taking care of maintenance issues pool stuff like that. So that one's doing really really well. The um we've been not only finally, you know, leased up, but we've been not only hitting budget, we've been beating budget, I think the last three months, beating budget by as much as 5 to 10% on our NOI. So, so really we're going to reunderwite that for the lenders who have our package who are ready to make an offer on that one. And that one, we have good debt right now because of our our investors, you know, we're at 8% we have an 8% first mortgage, so we can sit on that for a little bit. 90% bumps. I think in about three months it goes up but it might be six months but um anyhow so we're sitting there and again we're waiting for a moment but in the meanwhile you know operationally it is it's uh it's doing beautifully absolutely beautifully so we're uh we're real thankful about that.
Bob Irish: Ah, that's great. Let's um let's go back to Florida. Let's talk about Port St. John.
Justin Ford: So Port St. John. Um 89% occupancy. See, we had um we had a 5,800 square foot. That's the sort of the haunted bay where we had one arcade that went bad, then another arcade that went bad, but we tracked down and we're suing them for what they owe us. So, I think I don't know if we'll ever collect, but uh and then we had I think we had one other Oh, and then we had um another 1,200 bay, which we're leasing out to UPS for franchise, which is nice, but that won't happen. and then we'll take occupancy for a month or so and then there's a period where they get kind of free rent while they improve. So looking looking forward looks good and now we have a great interest on that 5,800 uh foot bay. So I'm really excited about that. Um and we have a u we have a thrift store uh a nice woman who's struggling and her lease was up in December. She wasn't going to renew and and some guy may take that. Actually forget about the 50 b I misspoke there. That guy may take the thrift store space. So, we won't have any vacancy there. The 5,800, I think we have do one or two inquiries. But long story short, I expect us to be in the, you know, 93 94% accuracy um within 3 months from now. Um, and again, we're steadily in in the contracts as renewals happen every few years. You get rate bumps and so forth. So, that's steadily getting stronger. As far as the out parcel, which we're trying to monetize, we spent around probably around 25 $30,000 doing that. Um, we now know kind of what the person what the company who would buy that parcel develop it, what what what their challenge would be. So, we're still shooting for that. I we don't really have noticed yet, but I still am moderately optimistic it's at least a 50/50 that we'll be able to sell that out parcel for a net of 800 to a million bucks. U, but if not, uh, the 300, you know, 30 grand we spent to to go down that road on a something we have over eight and a half million in is is not a a giant misinvestment. I think I think is worth worth the worth the uh the exploration. Um and then Aldi's which is the new subtenant the new I'm sorry tenant uh they're finally going to open in August. so we um we're just uh we're very happy about that and we we just had another uh shopping center come off across our email. We're not going to buy anything until until we're fully stabilized and all all refi and everything else. You have to take care of what you have first. But we expect all that to happen again late this year into uh first quarter of next year. And then we we may be looking at some new opportunities. And I found a really interesting one in South Florida. Um which is great because as I said, I never want to take a connecting flight again. And uh if I can drive to some of my properties and go back the same day for dinner, it' be nice. So uh but but that won't be the the key investment uh you know decision maker. But uh but yeah, we're happy with Port St. John.

Bob Irish: Oh, that's great. Listen, Justin, last month we talked uh you talked we talked briefly about the 1% mortgage uh opportunity and uh look, I'm sorry to to let everyone know out there, but if you didn't jump on that, it's gone, right?
Justin Ford: Yes, it is. 

Bob Irish: However, however, you mentioned before the call that there are some opportunities, investment opportunities coming up in the near future. So, um, what should people do if they're if they miss the boat on this one, which I guess
Justin Ford: Yeah, they they can email me and put themselves on the waiting list for the 1% notes because when we do these refies, we often use that short-term money both liquidity to put the long-term debt and then and then they're they're paid off. Typically, the new short-term notes when we use them that way, you know, might be for a year um with with an extension, but typically they're paid off within the year, but there's still an opportunity to make 1%, you know, with personal and corporate guarantees. And but right now again they're all taken up as you said. So if they email me, we'll put them on the the waiting list and even before we announce it, we'll reach out to the waiting list first so that you know then they can email.

Bob Irish: word to the wise, get on the waiting list. Send that email to Justin and get on the waiting list.Justin, it's been great to see you again this month. Anything to add before we sign off?

Justin Ford: Nope. Always a pleasure to see you, Bob. Thank you very much.
Bob Irish: Great to see you, Justin. Take care. We'll see you next month.
Justin Ford: Thank you.