Pax Properties has bought, renovated, and operated over 1,200 units and over $125 million worth of real estate. We’ve never been late on a mortgage payment nor lost an investor a dollar. Instead, we’ve consistently made superior returns through booms and busts.
It’s not magic. Rather, our success is due to a strategy we developed that doesn’t depend on hot markets or the crisis of the moment or anyone’s ability to predict the future. It is a strategy that focuses on the value you bring to an enterprise and controlling the things you can control.
We call it, “The CAP Strategy,” and it has been proven to make steady returns in uncertain times… whether we’re facing inflation, deflation, stagflation or desperation. For a detailed understanding on the CAP Strategy and our CAP Plus Diversified Income Fund.
The CAP Strategy is:
Cash Flow
When bought right, the tenant pays rents which cover all expenses, debt service, contingencies and reserves. The rest is your profit.
Amortization
Your tenant pays down the loan debt which increases your equity, creating powerful long-term wealth.
Positive Leverage
Smart and calculated use of debt to ratchet up your returns without an undue increase in risk.
The CAP Strategy is More Than Meets the Eye
But you might be thinking many sponsors aim to maximize these same CAP factors. Yes, they do but many don’t have the capacity or knowledge to maximize cash flows by finding innovative ways to increase the income while minimizing expenses, they don’t understand how to properly harness the massive power of amortization, and they don’t understand how to form various loan structures to responsibly maximize leverage or perhaps they don’t have the track record and consistency to obtain very favorable loan terms.
How can Pax Properties do all of this:
Vertically Integrated
All of our major operations are in-house, including property management and construction. This allows us to generate greater value because of the more efficient and effective use of each invested dollar. We are able to take on projects of all sizes and complexity, successfully repositioning and often rebranding the property, creating best-in-class properties while holding down costs.
20-Year Track Record
We have a proven history of superior returns through the crash of 2008 and the current Covid-19 pandemic. In fact, Pax Properties is heavily invested in hotels (not the current CAP Plus fund) and was able to come through that rough patch intact with the properties nearly back to capacity. In fact, we are investing in a massive rebranding of the hotels. Only the most experienced sponsors could have successfully navigated these challenges.
Capital Preservation Focus
We’ve never missed a mortgage payment or lost an investor a dollar but rather have made superior returns through the booms and busts. We are convinced that this is because of our strict adherence to the CAP factors—what we can control, and not being blindsided by ‘hot markets.’ Our extensive experience and vertical integration in operations also support this focus.
Diversification to Mitigate Risk
PAX Properties investments are diversified across multiple properties in multiple locations and in different property classes. This allows us to take advantage of value and growth markets, adapt quickly to enter markets that could enhance the fund’s total returns, mitigates risk from local economic changes, and takes advantages of our economies of scale.
Tax Benefits Maximized
We attempt to maximize any tax benefits for our investors primarily through depreciation, a tax deduction that allows you to keep more of the profits to use how you see fit. As we enter properties we often perform a cost-segregation analysis to make sure we depreciate all assets allowed by law and under the current law we make use of bonus depreciation. These benefits are passed on to our investors. As long-term property holders any gains subject to capital gains will most likely be long-term as well.
The Right Kind of Appreciation
We cannot predict market appreciation but we do choose growth markets and optimize our properties to be best-in-class. This type of appreciation, what is referred to as ‘forced appreciation’ we do have some control over as opposed to market appreciation. Pax Properties values our investors and we also value our tenants. Our goals are not just to increase the long term wealth of our investors but to contribute to improved communities by providing very nice living conditions in affordable housing.
Investor Alignment – Our Highest Value
We prefer to make money for and with our investors; not off of them. To our knowledge, that is why we are among those with the lowest fees in the industry and perhaps the fewest fees in the industry. The only way Pax Properties benefits is if our investors significantly gain by exceeding targeted returns. Only the strongest and most fundamentally sound company, both financially and strategically, is able to survive and thrive under these constraints.
The CAP Strategy Version of ‘This is a Football’
The legendary coach for whom the super bowl trophy is named after, Vince Lombardi, would walk into the first day of training camp and repeat his famous line year after year, ‘Gentleman, this is a football.’
What was he getting at? No matter the endeavor or goal, success will not be achieved without first mastering the basics.
Similarly, intelligent investing focuses on fundamentals and sound principles coupled with current market data. It includes factoring the downside into account as well as the upside. One question you should ask every sponsor is, ‘what does your underwriting look like when stressed.’ This will tell you if they have considered the downside, something many today in this competitive market do not do.
Right now, we’re facing the lowest mortgage rates in history. They could soon create distortions in the market. Meanwhile, we have an opportunity to buy sound properties in growth markets at reasonable prices and lock in historically low financing rates to ratchet up long-term returns.
When our all-in renovated costs are below replacement cost, we’ve added to our margin of safety. It will be difficult for new supply to come into our markets and undersell us on price. By focusing on value opportunities in growth markets, we further mitigate risk.
But we don’t chase prices or listen to brokers who tell us to buy now because a market is “hot.” Our investment decisions are tethered to the real world by the fundamentals of value. We will only pay prices where the properties can produce Cash Flow to comfortably pay for fixed-rate, Amortizing debt in a way that results in Positive Leverage (increasing the return on equity without dramatically increasing risk). That’s the CAP Factor approach.
We invite you to gain a better understanding by reading more about The CAP Strategy and the CAP Plus Diversified Income Fund.