November 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 we usually do in these monthly updates, we'll brief you on the standalone investments in Florida and keep you abreast of what's happening with the underlying investments in the cap plus diversified income fund. I say it every month, but it's important, through 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. How are you?

- Bob Irish

I'm just doing great. It's nice to have you back. Why don't we kick this off the way we typically do and what's going on in Vero Beach with that hotel?

- Justin Ford  

So Vero continues to do fairly well, but the market was down. We're now seeing the market pick up in December. We have a lot of teams coming back. There's a sports complex there in Vero. So on the weekends, that's good. And during the week, FEMA has been sending us some of the relocation folks. So this is helping. In South Florida, our real strong season, high season starts at the end of January and runs through about early April. And the advanced bookings look good there. So we think we may have a really strong 2025 after having a fairly soft 2024 in the market overall, even though we kept up with the market, the market was down. So that's very promising. We think we may have a very good year ahead. At the same time, we do get inquiries now and then as far as possible sale on that property. We're close to a price that really would work very well for everyone, for the investors. But we're not there quite yet. We entertain the inquiries and we think something might happen in the first half of next year, but we'll let you know when it does.

- Bob Irish

Okay, great. Hey, let's go up to Equus. Let's talk about Ocala.

- Justin Ford 

Yeah, well, that market has remained fairly strong and actually very strong, and that property remains strong and doing well. It's really done well on the top line. That's our one property that almost has done $4 million in sales on a trailing 12-year basis. Everything else in our portfolio that was more than a hundred rooms in the hotel side was between two and a half to 3 million, somewhere around there, and in soft markets down to 2 million. But this one would get up to 3.9 at its high points. Right now it's around 3.6. Our goal right now is to streamline our operations a bit more. We've been enjoying the top line. We want to see more of the bottom line, of course. So we've been closing to a million dollars in NOI, which is a record by far for hotels, but we want to break that mark. We want to bust above it. We've recently made some reorganizational changes, bringing some of the stuff in-house that we were contracting for outside and other reorganizations movements that we think will save us $50,000, $60,000 a year. Again, that combined with a strong first quarter, which we're expecting, or the it looks like it so far, it could be quite a good year for Ocala.

- Bob Irish  

Oh, that's excellent, excellent. Let's move over to Tallahassee and specifically let's talk about the two projects that were converted from hotels to residences.

- Justin Ford 

Yeah, so we'll start with the SWAN, which is 160 units on nine acres. We're moving along there. Our electrician has really been kind of holding us up there. His crew kind of got very, very small during the Thanksgiving holidays and they're kind of slow to get back. But this Friday, hopefully, but I was expecting this two weeks ago and last week as well, we should get our first CO for our first building and our second CO the week after that. So that's what we're shooting for. But when you have a subcontractor who's kind of slowing you down a little bit, it becomes a challenge. But overall, the property's looking great. We're basically, I'm gonna say 80% through of construction, maybe 75, 80% through with the construction, really, since a lot of the behind the walls work stuff has been done. But we just gotta get over this hump where we start getting those COs. And we're hoping that that's gonna happen this weekend next, as far as the swan goes.

- Bob Irish 

Oh, that's excellent. Let's talk about the former Casa Bella, which is now Monarch.

 - Justin Ford 

What's going on there? So Casa Bella is a similar situation. We're waiting for what's called stamped plans back from the city on some revision we had for the front building. It has to do with the electrical distribution that was being fed. The front building was being fed by the back building, and now it's getting its own feed directly from the street. The city brought its own transformer in at its cost, which is great. They're really supporting us. They did the same thing at the Swan, actually. Once we get those stamped plans, which we've been expecting any day now, then we can get what's called the rough electric inspection on the front building. And once we get that, then again, we're moving into basically like the last lap there, putting the drywall up, finishing it, and getting it painted and getting that building done. Our goal there is to get building A now ready for rent before the end of the year. It's always a bit of a touch and go, but we think that that's possible. So, so far, so good. Delays, but still looking fairly good at Monarch.

- Bob Irish

I don't know that we need to spend much time at Renaissance. Things every month are just so fricking good there. Anything going on there that we need to know about?

- Justin Ford 

Well, I mean, just that we have a really great manager there and she pushes the top and the bottom lines. I think we recently hit A little over 2.4 million in revenue. And I think it was 1.25 million in trailing 12 net operating income, which is really quite strong. And we got that 4% debt on it. So that property is the opposite of a problem child. That property is just the star pupil and is doing very well.

- Bob Irish 

Fantastic. Well, we've covered the standalone investments. Let's talk now about the properties in the cap plus diversified income fund, and as long as we're in Florida, why don't we go up to Port St. John? What's going on there?

- Justin Ford 

So Port St. John, we have a revision on the lease from Aldi's. Aldi's is one of the fastest growing value supermarket chains. Placer AI, which is a big sort of foot traffic company where they measure the traffic of all stores and all retail outlets and that kind of thing. They identify Aldi's as the number one by a good margin. 19 Percent growth over the last year. And other ones like I think Trader Joe's in that same category, maybe 6% or something like that. So the overall, that category, the value supermarket is growing and Aldi seems to be leading the pack. And so the fact that Aldi is taking over Winn-Dixie at our center, and not only that, but they're going to extend their lease term. Their obligated lease term right now is a little under seven years remaining. When we sign this agreement, they'll be at 10 years. So we're really excited about that. We think that's going to be very, very positive for the center. We have a couple of spaces that we're working on leasing out. We've just signed with a new brokerage to help us do that. They put together a good package. So we're still at around 90% occupancy. We've dropped from about 94 to about 90 right now. But we think we'll be back in the 95 in the first half of the year. Retail is a little slower leasing up than certainly residential. But again, with this new anchor, We're real excited about what's going on, as well as the possibility of selling that out parcel that we talked about before.

- Bob Irish

Right.

- Justin Ford  

So Port St. John, some challenges with leasing up a few of these side spaces that have been vacant for six or seven months, but a lot of positive developments. And we think even all these coming in is going to help us lease up those other two spaces to good tenants as well. So overall, it's going well there and we think we're going to have a good All right, we're done with Florida.

- Bob Irish 

Let's take a trip to Oklahoma. Is everything okay in Oklahoma?

- Justin Ford  

A-okay in OK. If we start with Apex, Apex is sort of the smaller version of Renaissance. It's been running well for a couple of years now, consistently at 94%, 95% occupancy, and it controls its expense as well. Doesn't take up a lot of our bandwidth, and it consistently delivers the returns that are expected. So at APEX, we're doing well.

 - Bob Irish

Let's talk about Elevate.

 - Justin Ford 

Elevate is a similar story to Ocala. Since it stabilized, first hit 90% occupancy back in the spring. Our focus now has been on maintaining that mid 90% occupancy while streamlining expenses. We've done a similar thing at Elevate that we did at Ocala. At Ocala, with this booming business, they weren't as focused enough at staying as efficient as they should. At Elevate, with the construction starting and transitioning into full-time operations, again, they weren't as focused enough as being as streamlined as they should. So we made some changes there that could improve the bottom line there by at least $30,000, just for normal operational efficiencies. At the same time, we're maintaining good occupancy in the low to mid 90s. So Elevate, again, we think we're going to have a good year ahead.

- Bob Irish

Well, great. Let's talk about the 146 units that ascend.

- Justin Ford 

So there's 146 units. I'm all over it. We'll love that. We have nine move-ins this month, which is good. We got a lot of activity recently. As I said, we were weeding out a lot of the One's previous management had put some bad tenants in there. So we'll be at about 104 tenants by the time Christmas comes around. We'll lose four of those in eviction, so we'll be back at 100, but a much better tenant base. We lowered rents a little bit to pick up the traffic and the demand and looking at where our competitors were. But that again, that's been a tough lease up, but we're finally getting to a good base of quality tenants. The property looks good. And with the recent traffic we're getting, we do think that there's now a good possibility that we could be finally stabilized in the first quarter of 2024. We just, actually, I was thinking about elevating a moment there, but yes, the first quarter of 2024, I think we'll be fully stabilized at Ascend. I'm sorry, by the end of the first quarter 2025, that's I think a really realistic goal there. And we're also, one of our guys here from the, main office at our corporate office is out there on site helping run the property. So we're very hands on out there. I'll be out there shortly after Christmas. And that's our goal, to be fully stabilized by the end of the first quarter. And by the end of the second quarter, to have the entire portfolio stabilized. So we're working there. Sometimes it's two steps forward, one step back, but overall, we're moving to where we need to be, which is fully stabilized. Stabilized in 25.

- Bob Irish 

Well, that's been the theme for the last several calls, stabilized in 25. And it sounds like we're on track for that.

- Justin Ford 

Yes. We're getting there, Bob.

- Bob Irish 

So in terms of investment opportunities, have you got anything going on in terms of mortgages that some of our investors might have an interest in? Well, we filled the first mortgage at Ascend.

- Justin Ford  

Well, we filled the first mortgage at Ascend. There might be like $100,000 or $200,000 left, but it's essentially full. The last offering we'll make this year, and it might be for a little bit as far as that goes, we're going to raise up to 1.95 million. It's a small offering. It's an unsecured note, and that's to finish the renovations, the construction at the Monarch Apartments in Tallahassee, which is the former Casa Bella, which is the former Baymont, right? So we have about 1.2 million left to do. So we want to raise that. We want to raise a cushion as well. We want to replenish some of the capital taxes pushed in there as well. To have dry powder overall. So we'll be raising up to 1.95. And that's a 1% a month note. And it goes for 12 months. It extends for a second month in exchange for another point that we pay. So it's actually an ability to make up to 12.5% a year. But that's, again, it's a small offering. So anyone who's interested, I would encourage them to reach out sooner rather than later because that's not like a $9.9 million offering for the mortgage at Ascend or the other offerings we've made that were $6 to $7 or $8 million. This is a small offering. So anyone who's interested should just send an email to justinatpaxproperties.com and in the subject line put 1% a month note offering and we'll reserve a spot for them.

- Bob Irish

That sounds great. Great opportunity, 1% a month. And what's your expectation on how long that might go. Obviously, it's a 12-month deal, but if you have to go beyond that, there'll be another point and continue with the 1%. Right, so the maximum would be 24 months.

- Justin Ford  

So it's 12 to 24 months. We think we have a good chance of paying it off within 12 months, but again, if it takes a little bit longer to get to the refinance that we need, the permanent loan that will take it out, then people get compensated by that by continuing to receive the 1% a month And of course, the extra point.

- Bob Irish 

I got to tell you, I just looked at some CD rates. And if you're talking about two years, I mean, you're in the fours. I mean, so this sounds like a great deal, 1% a month. That sounds great. Sounds great. Justin, anything else to add before we sign up?

- Justin Ford 

No, I just wish everyone a Merry Christmas, Happy Hanukkah, Happy Holidays. And we will speak again in the new year. Here to wrap up the old and look forward to the new.

- Bob Irish 

Thank you, Justin. Always great talking to you. We'll see you next month.

- Justin Ford 

See you next year.