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May Update with Justin Ford

As one of our privileged members, you get access to real estate expert Justin Ford's monthly updates.

 

This Update covers special situations with our network of experts in the kinds of private deals most people never even hear about.

Each month, Bob Irish checks in with Justin to see how his previous real estate deals are performing. Justin also discusses the latest trends in the market, what to look for when purchasing property as an investment, and much more.

You can watch or listen to the May 2023 interview with Bob Irish and Justin Ford, or read the transcript below.

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. We're also going to talk a little bit about the overall state of the real estate market. Now, I say this every month, but it's important throughout 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: [00:00:44] I'm doing great, Bob. How are you?

Bob Irish: [00:00:45] I'm doing just great. It's great to be on the call with you again. Why don't we do a quick overview of what's going on in Florida and Oklahoma and then we can get to some other issues. Does that sound good?

Justin Ford: [00:00:59] Absolutely. So, let's talk about the hotels first. So the two hotels that we're converting, we got our plans basically finalized on Seven Hills Suites and also on Casa Bella architectural engineering, etcetera. And the city is tremendously behind this. So Wednesday, I'm flying out to Tallahassee day after tomorrow and Thursday we have a meeting with the city manager's office. We have the housing authority head there. Commissioners have been emailing us, the mayor's office as well. They are super, super supportive of this. And we may also have tax incentives involved, expedited permitting and a bunch of these types of things. So we believe it's quite possible we should be starting construction as far as the renovations while we operate in early July, maybe even before the end of this month. So we're very, very bullish on that. And the need for attainable housing. Attainable housing is basically affordable housing, but it's not subsidized. It's a workforce housing. It is dramatic in Tallahassee and everywhere else. Well, I don't know about everywhere else, but just about everywhere else. And so we're very excited about that project. We're finally moving ahead there.

Bob Irish: [00:02:10] That is great news. I'm delighted to hear this. How the city's behind you doing this. That's super.

Justin Ford: [00:02:17] Yeah. This administration, ever since we did that pre submittal meeting back in November, the way they were organized, I've had pre submittal meetings before where they're nonchalant. They kind of just talk out of the side of their mouth. They show up late, they go out here. They all had notes. They committed. They had answers. They sent out the minutes of the meeting afterwards. They are seriously organized and seriously committed to their objectives. So, yeah, we think it's going to be a really great project. [overlap]

Bob Irish: [00:02:48] Justin, last month we talked a little bit about the interest that you're getting from various brokers in terms of purchasing properties. And specifically, I think we talked about Vero and Melbourne. Any progress there?

Justin Ford: [00:03:02] Absolutely, yeah. So on Vero, Vero continues to look great. It just went to its best rating ever on TripAdvisor Number eight. It's producing really strong numbers. We have an offer there. Again, I don't like to say the numbers, but it's an excellent number. It's a little higher than I was expecting.  And it's by a guy who bought another hotel in the market recently. So we've a countersigned LOI that we're expecting to get the contract soon. You never know until you're past the due diligence phase, which is about 40 to 50 days in this market. Melbourne, we also have a very strong PSA. Those folks want to convert that property that we have actually a purchase and sale agreement that's a PSA. So we're all ready to that that phase. We don't have it signed yet because we're doing some edits, but they want to convert that to apartments and they're working with the city of Melbourne. So again, indicating the strong demand for housing. And then Equus continues to be number two in the market. It just won the Tripadvisor's top award again for like the fourth year in a row, I think.

Justin Ford: [00:04:03] I'm sorry, no, Melbourne did. I think Equus will win it very soon. Usually they come within a few weeks of each other, but Equus is performing strong and that's when we intended to own a while before we decided to sell. But we're starting to get indications at a number that makes us entertain, looking at possibly selling that one as well. Those hotels continue to do well. The recent jobs report was very strong. People are still traveling. When you look at the hospitality market, it's one of the segments that's hiring more and more. So we like our prospects on those three hotels to continue to perform strong over the next few months. And we think we may have 1 or 2 of them pass the due diligence phase by the time we talk next year. Well, no, that's not true. By the time of our next quarterly report by about September.

Bob Irish: [00:04:55] Okay. Well you'll continue to keep us updated on that. Why don't we, anything really to report on Governor Square or Renaissance?

Justin Ford: [00:05:04] Yeah. We have a new property manager there. She's absolutely excellent. We're back up at about 97, 98% economic occupancy. She has the operations humming well. It's returning to the strong property it always was. We had a gap there for a couple of months when we had a management transition. So we're very, very excited about what she's doing there. And it's a great property in great shape, performing well.

Bob Irish: [00:05:28] Okay, Good deal. Let's talk about the stuff that's not standalone, the stuff that's in the fund. Why don't we start in Oklahoma if you want to. Yeah?

Justin Ford: [00:05:40] The first property we bought was the 91 unit ascend apartments in Tulsa and that is operating at around 96% occupancy. We finished major construction a year ago but soon within the next month, we'll be transitioning the 40 tenants that were uncommon meters to pay their own electric. It's in great shape and that's basically hitting its performance and surpassing a little bit so the stabilized property is good.

Bob Irish: [00:06:12] Yeah. Great. And what about Elevate?

Justin Ford: [00:06:17] Yeah. Elevate was the second one we bought and that was 126 units. We should finish construction this month. We've turned over about 118 to the property manager. She's leased up somewhere close to a 100 of them. And we have some refis pending there as well, where we're going to pull out cash on that. So Elevate is performing very, very well. We just have a few more things to do. Pave the parking lot, finish the last few units. We have 2 or 3 tenants to move out to renovate their units. But we're at the five yard line right there, just close to finishing. Whereas in Tulsa, it's the Apex apartments and more we have ascend apartments. Ascend is 146 units. That one's been tough with the city because they wouldn't give us CO, which are certificates of occupancy to let you put tenants in places for certain things. They sort of told us that midway through the project. First, we had to get the breezeway electric redone and we spoke to them beforehand.

Justin Ford: [00:07:21] They never told us this beforehand. So we did that now. Now they want us to redo all the balconies. So we're doing that. We're doing that at a very rapid pace, but we're finally at the PIT phase where we just got approved like we have about 72 balconies to be done. We just got about 24 of them approved. So now we expect to be releasing up at a very strong pace from next week through the next month. I would say by the time we speak next month, we'll probably have another 30 brand new brand new leases at the market rates. And we can finish that job as early as November, I'd say. Now that we're past that sort of inspector related issues, I think we're going to go very, very fast. We've already renovated 106 units entirely. We only have 40 left to go. And even some of those 40, there's been work done. So it's really just been these issues about balconies and breezeway electric that were a curveball, but we're now handling that.

Bob Irish: [00:08:22] Okay. Good deal. Let's talk about the quick overview on the shopping center. Everything good there?

Justin Ford: [00:08:30] Shopping center, 100% occupancy. We just leased up 5700ft². We moved out the old arcade. We moved in a new one at a higher rate. We had one small pet store that vacated at the beginning of this month. We have a number of qualified tenants looking at, so we're basically at 97% occupancy performing extremely well. We finally put the new roof on, as I said. So everything's going well at the Port Saint John.

Bob Irish: [00:08:58] Good Deal. Well, that's good. That's a great quick overview of everything. I'm wondering if we can't go take the aircraft even a little bit higher. Justin, this real estate market is confounding. I really just can't figure out what's going on. And I'm hopeful that you might be able to provide me and our listeners with your perspective on this real estate market not only in Florida and Oklahoma, but broad based. What are you seeing?

Justin Ford: [00:09:32] It's fascinating. I've been doing this about 21 years, and I've been through the crash of 08, COVID with hotels, and now there's this inflation and the high interest rates. I've never seen a lending market like today. It is really volatile. In two weeks, I'll be out in Newport. I'm speaking at a conference. The private equity and family offices. And it'll be interesting to get everyone's take there because I know everyone I'm talking to, whether they're fellow investors, whether they're lenders or whatever else, they are equally sort of as confounded at what they're seeing. You will get an LOI from a bank, a letter of intent lend you $8 million at this much money. Establish good, dependable bank. A week later they'll say, sorry, we're going to cut them out. We're going to lend you buy $2 million and we're going to do something else and make you have a higher prepayment or something like that. You'll have another LOI submitted by a strong regional bank. This happened to us recently. The day after they issue that the committee, changes their mind and they actually just stop lending in that space for a while. There's all this crazy stuff going on that's related to things you've heard in the market. The public, the public bank and Silicon Valley Bank and all this stuff. I won't get into the details. But the issue is banks, which are dependent on depositor funds are struggling navigating new territory and the Fed's new policy. This creates a real opportunity for private lenders out there. Private lenders step because they're still always an essential need for real estate, especially housing. Correct? Especially affordable housing. So people have loans coming due that need to be refinanced.

Justin Ford: [00:11:16] People have good opportunities to acquire new properties. Properties need to be built again. You have the shortage of housing, but the banks are not quite there as they used to be. It'll be a while before the smoke clears. Private lenders who can step into the space, whose funds are not dependent on bank deposits or bank reserve requirements and those technical types of things can really, really take a bigger, bigger piece of the pie. And they can help a lot of fellow owners, investors and developers succeed. In fact, recently I met this woman who founded a group that led to residential borrowers, and they've lent like $20 billion. She recently sold it. She's kind of in between gigs right now. She and I were talking about maybe starting something where we would do this on a commercial scale. I think you will remember that at one point, there was a bank lent me like $3.5 million to be what's called a warehouse line to lend to others. So I would combine their $3.5 million with mine and my investors to have $1 million. And we'd lend money. Even with all that money. This is about five years ago. Money was so cheap. It was like walking into a flea market with fistfuls of $100 bills. And no one would take your money because money was so cheap, right? Now it's like walking with jugs of water into a desert. People will take your money they want. So I think there's a real, real opportunity here. And I am considering after we get these conversions going 100% towards the end of this year, we may launch a debt fund where we [overlap].

Bob Irish: [00:12:50] Let me ask you a question. If you did launch a debt fund and I understand you're talking about later in the year, what kind of a yield could investors expect from that?

Justin Ford: [00:13:01] I would say minimum 8 to 10%. And there could be additional upside in the sense that, for instance, let's say you lend something at 9% for five years. And rates do come down and you decide to sell your note, there's going to be some capital depreciation in that, selling a higher yielding note and a lower yielding environment. But I would say at a minimum, 8 to 10%. We won't know, I would say until the third quarter. And if we launch, it wouldn't be earliest till the fourth quarter. But if people are interested, they should send an email with the subject line tax debt fund and we'll take a look at it and we'll line up.

Bob Irish: [00:13:40] This is exciting. It sounds like you're stepping into a real area of opportunity Justin.

Justin Ford: [00:13:49] Well Bob, you know so let's say there's a $20 million project and we're going to lend $14 million. And we would buy that project at 16 million, right? So why wouldn't we lend it at 14? Because we don't want to take it back. But if we did, we've been operators for a very long time. We would take it back and we would operate if we had to. So we look at the downside. There's never a 0 risk downside, but we look at the downside as reasonably low and the upside is as significant and we're providing real value in the marketplace, which is always the primary thing. So we think there's a real opportunity and we'll be keeping an eye on that.

Bob Irish: [00:14:28] Wow. Well, I got to admire your forward thinking Justin and you always provide some perspective on this real estate market. Thank you for that. Anything else you'd like to touch on before we sign off?

Justin Ford: [00:14:44] No, it's just always been a pleasure. It's been a pleasure speaking to you and I look forward to our next time.

Bob Irish: [00:14:49] I look forward to it as well Justin. Thanks again.

Justin Ford: [00:14:52] Thank you Bob.

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