Have I Found the Holy Grail of Passive Real Estate Investing? (Part 4)

You Can Read Part 1 Via This Link

You Can Read Part 2 Via This Link

January 2018

I am starting this Part 4 of the series in part because it is a new year.  More substantially the company I have been investing and writing about has made a very significant shift in their model.  Both the type of assets and the purchase structure have changed dramatically from what they were when I started investing with them more than two years ago.  I will address that and more in a moment, but first my quarterly investment and performance update for the last quarter of 2017.

Q4 payments were made on time. Quarterly reports made available as well.

Equity Portfolios

First bracket () is number of months since fully occupied.  First percentage is annualized returns since that time. Second bracket is annualized return for the last quarter.

Portfolio 1 (24 months):  9.1%  (3.6%)
Portfolio 2 (20 months): 11.3% (10.1%)
Portfolio 3 (12 months):   9.6% (9.4%)
Portfolio 5 (7 month):     11.9% (9.9%)
Portfolio 7 (not yet):       exceeded 8% preferred

Portfolio 1 has continued its downward trend - worse quarter performance yet. The company reported that there are two vacancies.  They have renovated them and started to market at least one on the MLS. Market conditions are favorable for doing so. I'm told the first one listed had multiple offers close to asking within a few days of the listing. This is the first implementation of any kind of exit strategy for any of these portfolios.  I am excited to see how this goes.

Portfolio 7, the 50 unit multifamily, my most recent investment, had 84% occupancy at the end of the quarter, reflecting some turnover renovations to be marketed at new rates. This first payout came a little under the 8% preferred, which they will make up in future payouts. However, the timing of my last minute investment actually resulted in a higher percentage return for me.

Debt Portfolios

Portfolio 4 (10 months):   9.1% (8.2%)
Portfolio 6 (not yet):   received another 8% interest payment

Portfolio 6, my first apartment complex remained at 74% occupancy as they had some turnover at the end of quarter, which they are renovating and marketing at higher rental rates. Apparently the renovations on the burned out units, which are complete gut to stud renovations, went a little slower than expected, but are now near completion. They are expecting to reach well above 90% occupancy within a few months. My best guess is this property will also be refinanced (via bank) by the end of the year.

Noting Changes

When I first invested with this company over two years ago, the offerings were made of Equity portfolios of 10 SFR.  These homes were first acquired by the company prior to the offering to investors.  Purchases and renovations were all done with cash and were completed well under the estimated ARV of the homes.  These were particularly attractive to me for using self-directed retirement funds which needed to be passive investments. Being cash purchases my investments would not be subject to UBIT or any tax obligation.

In the year that followed (2016) the company added Debt portfolios to the mix, and last year expanded into medium size multiplexes, with the goal of doing many more.  The first multiplex (my portfolio 6) was a Debt portfolio - ie: we investors were lenders, that also included 3 year seller financing.  The second (my portfolio 7) was an Equity portfolio and was, like all the SFR portfolios, an all cash buy.  The plan was to do a value add and then refinance with a commercial bank loan 18 months or so into the deal.

 Then toward the end of last year they announced a decision to invest in only multifamily in 2018 and beyond. This is quite a progression, and must be discerned from the investments I’ve been writing about up until now.

Their most recent offering (their third multiplex), is one in which I did not make an investment. However, it is likely the clearest example of what we investors can expect going forward. The offering was a raise for the down payment & minor renovation costs on an 81 unit complex. This marked the first offering where the purchase was being leveraged with a commercial bank loan, 75% LTV - a stark contrast to all the cash investments of the SFR portfolios.

The leveraging likely makes possible the bit higher projected returns of 10-13% cash on cash, with 18-22% IRR. Those projections are based on investor payout of 8% preferred, with a 75% share of net rental income once that 8% is paid out. Investors also receive 75% of profits upon any sale. I believe there were some acquisition and sale fees paid to the company built into the deal. These fees were typical of what I have seen in other multiplex syndications. The minimum investment was $20,000, and the company has made it clear that will be the baseline minimum going forward, and in some instances could be higher. That is twice the minimum on every one of their SFR portfolios, but in line with another multiplex (my Portfolio 7). 

Leveraged acquisitions do provide for better ROI projections, but they also carry additional risk exposure should things go south on the asset.  Also some retirement fund investments can be subject to some tax obligations such as UBIT.

From my view, the shift away from the SFR was largely precipitated by the increasing difficulty for the company to acquire enough distressed properties at a price point that could work for the model.  The demand and shrinking availability of these properties became abundantly evident last year.  The flip side is that is an opportune time to sell some of these held assets.  And that is just what they are starting to do.  As mentioned above they are selling two of the recently vacated properties in my Portfolio 1, which they expect will result in a considerable improvement in the returns on this portfolio. They have also indicated an ongoing consideration to sell other SFR from various portfolios as they become vacant.

Today this company is considerably more matured then when I started investing with them.  They have a multiyear track record, multi-millions in assets, and have the ability to obtain commercial bank loans at favorable rates - something they simply couldn't do when they started out.

Still, much of what I initially considered unique and attractive about this company has changed and for future investment consideration I will be evaluating differently.  Today they are more like many other multiplex syndicators I've seen, albeit via crowdfunding platform and open to non-accredited investors, which most are not.  In addition, I have a track record with them, and they have consistently performed over multiple years. From my perspective, they likely do retain some fairly distinct advantages.

To assist me and my readers in evaluating of future offerings compared to those of yesteryear I have created the following table of comparisons. 

Lots to consider, watch this space for future updates.

First Quarter, 2018 - Update

Equity Portfolios

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time. Second bracket is annualized return for the last quarter. Unbracketed percentage is the annualized return since full occupancy as of 4/30/18:

Portfolio 1 (27 months): 9.0% (9.7%)
Portfolio 2 (23 months): 11.5% (13.3%)
Portfolio 3 (15 months): 10.2% (12.2%)
Portfolio 5 (10 month): 11.5% (9.3%)
Portfolio 7 (not yet): Paid a bit under the 8% preferred

Portfolio 1: Two vacant properties were listed for sale, one is in escrow, the other didn't get much traction and his being put back on market for leasing.  Even with these two properties not bringing in any income for the quarter, the portfolio as a whole really picked up for the first time, turning around a year long trend.

Portfolio 7: This 50 unit complex has reached 88% occupancy, and the managers are expecting it to reach 95% with a couple of months. 

Debt Portfolios

Portfolio 4 (13 months): 9.1% (9.9%)
Portfolio 6 (not yet): received another 8% interest payment

Portfolio 6: Reported to be 85% occupied, and told to expect 95%+ within a couple of months.

Second Quarter, 2018 - Update

I have lots to report for this quarter, for it was like no other. The good news is that during this quarter five properties in Portfolio 1 were offered for sale and went under contract. One closed in Q2, three others closed on July 2, and last one closed later in July. So, just the one impacted the Q2 return of capital and profits, and the rest will impact Q3. However, I received a report of the total ROI on all 5 properties that have closed, and share some of those numbers below. As a whole the annualized returns on these sold properties is very positive, and a good first indication of achieved IRR.

Then I have frankly disappointing news to report. This quarter was by far the worst performing quarter for the company as a whole. For net rental income distributions every portfolio under performed. A couple of my holdings had no distributions at all for the quarter, which was previously unheard of with this company. I reached out to one of the co-founders with my questions and concerns, and here is a little of his email reply:

Q2 2018 was the worst quarter for (company), but I am still 100% confident in meeting and or exceeding the investment expectations that we have set forth. We still have very strong holdings, and I'm very confident all of our investments will be profitable and meet these expectations over the long term.

I then had an extended call with that same co-founder to get a more complete picture about what happened and more importantly what was being done to get back on track. To distill down his frank responses, there were essentially two elements to what he called company growing pains. The first was the annual and semi-annual hits on taxes and insurance payments. Those costs particularly hit hard on the multifamily properties this quarter. To address this, going forward they are making changes by internally escrowing (holding) on a monthly basis funds to cover these things, much like a mortgage servicer does impounds. The expected effect is one of leveling out the average monthly net returns and quarterly distributions.

Second, they have had turnover in the areas of property management led by their high performing Property Manager (PM) being recruited away, and the quality leasing agent taking on the job. This all led to what I gather was a sharp downturn in PM and lease up performance. The good news is that at the time we spoke, he reported that they were solidifying an agreement to bring back the PM, which would allow the one time leasing agent to return to that job. So, at this point, I’ve got my fingers crossed it all works out. What I do continue to have confidence in is the level of company transparency and ability to address issues as they arise.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 6/30/18. Second bracket is annualized return for the last quarter.

Equity Portfolios

Portfolio 1 (30 months): 12.5% * (4.5% plus returned 10.6% of my invested capital)
Portfolio 2 (26 months): 10.7% (3.3%)
Portfolio 3 (18 months): 10.2% (4.4%)
Portfolio 5 (13 month): 8.8% (0% as in no distribution)
Portfolio 7 (not yet): No distribution this quarter for this apt complex.

Portfolio 1: These calculations are still rough, but the total investor ROI for the 5 sold properties averaged approximately 52%, with an average annualized return of 18.9%. This rate of return is toward the top of range of the 12-20% IRR projected for the entire portfolio. This is very promising for this first executed exit strategy of any of the holdings. Of course, five of the properties will continue to be held for rental income, and reportedly not sold for some time. So it is too early to know what the final IRR will be for the investment as a whole. *The 12.5% annualized return will be subject to adjustment once capital return is properly accounted for, and next quarter when the additional sale profits are factored in.

Portfolio 5: Reason given for no distribution for quarter was that there was no operating cash flow due to turn costs on two properties plus tax payments.

Portfolio 7: This 50 unit complex reported still at 88% occupancy, and the managers are expecting it to reach 95%+ with a couple of months. This is a repeat of what they said last quarter, and reflects the property management difficulties I discuss above. Reasons given for no distribution were property taxes, annual insurance premium and turn costs on units.

Debt Portfolios

Portfolio 4 (16 months): 8.7% (7%)

Portfolio 6 (not yet): received another 8% interest payment 

Portfolio 6: 41 of 46 units now occupied (89%+), and told to expect 95%+ within a couple of months. 

Third Quarter, 2018 - Update

Unsurprisingly, both the positives and negatives originating in Q2 continued to play out this quarter. In Portfolio 1, four sold properties resulted in a hefty return of capital and very nice profits. On the negative side, two of my portfolios had no distributions at all. The good news is that the company successfully recruited the one time property manager and in September she returned as the new COO. The expectation is that she will be able to get things back on track to a very efficient system. She once managed 3,500 units, and is very highly regarded. Time will tell, but I am cautiously optimistic that the turnaround will play out soon.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 9/30/18. Second bracket is annualized return for the most recent quarter (Q3 18).

Equity Portfolios

Portfolio 1 (33 months): 13.6%* (64% plus returned additional 44.3% of capital)
Portfolio 2 (29 months): 9.3% (0% as in no distribution this quarter)
Portfolio 3 (21 months): 9.2% (9.2%)
Portfolio 5: (13 months): 10% (Closed out end of Q2, see below)
Portfolio 7: No distribution again this quarter for this apt complex.

Portfolio 1: About 55% of original capital invested has now been returned. With the capital returned and realized profits paid on 5 of the 10 original properties, these calculations are still rough in determining the true ROI, but things are looking good on the executed exit strategies thus far. One additional property is for sale and the managers report they are looking for best ways to sell the remaining properties in the portfolio. *The 13.6% annualized return will be subject to adjustment once capital return is properly accounted for.

Portfolio 2: Had 4 properties (of 10) vacant at end of quarter. Along with renovation costs to make ready for new tenants the managers reported there was not enough cash flow to make a distribution. Two properties are for lease with pending applications, other two will be marketed for lease soon.

Portfolio 5: This was one of only two portfolio investment from my personal, not retirement funds. As I needed to raise some capital for an unexpected business expense, I asked to exit this portfolio at the end of Q2. The company complied by offering it as a straight transfer to another investor already in the portfolio. It was picked up within a few hours of the offer going out. To cover the extra administrative work, I paid a small fee that was equivalent to 1.33% of my investment, but other than that received all my capital back. Nearly an 11% total return over the life of the investment over 17 months, it was 7.7% annualized ROI. Not bad for an investment I had to pull out of early.

Portfolio 7: This 50 unit complex reported dropped to 80% occupancy with more move outs then move-ins. The managers attribute that to their poor management efficiency for the last couple of quarters. They don’t expect to meet the 8% preferred return for this year, but will make up the difference next year, possibly with the cash out refinancing.

Debt Portfolios

Portfolio 4 (19 months): 8.8% (9.5%)

Portfolio 6: received another 8% interest payment

Portfolio 6: Just above 90% rented out, and told they plan to execute a bank refinance between December and February. 

Fourth Quarter, 2018 - Update

This is for the last quarter of the under performing year (2018) for most of my portfolios. For this quarter two of my portfolios had no distributions at all. The promising news is that there are strong indications that things are turning around and 2019 will be much better. Portfolio 6, a debt portfolio, has entered the refinancing stage. This is the first time the company is executing this type of exit strategy on any of its holdings.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 12/31/18. Second bracket is annualized return for the most recent quarter (Q4 18). All reporting are as of end of 2018.

Equity Portfolios

Portfolio 1 (36 months): 12%* (0% as in no distribution this quarter)
Portfolio 2 (32 months): 8.4% (0% as in no distribution this quarter)
Portfolio 3 (24 months): 9.1% (7.9%)
Portfolio 7: (84% occupancy): 8% preferred* (2.7%)

Portfolio 1: The driver behind no distribution this quarter is vacancy and turn costs. Of the 5 remaining properties in this portfolio, two are being marketed for rent, one is for sale, and two are occupied. The managers are looking at options for selling the remaining properties in this portfolio. *The 12% annualized return will be subject to adjustment once capital return is properly accounted for.

Portfolio 2: During Q3 & Q4 there were six move outs. All but one of them is now rented. The one up for lease already has 2 pending apps. So, this portfolio looks good going forward.

Portfolio 3: 8 properties currently occupied, one being marketed for rent, and another just vacated.

Portfolio 7: This 50 unit complex had 9 move ins and 6 move outs during Q4. Current occupancy at end of year was 84% (90% by Jan 31st), which is an improvement from previous quarter. Existing units when turned over proved to be in worse shape than known, and thus more costly to turnover then anticipated. Thus the small distribution. The managers say the amount of the 8% preferred return that was not paid in 2018 will carry over to 2019 and be paid to investors from the proceeds of the refinance. They are now estimating that to be in 6 months. Given that their timeline forecasts have been consistently over optimistic, I’d venture it will be at least a little longer than that, maybe close to the end of the year.

Debt Portfolios

Portfolio 4: (22 months): 8.7% (8.9%)

Portfolio 6: (apt complex at 91% end of year and 100% on Jan 31st) received another 8% interest payment

Portfolio 4: 9 properties are occupied and one is in process of turn for re-leasing.

Portfolio 6: With pre-leased units (includes approved tenants who have yet moved in) occupancy is at 93.5%. They have started the refinance of the property, which they hope will close within 60 days. They expect the vast majority, possibly all, of invested capital to be returned to investors with this refinancing. This is an exciting prospect, as even if all capital is returned, investors will continue to receive 25% of rental cash flow and 50% of profits on any sale. 

2019

Q1 2019 - Update April

This is for the first quarter of what is promising to be a turn-around year after 2018’s underperformance for most of my portfolios. Across all my portfolios occupancy is way up for this quarter, particularly in the two apartment complexes. Exit strategies in two of the portfolios are proceeding to be executed. Still, cash flow wise this was another underperforming quarter. I get into some of the details below.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 3/31/19. Second bracket is annualized return for the most recent quarter (Q1 19). All reporting are as of 3/31/2019.

Equity Portfolios

Portfolio 1 (39 months): 15%* (0%)
Portfolio 2 (35 months): 8.5% (3.1%)
Portfolio 3 (27 months): 8.7% (3.3%)
Portfolio 7: (apt 100% occupancy): 8% preferred* (4.9%)

Portfolio 1: Three more properties were sold in February, which leaves just 2 properties in this portfolio. The three properties were sold on contract, and the company says these will average 18% to 21% ROI to investors when the loan balance is paid off in one to three years. They are working on selling the remaining two properties, one of which is occupied and the other vacant. They explained that costs of sale and selling on contract made for no cash flow distribution for this quarter, as the small down payments just covered costs. *The 15% annualized return will be subject to adjustment once capital return is properly accounted for.

Portfolio 2: 9 properties are occupied, 1 vacant, but this followed 6 move outs in the last two quarters of 2018. The company says this portfolio is getting back on course, but it still underperformed cash flow wise Q1 due to vacancy and turn costs.

Portfolio 3: 9 of 11 units (one duplex in portfolio) currently occupied. One property is ready for lease, and another is finishing turn process.

Portfolio 7: Currently 100% occupied which is a total turnaround from late 2018. Still playing catch up on receiving full preferred return, but this was the 2nd quarter there was actually a distribution after the dry hole of cash flow in the 2nd half of 2018. *When the preferred return is not met in distribution, it is carried over, and to be made up later, most likely from the proceeds of the refinance.

Debt Portfolios

Portfolio 4: (25 months): 8.6% (9.5%)
Portfolio 6: (apt complex at 93.5%) received another 8% interest payment

Portfolio 4: All 10 properties are occupied.

Portfolio 6: Current occupancy is at 93.5%. It actually reached 100% the end of February, but they had a few move outs in March. A refinance loan with Freddie Mac is proceeding, which the company hopes to close by end of Q2. Freddie Mac wants to see longer operating history above 90%.   

Q2 2019 - Update August 

First, I am very late in posting this update in large part due to the fact that the company had a major website update. Once the update was in place, it took some weeks to populate with the all the historical and current reporting. Actually all the portfolios are not yet fully populated, but I have enough info to make the update.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 6/30/19. Second bracket is annualized return for the most recent quarter (Q2 19). All reporting as of 6/30/2019.

Equity Portfolios

Portfolio 1 (42 months): 14.3%* (No income distribution, but returned another 6.8% of my original capital investment)
Portfolio 2 (38 months): 8.5% (3.1%)
Portfolio 3 (30 months): 8.7% (4.4%)
Portfolio 7: (apt 96% occupancy): 8% preferred* (5.8% actual distribution)

Portfolio 1: One more property in this portfolio was sold, leaving just one property left in the portfolio, which is currently vacant and for sale. The only distribution this quarter was a return of capital due to the sale. *The 14.3% annualized return will be subject to adjustment once capital return is properly accounted for, which is not yet reflected in the new website.

Portfolio 2: All 10 properties are occupied as of 5/1/19, but this followed enormous turnover costs during the first two quarter. The result, there was no distribution at all this quarter, but company indicates the second half of the year should be back on track.

Portfolio 3: All 11 units (one duplex in portfolio) are now occupied. This should lead to better returns in the second half of year.

Portfolio 7: Income is growing month after month the company reports and that is reflected in a slightly higher distribution. Still they are still catching up to paying out the preferred return. *When the preferred return is not met in distribution, it is carried over, and to be made up later, most likely from the proceeds of the refinance or sale.

Debt Portfolios

Portfolio 4: (31 months): 8.6% (8.8%)
Portfolio 6: received another 8% interest payment

Portfolio 4: All 10 properties are occupied, and this debt portfolio continues to be a consistent performer.

Portfolio 6: Current occupancy was not fully reported. Some state income taxes were taken out, even though mine is a retirement account investment. I was told those funds will be distributed after the end of the year accounting. This quarter the company made a decision to not take on the debt risk of a refinance, and instead sell the property in what is a very good market to sell. It is under contract and currently expected to close at the end of August, and at a considerable profit. They also have a back-up offer at the same price, should the first buyer be unable to close due to financing. I am actually looking forward to seeing this sale play out and what kind of ROI will be achieved. Hopefully I will be able to report on that successful sale and distribution in the next quarterly update.

Q3 2019 - Update November

Again, I am very late in posting this update. This time it was mostly due to a my waiting for the final profit report and distribution to come through on Portfolio 6 and its completed sale. That finally came through a couple weeks ago. Details of this completed sale of an apartment complex and returns is the most exciting news I have to report for this quarter.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 9/30/19. Second bracket is annualized return for the most recent quarter (Q3 19). All reporting as of 9/30/2019.

Equity Portfolios

Portfolio 1 (45 months): 12.6% (0%)
Portfolio 2 (41 months): 7.6% (5.8%)
Portfolio 3 (33 months): 8.3% (6.3%)
Portfolio 7: (apt 92% occupancy): 8% preferred* (6.4% actual distribution)

Portfolio 1: Capital return has now been properly accounted for in the annualized IRR. Capital return is about 62% of my original investment in this portfolio. Just one property left in this portfolio that remains unsold. The company reports it is advertised for sale and they have one very interested party. As previously reported there are 3 other properties that were sold under contract. Eventually they should produce some cash flow and eventually return of capital.

Portfolio 2: Two move outs during September, leaving both properties vacant at end of quarter. They are being made ready for new tenants. These move outs meant the portfolio fell short on net cash flow and will likely impact Q4 as well.

Portfolio 3: All 11 units (one duplex in portfolio) are still fully occupied. Company reported that this portfolio had a good quarter.

Portfolio 7: This apartment complex went under contract to a buyer during Q3 and.is expected to close in Q4. That will result in a full return of capital, the balance of preferred returns owed, plus a share of profits to myself and the other investors.

Debt Portfolios

Portfolio 4: (34 months): 8.6% (9.8%)
Portfolio 6: Sale was completed for return of capital and profit share.

Portfolio 4: This portfolio reportedly had a great quarter, and has been a consistent performer.

Portfolio 6: This was the first portfolio, and apartment building, the company fully exited. How’d they do? Their projections were for an IRR of between 15.1% and 19.3%, and they claim the return fell at 16.3% annualized IRR. However, when my calculations didn’t fall in line with that, I learned from one of the managers, that both the projections and the claimed final IRR were calculated pre-tax (state income tax), while I received the after tax income only. What I received was more like 14% IRR. I confess that it was frustrating to learn that this tax was taken prior to payout to investors, as this investment is by a retirement account and should not be subject to income tax. However, as it is a debt portfolio, the partnership that actually owned the building had to pay the tax prior to paying the debtors (investors). That said, I learned something valuable from this experience and am largely satisfied with the results of this completed investment.

Q4 2019 - Update January 2020

This quarter saw the close on sale of another of my apartment portfolios, Portfolio 7. This was my only other apartment portfolio, so now all of my remaining investments with this company are based on their original model of 10 SFR in debt free portfolios.

Returns (ROI)

First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 12/31/19. Second bracket is annualized return for the most recent quarter (Q4 19). All reporting as of 12/31/2019.

Equity Portfolios

Portfolio 1 (48 months): 12% (0%)
Portfolio 2 (44 months): 7.3% (4.6%)
Portfolio 3 (36 months): 9.1% (6.5%)
Portfolio 7: Sale was completed for return of capital plus delayed preferred return, plus profit share resulting in a 10.8% IRR.

Portfolio 1: The last property in this portfolio is currently under contract for seller financing, just awaiting buyer to come up with the down payment to close. The company reported that interest income collected on the 3 properties sold under contract fell about $1,000 short of the negative balance on this account at the beginning of the quarter. That is why there was no distribution this quarter, closing out an entire year where there was no earnings distribution. The only distribution was return of capital.

Portfolio 2: This portfolio had several move outs during the quarter and with turnover costs fell well short of projected income. Company expects full occupancy by end of Q1 2020.

Portfolio 3: Company reported that this portfolio had a good quarter, but still there were 2 vacancies (of 11 units) at the end of the quarter. Distribution for the quarter was below projections.

Portfolio 7: So, the company decided to sell this apartment complex instead of refinancing, as initially projected, due to the under performance of the portfolio and the fear of taking on too much debt. I am glad they did so as I agreed the risk reward of refinancing was not worth it. While this near 11% annual return on my investment was way under the target of 16-18%, I am glad it delivered returns as well as it did, and happy to be out of this investment.

Debt Portfolios

Portfolio 4: (37 months): 8.4% (9.8%)

Portfolio 6: SOLD, see previous quarter’s update

Portfolio 4: This is the only remaining debt portfolio had another great quarter, and continues to be a consistent performer.

Q1 2020 - Update May 2020

This quarter closed with the Covid19 pandemic emergency in full bloom. As a result the portfolios managers made a decision to prepare for what might be coming and suspend distributions as a measure of safety in case tenants should fall behind on their rent. I consider that a prudent decision given the large scale uncertainty. Accordingly I will skip the ROI reports, and just share descriptive updates for each of my remaining 4 holdings I have with this company. 

I should note that all of these, with one exception – a duplex, are single family portfolios, and at the end of the quarter they had a buyer for a large portion of the companies remaining SFR holdings. This includes all of those remaining in my investments with them including the duplex. Unfortunately, that deal is on hold as a result of that buyers financing falling apart under pandemic related uncertainty. At last report, the buyer was still interested in going through with the purchase if and when financing comes back on line.

Equity Portfolios

Portfolio 1: There is just one property left in this portfolio. That property remains vacant. The previous buyer for this property fell through. Now it is being included with the package of SFR properties of the new buyer mentioned above. There are also 4 other properties that were sold under seller financed contracts. Mortgage payments will continue to be collected for those properties until paid off within 3 years.

Portfolio 2: Four of the properties of the 10 were renovated and leased up for 100% occupancy by the end of quarter. However the turnover costs ate up any potential cash flow for the quarter. With full occupancy, they are now poised for a good Q2 cash flow, assuming tenants manage to pay all under the COVID 19 restrictions.

Portfolio 3: Full occupancy of all 11 units (this is one with the duplex) by the end of the quarter. There were apparently two turnovers during the quarter, including one that need major renovations. All in all, the company reports cash flow was reduced by about 70% for the quarter.

Debt Portfolios

Portfolio 4: This debt portfolio had another great quarter, with nothing out of the ordinary. It continues to perform the most consistently of any of my holdings with this company.

Q2 2020 - Update July 2020

As the pandemic emergency continued throughout this second quarter (and beyond) the company did feel comfortable enough to make distributions this month to cover both those held back for Q1, as well as Q2. They did report that there rent collections are down for all their single family holdings due to Covid19 job losses. They are collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are about 90%, which is also lower than normal. Three of the four portfolios had distributions, only one of those came close to normal.

The buyer for all the single family properties in these portfolios I still hold fell through due to the inability to obtain financing, which is also Covid related. At this point the company is moving forward with selling all held single family properties either individually or in small groups.

Equity Portfolios

Portfolio 1 (54 months): 11.3%* (0%)
Portfolio 2 (50 months): 6.7% (1%)
Portfolio 3 (42 months): 7.7% (3.6%)

Portfolio 1: There is was no distribution for this quarter, as the single property left in this portfolio was renovated to prepare for sale. The cost of renovation exceeded any interest income from the 4 properties that are under seller contract. That remaining property is under contract under favorable terms. It is expected to close within 30 days. That close should result in a return of principal on that home, plus some nice profits to us investors.

Portfolio 2: The Company reported a good Q2 for this portfolio with on budget net income and 100% occupancy. However Q1 had a net loss, with turnover costs and getting ready for new tenants. Thus, the underwhelming distribution.

Portfolio 3: The Company also reported a good Q2 for this portfolio. Also has 100% occupancy. Again, Q1 had turnover costs and some renovation on one property. Distribution is for both quarters as is also under normal for two quarters.

Debt Portfolios

Portfolio 4: (43 months): 8.7% (9.3%)

Portfolio 4: This debt portfolio had good quarters for both Q1 and Q2, and the distribution was in line for both quarters in what would be expected during normal times.

Q3 2020 - Update October 2020

As per last quarter, the company continues collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are about 90%, which is also lower than normal. The company reports that overall Covid-19 job losses have impacted these single family holdings, and impacted their bottom line. Still there were some decent distributions for this quarter.

Equity Portfolios

Portfolio 1 (57 months): 9.9%* (0%)
Portfolio 2 (53 months): 6.9% (11.2%)
Portfolio 3 (45 months): 7.8% (9.6%)

Portfolio 1: No distribution for this quarter. Still one property left in this portfolio, which they have had trouble selling as a vacant investment property. They are looking at selling this home under contract where they take a decent down payment and hold the note for one to three years. Still collecting mortgage and interest payments on 4 properties previously sold this way. NOI on this portfolio was positive for the quarter, but no cash for distribution due to the repairs made on the remaining property.

Portfolio 2: There was a good quarter for this portfolio. Income was up and expenses down, resulting in one of the best distributions in some time.

Portfolio 3: The Company also reported a good Q3 for this portfolio wit 100% occupancy.

Debt Portfolios

Portfolio 4: (46 months): 9.6% (13.6%)

Portfolio 4: One property was sold from this portfolio during this quarter for a very healthy profit, resulting in a capital return of 8.79% of my investment. The profit was at an annual rate of nearly 17% and boosted the income distribution of this portfolio for the quarter to the 13.6% annualized rate.

Q4 2020 - Update February 2021

This quarter had a whole lot of activity for my holdings with this company. All four had sales of SFR including Portfolio 1 in which the last property remaining sold. In addition, all the seller funded loans on previously sold Portfolio 1 properties were paid off, and the portfolio was closed out.

Now three of the seven portfolios I’ve reported on with this company have closed out. Another one I exited some time ago, selling my shares to another investor. That leaves me with just three of those seven left to report on going forward.

However, for the first time in years, I invested in a new portfolio with this company. This is actually a new build of a 55+ (senior) apartment village complex and thus likely won’t have any cash flow any time in 2021. I shall call this Portfolio HV. More details below.

As per the previous Covid-19 quarters, the company continues collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are above 90%, which is also lower than normal. Still, as result of the sales mentioned above there were some excellent distributions of earnings and returns of principal for this quarter.

Equity Portfolios

Portfolio 1 (60 months): 10.4% (118.6%) – Now closed.
Portfolio 2 (56 months): 11.2% (29.5%)
Portfolio 3 (48 months): 10.1% (32.7%)

Portfolio 1: With the full close out of this of this portfolio and all properties sold, I achieved a 48.2% total return over the 5 year life of the investment. Given that I had some capital return along the way that made for a 10.4% annualized return (IRR) on my investment dollars. This is a decent return, but fell well short of the company’s target of 12-20% IRR. So it is a bit disappointing.

Portfolio 2: Sale of 7 of the 10 homes in this portfolio resulted in a return of capital of 67% of funds invested. The sales also resulted in an average of annualized ROI of 21.32% spread across all seven. The best performer returned a bit over 30%, the worst at 12% ROI annualized. After an extensive renovation to maximize gain from a retail sale, an eighth property has a pending offer on it, that if closes will net a very substantial profit. The company is also planning to sell the remaining two properties when the timing warrants.

Portfolio 3: Four of the 10 properties, including one duplex, sold in this quarter. This resulted in a return of 38% of my investment capital. Profit from these sales along with rental income had a 21.6% annualized return. Nice.

Portfolio HV: As mentioned this is a new build specialized apartment and village complex designed for senior community living. The company is working in partnership with a developer who has built these senior villages elsewhere, as well as partnering with another investment company. This is a 131 unit development, with retail & restaurant space built in. It is one of the very hottest of Midwest markets, and a new one for me. Although there will be no returns or cashflow this year, there is an 8% preferred return from day one, and 40% of the operating cash flow and profit from sale or refinance to the participating investors. The projections are for returns of 11 to 13% cash flow prior to refinance and total annualized returns of 17%+. Time will tell if these projections are met, but I am excited about this investment.

Debt Portfolios

Portfolio 4: (49 months): 9.1% (10.3%)

Portfolio 4: There was an additional sale of one property in this portfolio, resulting in another 12% return of capital of my initial investment. The sold property had a 9.9% annualized IRR. In addition a third property was sold at the very end of the quarter, and that capital and profit will not be distributed or reported until the end of this current quarter. That leaves 7 properties still in, and like the other, they plan to sell off the rest at advantageous moments to do so.

Q1 2021 - Update

This quarter saw quite a few more sales of the single family homes the company is selling off, but the 3 single family portfolios remaining, still have 1 or more homes in each remaining at the end of the quarter. Anyway capital and profit returns continue to be distributed.

As a result, I was able to turn over some of that return of capital into yet another offering by this company. This one is 160 unit multi-family complex in the Southeast. This is considered a B+ class in an A+ location. The sponsors plan to do a value-add, upgrading units and raising rents substantially. The purchase of this property closed in the last few days of the quarter. So brand new. 7% Preferred Return to investors, plus 70% of operating income to investors. A total projected annual cash flow of 7-9%, and ROI of 15%+ over life of project once sold. I shall call this Portfolio AZ.

Equity Portfolios

Portfolio 2 (59 months): 14.8% (77.9%)
Portfolio 3 (51 months): 11.4% (10%)
Portfolio HV: (3 months): Being built
Portfolio AZ (0 month): Returns next quarter

Portfolio 2: Sale of another 2 of the 3 homes remaining in this portfolio resulted in a total return of capital of 90% of original funds invested. Profit from these sales resulted in an average of annualized ROI of 19.27% for the two. The company is planning to sell the one remaining property.

Portfolio 3: 2 more of the remaining 6 properties, sold in this quarter. This resulted in a return of additional capital, for a total return of 60% of capital. Profit from these sales along with rental income had a 21.6% annualized return. Operating income this quarter was pitiful with 2 of the remaining 4 properties vacant.

Portfolio HV: Progress was made on the launching of the building of this project, and we are still a ways out before it will be completed and produce income.

Debt Portfolios

Portfolio 4: (52 months): 10.8% (9.4%)

Portfolio 4: An additional 6 properties were sold from this portfolio, leaving just 2 homes in, which the company plans to sell as well. They had an average of 16.71% annualized ROI.

Q2 2021 - Update

A couple more sales of the single family homes the company is selling off, with just five single family properties left in my portfolios.

I made investments in another portfolio offered by this company. This was the most unusual portfolio of all, really 3 projects in 1 portfolio. The three are a 281 unit multi-family in one southern state, a 143 unit in another southern state, and a 67 bed upscale boutique hotel project in a town that is a gateway to the Smokey Mountains. This was exciting project to have an opportunity to invest in, and I made my largest investment yet, really 3 investments from different accounts, with this project. The two multi-families are projected to produce a 20%+ cash on cash return over life of projects. The hotel 17%+ cash on cash alone. I will call this Portfolio RHA.

Equity Portfolios

Portfolio 2 (62 months): 13.6% (0%)
Portfolio 3 (54 months): 11.1% (14%)
Portfolio HV (6 months): Being built
Portfolio AZ (3 month): 5.1% (7.5%)
Portfolio RHA (1 month)

Portfolio 2: Just one property left in this portfolio which was under rehab in preparation for sale. This was described as the most extensive rehab the company has done to a SF. There were no distributions in this quarter. 90% of capital has been returned.

Portfolio 3: One more of the remaining four properties, sold in this quarter, leaving three. This resulted in an additional return of additional capital, for a total return of 68% of capital. Profit & cash flow income from that sale was 20.5% annualized. Two of the three properties are occupied at end of quarter, with one vacant. The vacant one has been rehabbed and is under sale contract.

Portfolio HV: The sponsors report great progress on the construction of HV, and thus far seems to be on time for completion for Spring 2022, and certificate of occupancy that summer.

Portfolio AZ: Unit upgrades began immediately after closing, 30 completed and other 19 in progress. 10 tenant move-ins to renovated units with average of $300 increase per unit over previous rents. Exterior improvements are underway as well. I also received the first distribution of cash flow, at a touch over the 7% preferred rate to investors.

Portfolio RHA: Closings on three elements of this project happened in the final days and weeks of the quarter. There is an existing hotel on the lot where the new hotel is being built, and that is set to be demolished mid-July.

Debt Portfolios

Portfolio 4: (55 months): 11.3% (128%)

Portfolio 4: Another property was sold for a total annualized investor return of 21.3% ROI. 88.5% of capital has now been returned. Just one property left to sell in this debt portfolio.

Q3 2021 - Update

I am rather late in posting this last quarter’s update mostly due to a delay in receiving updates from the company’s sponsor partners in the newer projects, which is all the projects I invested in this last year. The partners are bringing the bulk of the capital to the projects and are also the managers in these ventures. This is a sea change in the portfolios of the past, which were entirely this company’s ventures. And this change has led into this much larger projects and vastly different opportunities, which I began to invest in late last year.

One more of the single family homes the company is selling off closed, with just four single family properties left in my portfolios. And one of those is already under contract.

During this quarter, I made investments in two more offerings by this company. The first was a 248-unit, Class A apartment community in another southern state. Occupancy at the time was 96%. The company and their partners are planning this 2007 complex as a value add, that will result in a capture of $300 rent increases over a 3-year time frame. I made two investments from different accounts, one retirement, one not. 7% Preferred and 70% of the operating cash flow and profit to investors. The target IRR is 26-30%, with projected cash returns running 7-30%. The later higher figures after refinancing and return of much capital. I will call this Portfolio PRO.

The second offering I invested in during this quarter came days later and was the same design and developer as Portfolio HV. I made a relatively small, single investment in this 55+ retirement apt village, which is 130 units and in the same state, different city as HV. It will be a new build that is projected to take 12-18 months to complete. It pays investors an 8% preferred return from day one, 50% of the operating cash flow. In all, they are projecting annualized returns of 17%+. I will call this Portfolio HM.

Equity Portfolios

Portfolio 2 (65 months): 12.9% (0%)
Portfolio 3 (57 months): 12.7% (176%)
Portfolio HV (9 months): Being built
Portfolio AZ (6 months): 7.1% (6.8%)
Portfolio RHA (4 months): 6.4% (6.4%)
Portfolio PRO (2.25 months) 4.9% (4.9%)
Portfolio HM (2 months): Being built

Portfolio 2: With just one property left in this portfolio, it operated at a slight loss, so again no distributions this quarter. There were extensive renovations on the property, and it went on the market at a very profitable price. A cash offer was accepted and is now pending.

Portfolio 3: Another of the remaining properties was sold, leaving just two in the portfolio. This resulted in return of additional capital, for a total return of 78.5% of capital. Profit & cash flow income from that sale was 20.8% annualized. One of the two properties remaining are occupied at end of quarter, with one vacant. Company is currently looking for alternative housing for the remaining tenants, so that they can renovate and sell.

Portfolio HV: Sponsors are reporting that despite construction delays in June and July, the project is still trending on time for Spring 2022 completion. Delays were due to volatility in lumber prices. They delayed a purchase until prices “normalized” to lower levels. They stated by delaying the lumber purchase, they were able to save some $550k from the peak prices. Photos of the construction progress were also provided.

Portfolio AZ: Distribution this quarter was at an annualized rate a touch above the 1-year projections. Unit upgrades in this 160-unit property began immediately after closing. Tenants that have come up for renewal have been told they must move out to renovate their units. Although many of these tenants transferred into upgraded units at $300-$400 increased rent, occupancy has dropped to 70%. It is expected to stay artificially low for the next several months as property continues in heavy renovations and repositions itself with a more affluent demographic. Occupancy is expected to rise to 90% in Q2 2022, when the vast majority of upgrades are completed. Building wide exterior, landscaping and common space improvements have also begun.

Portfolio RHA: Distributions from the first full quarter of this 3 project investment came out at 6.4%, which is right in line with the first year projections. This is a little below the 7% (apts) & 8% (hotel) preferred returns. Given that the hotel is in process of being built, the returns are all coming from the two apartment complexes, and on their own, appear to be producing cash flow profits in excess of the preferred returns.   The occupancy of two apartment complexes are at 97% & 94%; with 99% and 97% collections for the quarter.  Renewals are running at a higher rate over previous leases in both.

On the hotel, the demolition of the pre-existing hotel has begun and reportedly making great progress. 

Portfolio PRO: The close on this property happened about half-way through the quarter (Aug 12). Since then, the managers have changed the name of the complex, which they report is getting favorable response from the tenants. Occupancy at end of quarter was 90.3% and 91.5% pre-leased. In September, the property rolled out a Preferred Employer Program which offers waived application and administration fees and a 3% monthly discount. Reportedly this has attracted many potential tenants.

Portfolio HM: Construction work has begun on this project, mostly clearing the 7-acre site, and preparing it for the concrete building pad. Footers are in place along the exterior of the building. A few photos of progress were provided. Reportedly on track for completion in the Winter of 2022/23.

Debt Portfolios

Portfolio 4: (58 months): 11% (4.5%)

Portfolio 4: With only one property left, distribution this quarter was interest only, and was pretty minimal at that. The tenant has been given notice to vacate, and the company is working with them to find alternative housing. Once moved out, the property will be rehabbed and sold.

Q4 2021 - Update

Although distributions are being made in a timely manner on the newer projects, the updates continue to be running quite a bit later. This accounts for my, once again, posting this update 2 months after this quarter ended.

On the older single-family portfolios, there are still three properties left with two being prepared for sale.

During this quarter, I made investments in three more offerings by this company. The first was a 745-unit 4-pack multifamily community in a southern state. The community consists of a mix of traditional multifamily and duplex-style townhomes. It is close to a major state university. The business plan is to renovate 80% of the units in the first two years, for roughly 45% increase in rent. That will bring rents in line with competitive units in the market. The plan also includes a cash out refi in year 3 to return about 84% of investor capital. Cash flow is projected at 7.6-39.7%. The larger return is after the refi. Total IRR projected at 21% annualized. I will call this Portfolio FAY.

The second offering I invested in during this quarter is a 199-unit complex, in a different southern state. Remarkably it has 100% occupancy and was built in 2011. The close on the deal didn’t happen until mid-Feb 22. Renovations of units are planned over a 3-year period for a value add with rent increases of $250-300. On this one, the plan is to return all capital to investors within 2-3 years via a HUD refinance. 2.3% to 12.7% annual cash flow. 23%-24.3% IRR is projected. This will be Portfolio LP.

The third investment was the largest apartment complex yet. Over 1,300 units in one of the largest metro areas in the country. The property was currently 85% occupied, and the purchase price of this 1967 complex was at 35% of the pre-renovation replacement cost. The sponsors plan to renovate 700 units over the first 3 years for roughly a 20% increase from the in place rents. There is also opportunity to gain on even in-place rents prior to renovations, as market rates are 8% higher. After the 3 years of renovations, the managers anticipate getting a refinance to return up to 50% of capital to us investors. 3.6% to 20% cash flow projected, with an IRR of 19.3%-22.2%. I will call this Portfolio NH

Equity Portfolios

Portfolio 2 (68 months): 13.6% (25%) – Closed out 12/31/21
Portfolio 3 (60 months): 12.1% (0%)
Portfolio HV (12 months): Being built
Portfolio AZ (10 months): 7% (6.8%)
Portfolio RHA (7 months): 6.4% (6.4%)
Portfolio PRO (5.25 months) 6.3% (6.8%)
Portfolio HM (5 months): Being built
Portfolio FAY: Closed Nov 11th, no distributions yet
Portfolio LP: Closed Feb 17th, may not have distributions until Q2
Portfolio NH: Closed Dec 22nd, no distributions yet

Portfolio 2: The final property in this portfolio was sold in this quarter, and I received two distributions – the remainder of my capital, and the profit from the sale of the property. Final ROI on entire portfolio investment was 77.32% on the life of the investment. Annualized that comes out to 13.64%, which is at the lower end of the projected IRR range. However, this does not take into account the return of most of the capital over a couple years. A true IRR would come out at least 1-2% higher. As a closed-out portfolio, this one will not appear on future quarterly reports.

Portfolio 3: This portfolio operated at a slight loss this quarter. Thus there was no distribution. While some additional funds were received from the sale of the one property that closed last quarter proceeds were used toward repairs for the remaining two properties in preparation for sale. Both of those properties are now vacant.

Portfolio HV: The construction has made substantial progress despite supply and material costs issues. Exterior walls and interior framing are all in place, with roof on. Photos were provided, and completion is expected late Spring/early Summer.

Portfolio AZ: Cash flow at an annual rate is nearly twice what was projected for the 1st year. An aggressive approach to renovating units as tenants come up for renewal has caused a drop in occupancy to below 60%. If renewing tenants wish to stay, they are moved to renovated units at $300-$400 above their previous lease. The managers report that occupancy is expected to remain artificially low for a few more months and expected to rise to near 90% in Q2 2022. 80 renovated units have already been leased, with another 16 ready to be leased. Several building wide improvements have also been started. All is going very well & on track to be ready to refinance in June/July.

Portfolio RHA: 6.4% returns are right in line with projections for this period. Occupancy with one of the complexes is 99%, the other 92%. On the former, renewals achieved over 1% increase over Q3. Net operating income is exceeding proforma assumptions, and sponsors feel that will continue. On the second complex, ongoing improvement in surrounding market conditions are allowing for significant rent increases to be achieved in both renewals and new leases. Renovations are continuing at full speed, and the renovated units are achieving 40% rent increases, well above initial projections.
On the hotel project, the demolition of the pre-existing hotel is about 70% complete. The city has approved finalized architectural drawings and plans for the new structure. Sponsors report they are on track to complete the new hotel late this year.

Portfolio PRO: Returns for the quarter are in line with projections. Occupancy at end of quarter was 91% and 94.35% pre-leased. Collections continue to be strong and meet the budgeted levels.

Portfolio HM: Construction work is progressing swiftly according to the sponsors. Photos of work in progress were provided. Still expected to be completed in the Winter 22/23.

Debt Portfolios

Portfolio 4: (61 months): 10.2% (6.6%)

Portfolio 4: Distribution was again interest only on the outstanding capital. With just the one property left, and the managers unable to reach an agreement with the tenant for relocating, eviction procedures have been initiated. Once out, a scope of work will be developed to prepare the home for sale.

Q1 2022 - Update

This quarter was another active quarter with one portfolio closing out, and just one single family home left in the last of the 10 home portfolios I started investing with this company back in 2015.

During this quarter, I made an investment in one additional offering, which actually is a two-project portfolio. Both apartment complexes are in different major Southeast markets. One a 228 unit, the other 304 unit. Target IRR for the portfolio is 16.6% to 18.5%. I will call this Portfolio BTC.

Equity Portfolios

Portfolio 3 (63 months): 13.6% (41.7%)
Portfolio HV (15 months): Being built
Portfolio AZ (13 months): 6.7% (6.8%)
Portfolio RHA (10 months): 5.4% (5.5%)
Portfolio PRO (8.25 months) 6% (6.8%)
Portfolio HM (8 months): Being built
Portfolio FAY: (5 months) 3.5% (3.5%)
Portfolio LP: (4.5 months) No distributions yet
Portfolio NH: (4.5 months) 1% (1.6%)
Portfolio BTC: (3 months) 3.4% (3.4%)

Portfolio 3: This portfolio sold the final two properties, with annualized ROIs of 11.9% and 14.9%. All capital was returned and the final IRR for this investment was at the lower end of the projected at 13.6%. This does not seem to account for the return of capital over time, thus reducing the invested amount and increasing the return on what was still invested. I suspect that would add 1-2% to the IRR in a final accounting.

Portfolio HV: Further progress on construction was reported. While material shortages and manufacturing issues across the nation have also played a role in this project, it construction is still expected to be completed this Summer 2022.

Portfolio AZ: Distributions are running higher than expected for the first two years. Occupancy is running about 55% as the partners are taking an aggressive approach toward renovating units. Every tenant up for renewal has been required to move out to allow renovation. Many have transferred to newly renovated units at $300 to $400 above previous lease.

Portfolio RHA: Distribution as a percentage came out to slightly less than projections for the first time. One of the apartment complexes ended with 96% occupancy, with increased renewal rates. The other complex was at 95% occupancy, a 3% improvement over previous quarter. Renovations are proceeding at full speed, with about $400 rent premiums on the renovated units.
    On the hotel project, demolition of old building was completed about 30 days behind schedule. Material shortages have caused the project to assess a completion delay of the new building to be delayed about 9 months. Partners have adjusted completion to late 2023.

Portfolio PRO: Occupancy at end of quarter was at 85%. In line with budgetary projections, but slightly down from Q4. 40% of units have been renovated since acquisition. Effective rental rates are still well below market. Partners anticipate that as renovations continue that rent differentiation will be captured and the project will perform as projected.

Portfolio HM: Construction work is continuing apace. Even with the national materials shortage, partners expect the project to complete on time during the Winter 2022/23.

Portfolio FAY: This was the first distribution for this portfolio and the completion of the 1st full quarter of ownership. Occupancy was at 91.5%. A number of capital improvements as well as unit renovations are underway to stabilize the tenant base, and improve rents and occupancy. Managers feel confident this project will perform to expectations.

Portfolio LP: This complex did not close until about the middle of Q1, delayed from the projected December closing. So there was not a distribution this quarter, but should be for Q2 after a full quarter of operations. Occupancy is at 95%, and no marketing is occurring, as partners are emphasizing renovations. Still new leases were signed.

Portfolio NH: This project did close in December, and Q1 was its first full quarter of ownership. The distribution was minimal, but partners expect that to increase substantially in coming quarters. Occupancy was at 88.5%, a bit above the 86% expected at this point in projections. 30 units (2.3% of property) have been renovated and another 167 units in progress. Two of the renovated units were leased at $235 premiums to unrenovated units. Other capital improvements are also taking place.

Portfolio BTC: I am playing a bit of catch up on this portfolio, which I invested in at the end of Q4 '21, and closed in January.  This portfolio consists of two multifamily complexes in two different southern states, both in major growth metropolis.  The first is 228 units and the second is 304 units.  Projections are for an annualized cash flow of 9.3% over a 5 year hold, with 16-18% IRR.  It had a small distribution for this quarter.  Occupancy was 95% at each of the projects.  Collections are strong. 

Debt Portfolios

Portfolio 4: (64 months): 9.8% (6.6%)

Portfolio 4: The distribution on this portfolio was again an interest only payment on the one single family property left in this debt portfolio. Rental income decreased as tenant moved out. Renovations have begun to prepare the property for sale.

Coming up in the Q2 Update: I have invested in three additional portfolios during this quarter.

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Q2 2022 - Update

During this quarter, I made investments in three additional offerings. The first was in a very fast growing southern coastal city. This is a luxury mid-rise apartment complex, 305 units. Constructed in 2017. With 98% occupancy, the sponsors believe that rents are lagging the market by as much as $700 per month. Value add business plan is being implemented. The close happened at the very end of the quarter. So, we should see a distribution with Q3. Projected IRR is 19.7-20.4%. This will be Portfolio LCF

The second is a 410 unit, 1980 built multifamily in one of the city hubs of the south. The business plan is to renovate units and capture very significant rent differences with market rents. Renovations will also be taking place throughout property. The plan includes a sale of the property in 3 to 10 years, with a possible refinance around year 3. Projected IRR is 19-21%. I label this one Portfolio CA.

The final portfolio I invested in for this quarter is a smaller southern city, 263-unit community that was built in 2003. It has a “Big House” design, meaning larger floor plans and was 96% occupied. Again this will be focused on updating units and capturing gaps in rent from comparable market rents. With initial cash flow expected to be 3.4-13.9%, and target IRR at between 16% and 17%. About a 5 year hold time. I call this Portfolio GR

Equity Portfolios

Portfolio HV (18 months): Being built
Portfolio AZ (16 months): 6.9% (6.8%)
Portfolio RHA (13 months): 5.3% (2.8%)
Portfolio PRO (11.25 months) 6% (6.8%)
Portfolio HM (11 months): Being built
Portfolio FAY: (8 months) 2% (1.5%)
Portfolio LP: (4.5 months) 6.9% (6.9%)
Portfolio NH: (7.5 months) 1% (1%)
Portfolio BTC: (6 months) 1.6% (0%)
Portfolio LCF: New
Portfolio CA: New
Portfolio GR: New

Portfolio HV: Further progress on both exterior & interior was reported. Construction is still expected to be completed late Summer 2022.

Portfolio AZ: Distributions are continuing to run higher than expected for the first two years. Occupancy is running about 75% a 20% increase over previous quarter.
Thus far 146 of the 160 units have been renovated and leased at premium rates. The managers are reporting they are few months out from stabilizing the property and expect to complete a refinance by November.

Portfolio RHA: The one apartment complex has achieved 98% occupancy and collections continue to be strong. Rents average 2.4% higher than Q1 rents. Net operating income is exceeding proforma assumptions on this project.

Distribution for quarter came out below projections for the quarter for this portfolio, as the 2nd of the apartment complexes did withheld distributions this quarter. The reason was due to the speed of the renovations and delay in receiving reimbursements from the bank for completed work. They wanted to keep sufficient cash flow. 48 units have been completed and they are getting $400 premium on the rent for these units.
On the hotel project, demolition of old building was completed Q1, but the city did not issue clearance until May well into Q2. With this and the material & supply issues, the building project is still not expected to be complete until late 2023. The good news, is that the local national park had its busiest season ever in 2021.

Portfolio PRO: Occupancy at end of quarter was at 87%, slightly below budget expectations. Units were being held off market for renovations, so this is to be expected. 170 units have been renovated since acquisition. Progress on the property has the managers thinking that it will be ready to refinance sometime in second half of this year. They report it is doing amazing.

Portfolio HM: They report that great progress continues to be made. Running about $200k over budget due to materials inflation. Still expected to complete construction Winter 2022/23

Portfolio FAY: Small distribution this quarter, as the renovation-based business plan expenses and net-operating income fluctuate. Occupancy was at 87.5%, down somewhat from Q1, as units are held off market for renovations. A large number of units in this entire portfolio are made up of 411 units, most of which are duplexes. Managers have decided to take advantage of the strong residential sale market and will be selling these duplexes for about 100% over the cost basis.

In the area, rents grew at nearly 14% over the past 12 months, and the managers are expressing a lot of confidence in this portfolio, and its future performance.

Portfolio LP: Distribution was in line with projections. Since the project is funded with a HUD loan, distributions can only be made twice a year – July and January. Occupancy was at 90%, down 5% from Q1, as units are being held off market for renovations.

Portfolio NH: Very late with update and distribution. The distributions are below projections as well. Reported factors include a drop in occupancy to 82.3% this quarter attributable to evictions of non-paying tenants. Total income decreased, while expenses increased from previous quarter. The positive side is that will allow for an increased amount of renovations which will be rented to qualified tenants and improved performance in future quarters. Thus far, 87 renovation units have been completed and another 100 under renovation. 37 of the renovated units have been leased resulting in a 26% percent rental premium over previous leases. Several capital improvements around the campus have also been completed. I look forward to both improved results and more timely reporting from this portfolio.

Portfolio BTC: No distribution this quarter, as the partners want to have a cash buffer to combat interest rate increases. Loan has a variable rate, with a cap of 1% over initial rate. Preferred return of 7% will continue to accrue.

Portfolio LCF: Closed on June 30, 2022.

Portfolio CA: Closed on June 10th.

Portfolio GR: Closed on July 15th. Needs one complete quarter of ownership before distributions are likely to be made. So, not expecting anything until Q4 is completed.

Debt Portfolios

Portfolio 4: (67 months): 12.6% (218%)

Portfolio 4: The last property in this portfolio closed out, remaining capital was returned as well as a final distribution of profits from the sale. The final IRR was inline with projections (12-16%) but close to the bottom.  However, given that there was a return of most of the capital over time, adjusting for the capital investment reductions would likely add 1-2% of IRR. This will be my final report for this Portfolio, and is also the last of the single family holdings.

Q3 2022 - Update

During this quarter, I made investments in two additional offerings. The first portfolio has two apartment complexes, one with commercial space as well. These are in two different northeast states and quite unique to my holdings. One is in a university town, the other is a high rise. Both complexes have very good residential occupancy, but the commercial space in the latter is largely vacant. At time of acquisition the sponsors had not decided what to do with this space, and it was not included in the proformas for potential upside. Target IRR is 15-20% on a 3-5 year hold. The closing happened at the end of the quarter so I expect to see a first distribution following the close of the year. This will be Portfolio AM.

The second is a mobile home park with 78 mobile homes over 6.6 acres. My first such investment, but the company has partnered with a highly experienced mobile home park investment company. It was also my smallest investment in some years, as it had a reduced minimum and I wanted to limit my risk. The park is in a southwest state and is one of the few in the area. Occupancy is 97%. 5-7 year hold time with a target IRR of 19-21%. This portfolio closed at the end of quarter and ended up returning 6.2% of investor capital, as the purchase took less cash than anticipated. I call this Portfolio CP

Equity Portfolios

Portfolio HV (21 months): Being built
Portfolio AZ (19 months): 6.6% (6.8%)
Portfolio RHA (16 months): 5% (5.5%)
Portfolio PRO (14.25 months) 6% (6.8%)
Portfolio HM (14 months): Being built
Portfolio FAY: (11 months) 1.7% (1.4%)
Portfolio LP: (7.5 months) 4.1% (0%)
Portfolio NH: (10.5 months) .55% (0%)
Portfolio BTC: (9 months) 4.5% (0%)
Portfolio LCF: (4 months) 6.7% (6.8%)
Portfolio CA: (4.5 months) 0% (0%)
Portfolio GR: (3.5 months) 1.8% (2.1%)
Portfolio AM: New
Portfolio CP: New

Portfolio HV: Construction is nearing completion and is undergoing the punch out phase for finished units. A temporary certificate of occupancy was issued 9/1/22 allowing for use of the amenity village, leasing office and community lounge. Residents are now allowed to move in as units become available and a full certificate of occupancy was expected to be issued 11/30/22. Some units are already occupied, and additional ones have been leased out. Other units are awaiting appliances, etc. The company reported a slight (about 1%) budget overage, which will be covered by the development partner with no impact on investors. Maybe we will see our first distribution after the year’s end.

Portfolio AZ: Distribution was the exactly the same as all previous quarters but the first, which was even higher. Those distributions at 6.8% have all been higher than proforma projections, which in this current second year were projected to be 6.2%, and first year just 3.5%. Total occupancy at about 88%, about 3% below initial projections. All interior renovations have been completed, as have all landscape improvements. Some exterior renovations are still being completed and new amenities have been added such as grill stations and firepit. I am liking the consistency of execution on this portfolio.

Portfolio RHA: The one apartment complex has achieved 98% occupancy and collections continue to be strong. Rents average 2.4% higher than Q1 rents. Net operating income is exceeding proforma assumptions on this project.
Distribution for quarter came out below projections for the quarter for this portfolio, as the 2nd of the apartment complexes withheld distributions this quarter. The reason was due to the speed of the renovations and delay in receiving reimbursements from the bank for completed work. They wanted to keep sufficient cash flow. 48 units have been completed and they are getting $400 premium on the rent for these units.
On the hotel project, demolition of old building was completed Q1, but the city did not issue clearance until May well into Q2. With this and the material & supply issues, the building project is still not expected to be complete until late 2023. The good news is that the local national park had its busiest season ever in 2021.

Portfolio PRO: Distribution was in line with projections. Occupancy at end of quarter was at 85%, 4% below budgeted expectations due to continued renovation of units. During the quarter management obtained 14 new leases & had 24 move-ins. Average rents moved up to average of $1,744 in Q3, and higher than comparable properties in area.

Portfolio HM: It was reported that construction continues to progress well. External siding is up and on the interior all appliances, furniture, fixtures and equipment were completed in early October (which is the first part of Q4). Elevator is also installed. Final village and lobby finishes are underway. With 3 inspections due for approval of temporary occupancy, the Sponsor anticipates residents to start moving in by end of 2022.

Portfolio FAY: Another very small distribution this quarter, and occupancy was at 85%. There was a slight income increase this quarter over last, which was more than offset by increased expenses. The increase was due to increase in repairs and maintenance costs, as well as a higher turn velocity. As of end of October, 5 of the duplex units have been sold, with one additional under contract. Since assuming ownership, the Sponsor has signed 241 new leases, or about 33% of units. Rent premiums of 20% have been achieved over the legacy in place average rents. Sponsor has completed 107 renovations with 46 re-leased. On these a $272 premium or 40% rent increase over classic units.

Portfolio LP: As distributions are limited to twice a year due to being a HUD loan, there was no distribution this quarter. Q3 occupancy ended at 77%, a sharp reduction from previous quarter. This was due to recently completed renovated units. 10 units were completed, with another 5 under renovation. The company reports the property is well positioned to capture strong occupancy in upcoming quarters.

Portfolio NH: This Sponsor has proved to be frustrating in very late distribution and reporting. Having originally stating this would be done in 45-60 days following the close of quarter, they are stating now it could be as long as 120 days. Both the company I invest through and myself are quite taken aback by this and don’t understand how they can consider this reasonable. Update finally came through Jan 16, about 107 days after quarter. There was no distribution and my best guess is there won't be one for Q4 either. They are withholding to conserve cash due to the increase debt service via increased interest rate.  Preferred returns (10%) will continue to accumulate for us LP investors. Sponsor had to negotiate an extended rate cap as their reasoning for the delayed report.  There is increasing reason for me to doubt that the business plan is not unfolding as projected.  Rent increases on both classic units as newly renovated ones are averaging at less than half of what was projected.  I am seeing lots of red flags, but nothing to do but wait and see how it all plays out. 

Portfolio BTC: As last quarter, Sponsor is withholding distribution to combat the increase in interest rates on the loans for both properties. One of the apt complexes is 96% leased with strong collections. They have been able to achieve a $340 average rent increase, with an additional $250 on renovated units. Renovations continue which has also cut into available cash flow for distributions. Q4 likely will also not produce distributions. The second complex also had 96% leased rate. Common area renovations/upgrades have been started and will be completed over next few months. Upgrades on all units to install new flooring and appliances will begin shortly and take roughly 8-10 weeks. New leases are averaging a $400 increase (before any renovations).

Portfolio LCF: First quarter distribution exceeded 1st year projections for cash flow, but may even out with upcoming quarters. 91% occupancy exceeded projection by 1%.

Portfolio CA: No distribution for this 1st full quarter, also due to interest rate increase on loan, capping at 5.5%. The cash flow was limited by this increase. 92% leased, and Sponsor has completed 8-unit renovations. $185 rent increases across the rent roll, and $350 on the few leased renovated units have been achieved. Sponsor reports the property is operating well, that tenants is please with changes, and that amenity upgrades will start within a few weeks.

Portfolio GR: One renovation was completed & rented for 81% more than pre-renovation. 11 additional renovations to be completed in October. 91% or so leased up, with a 66% retention rate on renewals. In a second update (Nov 1), Sponsor reported occupancy was 88.6% and 90.5% leased up for October. Two evictions were filed in October. Due to product delays, no further unit renovations were completed in October. Those delay issues have been corrected, and they now expect to complete 13 units in November. Interest rate was capped at 4.25%, which happened from closing, and no further exposure risk to increase in interest rates exists.

Portfolio AM: Closed at Sept 29th, the very end of quarter!

Portfolio CP: Sponsor closed on Sept 27th!

Q4 2022 - Update

During this quarter, I made an investment in another Southern city apartment complex. One I hadn’t invested in before. This one is actually a 104 unit student housing project that the Sponsors intend to convert to single family rentals. These are large units ranging from 1500 to 2400 square feet. It has a target IRR of 15-20%. This will be Portfolio ESA.

Equity Portfolios

Portfolio HV (24 months): Construction completed
Portfolio AZ (22 months): 6.6% (6.8%)
Portfolio RHA (19 months): 5.1% (5.6%)
Portfolio PRO (17 months) 6.7% (6.8%)
Portfolio HM (17 months): Construction being completed
Portfolio FAY: (14 months) 1.7% (1.5%)
Portfolio LP: (10.5 months) 6.6% (6.6%)
Portfolio NH: (13.5 months) .6% (0%)
Portfolio BTC: (12 months) 3.4% (0%)
Portfolio LCF: (7 months) 5.8% (6.8%)
Portfolio CA: (7.5 months) 0% (0%)
Portfolio GR: (6.5 months) 2.3% (2.8%)
Portfolio AM: (3 months) 0% (0%)
Portfolio CP: (3 months) 10% (10%)
Portfolio ESA: New. No distribution yet.

Portfolio HV: The construction of the senior living village complex has been completed. Full certificate of occupancy was granted in November 2022. Currently (end of quarter) occupancy is at 32%. The property is expected to start producing distribution at 87% occupancy.

Portfolio AZ: Another consistent distribution from this investment. Occupancy was 88% in October, 91% in November, 95% in December. All interior renovations, but one, were in completed on 9/30/22. We received an update from the Sponsors at end of February that rather than refinance the property as planned – due to the current high interest environment, they are selling the property. It is currently under contract to a buyer. More updates to come. The Sponsors completed all the renovations and achieved the projected rental premiums. Stay tuned.

Portfolio RHA: One of the apartment complexes, in this 3-deal portfolio, reported 91% occupancy with strong collections. Rents have increased 11% since purchase. In July 2023, the interest rate cap on the loan will expire, as expected to increase to 5.25%. The Sponsors expect to able to support this increase.
The second apartment complex is at 96% occupancy with strong collections. The Sponsor has completed 86 unit renovations thus far, and has achieved $150 rent premiums on the renovated units. An average $350 (36%) rent roll across all units has been achieved since purchase.
The Hotel sponsor reports that the city has been increasingly challenging to work with, requiring further plan approval, after already being approved. Construction is expected to start beginning of March, and is on track to be completed Summer 2024.

Portfolio PRO: Total occupancy was at 85%, short of the projected 91% due to ongoing renovations. These are expected to be completed in full in January 2023

Portfolio HM: This senior living village has essentially completed construction with final inspections in December. The community received its certificate of occupancy had has 10 of 130 units occupied (8%). They expect to get another 15 leases signed in Q1 of 2023.

Portfolio FAY: Low distributions continue for now on this 4-pack of properties. Yet, news is mostly positive on executing the existing business plan. While occupancy is down to 79% from the previous 85%, this is due to executing the plan to sell duplexes & single family homes at one of the properties. Proceeds from those sales are used to pay down the mortgage as agreement with the bank calls for. NOI actually increased 11% over previous quarter and is expected to continue to grow as plan is executed. New leases, including renewals are 25% above the in-place average at time of acquisition. On newly renovated units, they are achieving a 70%+ rent premium over the previous ownership rents.

Portfolio LP: Twice a year distribution was received for the 3rd & 4th quarters. Occupancy at end of December was 74%, which was 19% below the budgeted amount. Rents averaged $1353/mo. 20 renovations have been completed, with 11 currently in works.

Portfolio NH: As expected there was no distribution for this quarter. The full report didn’t come in until about 100 days after the close of quarter. Further, in early April there was a requested Capital Call put out. For the primary Sponsor, this was the first Capital Call ever in their history, and mine as an investor, as well. As participation in the Capital Call was voluntary, I declined. Those who did participate were offered an addition 10% share of the profit split. For those who declined, like myself, the additional raise is likely to dilute the value and return on the capital already invested. The business plan is still being executed, just with the rapid rise in interest rates, and under performance in rent collection and lease ups, as caused the stress leading to this point of retaining distributions and raising additional capital. Hopefully this will work out to a decent return once sold, though likely that too will be well under projections.

Portfolio BTC: Similar to last quarter, the Sponsor decided to forgo Q4 distributions to build up strong cash reserves in the current interest rate environment. As there are two apartment complexes in this portfolio, the team for the one complexes anticipates making up for the cash flow by this Summer. 95% occupancy with 98% leased up. The property has achieved a $240 (22%) rent increase. With an additional $240 on renovated units, total of $465. They plan on renovating 90 units this year
On the second complex, they expect to provide a distribution next quarter (Q1). The property is 94% occupied with 98% leased. The Sponsor has completed updates on the club house & pool. They are in the midst of unit renvoations and expect to complete in 4-8 weeks. They have captured $350 rent increases on new leases. And existing tenants are pleased with the changes that have been made to property since acquisition.

Portfolio LCF: During Q4 occupancy level was at 91% in October, 89% in November, 86% in December. NOI continues to be strong, and they are increasing their marketing efforts.

Portfolio CA: There was no distribution for this quarter. Sponsor is building cash buffer against the 2% interest rate increase (capped at 5.75%). As of end of quarter 91% occupancy with 94% leases in place. Sponsor has completed 30 unit renovations. Thus far they have achieved a 5% increase across the rent role, and $225 on renovated units that have been leased. After just 6 months of ownership they have achieved the one year goal of $1469 rent averages. In fact, they stand at $1493. They report the property is operating well, and the tenants are pleased with the changes.

Portfolio GR: Occupancy was 88%. Total occupancy dropped from the 95% projected due to skips, new supply in the market, and incomplete renovations. Rapidly increasing occupancy is the sponsor’s top priority and they plan to run specials in March. 7 units are under eviction notices. As of February 2023, 29 units have been renovated, which is 11% of the total. Average rent on renovated units is 11% over the unrenovated units.

Portfolio AM: Closed at Sept 29th, the very end of Q3 quarter! As the Sponsor is still managing higher capital expenses relating to the purchase of both properties, there was no Q4 distribution. Take over of both properties with the new management teams have been smooth. Rent premiums for non-renovated units at one property have been $100, and $220 at the other. Interior unit renovations have been started and they anticipate receiving $200-$300 more on renovated units. In one building there is commercial space, and one corporate lease has been signed. Corporate leases on an additional 8,000 sq feet are in negotiations.

Portfolio CP: Occupancy was 95% with no change from prior quarter. No cases of delinquencies. Sponsor anticipates the one vacant lot will be infilled during Q1. Base rent for the land was increased to $500 from $439 starting 1/1/23. In addition, utility pass on rates are being established at the same time. These total $81/mo. Total rent increase and utility pass on is 32%.

Portfolio ESA: Closed on acquisition on 12/12/22.

Q1 2023 - Update

Rising interest rates are greatly impacting multi-family investments in general. This is especially true for those who have floating interest rates with temporary interest rate caps. Those factors are playing out in any number of my investments via this company. A number have paused or delayed distributions. In one case, Portfolio NH, there was even a voluntary capital call. One frustrating aspect is that a number of the Sponsors on these projects have not delivered timely K-1s, and thus forced me to extend my 2022 tax filings for personal investments. It doesn’t impact investments made from my retirement accounts. One asset, Portfolio AZ, is in the process of being sold. During Q1 I made no additional investments via this company, the first such quarter in over two years.

Equity Portfolios

Portfolio HV (27 months): Distribution not expected ‘til early ‘24
Portfolio AZ (25 months): 5.6% (0%) – Being Sold
Portfolio RHA (22 months): 4.4% (0%)
Portfolio PRO (20 months) 5.7% (0%)
Portfolio HM (20 months): Distribution not expected ‘til mid to late ‘24
Portfolio FAY: (17 months) 1.4% (0%)
Portfolio LP: (13.5 months) 6.6% (0%)
Portfolio NH: (16.5 months) .5% (0%)
Portfolio BTC: (15 months) .7% (0%)
Portfolio LCF: (10 months) 4.1% (0%)
Portfolio CA: (10.5 months) 0% (0%)
Portfolio GR: (9.5 months) 2.5% (3%)
Portfolio AM: (6 months) 2.4% (4.9%)
Portfolio CP: (6 months) 6.2% (2.9%)
Portfolio ESA: (3.5 months). No distribution until Q4 ‘23

Portfolio HV: Property is reportedly outperforming budgeted expectations. This newly constructed property has 47% occupancy, and expects to produce distributions at 87%, which is anticipated by early 2024. They are benefiting from the fixed 3.25% five year loan. K-1 not expected until Summer this year, which is frustrating to me, since it will provide some additional deductions.

Portfolio AZ: While this asset performed consistently, and managers completed renovations in all units, were able to increase rents accordingly; it came time to refinance or exit. Interest rate cap was expiring, and refinancing at the current high rates was not desireable, so the Sponsor decided to sell. Unfortunately cap rates were up, and the buyer apparently is getting a good deal eating away at the profits. The sale is expected to close in May, but IRR is anticipated to be in the range of 7-11%, well under projections, and disappointing for such an otherwise well-executed operation. I am awaiting more details, including confirmation that the sale actually closed. If the sale fails at last minute, then they may end up doing the refinance.

Portfolio RHA: Distributions are being suspended for two quarters, as the Sponsor is anticipating higher interest rates beginning in June. Apartment complex one is 90% leased with strong collections. Sponsor is anticipating significantly improving occupancy in the next few months. Apartment complex two is 95% occupied with strong collections. The team has made great progress on unit renovations, and gotten $150 premiums on renovated units, with an average across the rent roll of $350 (36%). On the hotel, the Sponsor continues to wait on approval from the city for the construction process. The city has been the most significant factor in delaying execution of the business plan, pushing back the timeline for completion to the end of 2024.

Portfolio PRO: After consistently paying preferred returns, the Sponsor is suspended distributions until a HUD refinance is completed. The current occupancy rate is 85% and needs to be at least 93% for the refinance to move forward. The team expects to achieve that level in a few weeks. With the refinance, they expect to return 20-25% of investor capital, as well as pay off the existing loans. The team has completed renovations as of October 2022, and exceeded projections on the rent growth. Rent growth is 50% in just over a year and a half of ownership. However, due to the quick rise in interest rates, debt servicing has gone up over $400,000 annually.

Portfolio HM: Currently about 12% occupied, once achieve 87%, they anticipate making the first distributions. That is projected to occur mid-late 2024. K-1 for 2022 not expected until Summer this year.

Portfolio FAY: No report yet.

Portfolio LP: No distribution this quarter, as under HUD terms only distributes twice a year. Next distribution will be in July for Q1 & Q2. 103 units have been upgraded to date with 23 units in progress. Rent increases averaging $450 on upgraded units, an excellent number. All the buildings have been re-painted, with extensive renovations to fitness center, clubhouse & common areas. Investment is on stable footing with long-term fixed HUD debt and 4 years remaining on the supplemental preferred equity. Leases are at 86%, with occupancy at 80%. Lower than market occupancy is due to non-renewal of leases to allow for renovations. Team sees a path to rise above 90% in May.

Portfolio NH: No report yet.

Portfolio BTC: Due to an increase in interest rates on the first complex, no distribution again for Q1. With the increases in rent, the team anticipates making up the difference by late summer. 95% leased with an average 15% in rent increase across the rent roll, with a $225 premium on renovated units. Current rents above projections. 90 units expected to be renovated this year.

On the second complex, they also did not have a distribution this quarter. The team hopes to do so for Q2. Currently 92% are occupied and 94% leased with strong collections. Full unit renovations are nearing completion. Clubhouse & pool area renovation are also completed. Approximately $350 is being captured in rent increases on new leases. Tenants are pleased with changes.

Portfolio LCF: Sponsor is suspending quarterly distributions due to lagging performance and high interest rates. They expect to withhold distribtuions until after the planned refinance. Occupancy is at 88%, with leases at 91%. Renovations have been completed on 90 units and rent increases on these units are $150 to $250. Healthy reserve in bank for completing renovations as well as escrowed funds for lender. The team recently experienced a doubling of insurance rates, likely due to being in a high storm risk area on the southeast coast.

Portfolio CA: There was no distribution for this quarter again. Sponsor reserved nearly $3 million dollars for any expected initial short falls. However, it appears the short fall will be well below that number, as business plan is executing better than expected. Cash flow is expected to be positive by September. Distributions will occur once there is excess cash flow. 92% occupancy with 95% leased with strong collections. Thus far 13% increase across the rent roll has been achieved. $250 increase on the renovated units leased thus far. Amenity upgrades to be started soon, which will further enhance the property.

Portfolio GR: Occupancy at 88.6%, with 91.6% lease up. In March alone team achieved 28 leases. No renovations were completed during the quarter for apartments as they are hiring a new contractor. Asphalt parking lot was resealed and restriped as part of renovation plan.

Portfolio AM: No report yet, but I did receive the first distribution for this investment, even while most others have suspended or not started distributions.

Portfolio CP: Occupancy for the quarter was 87.7%, down from 95% previous quarter. No delinquencies. Currently this mobile home park has 2 inventory homes and 6 vacant lots. There were two RV customers who removed their homes following the rent increase. Additionally, the team accepted title in lieu of rent on one home. Rental income was 8.3% below that projected, and expenses were 29.3% higher than budgeted. The latter was driven almost entirely by higher than projected utility and water expenses. These expenses will be off set by the new pass-through utility & water charges to tenants.

Portfolio ESA: Distributions not expected until Q4 of 2023. Property ended the quarter with 97.9% occupancy (down from 100%) due to end of semester lease terminations. The team reports an extremely smooth transition to their ownership. Team expects renovations on 60% of units this summer while the remaining 40% are pre-leased to student housing. Beginning Summer 2024, the 40% will be renovated as part of Phase 2 of the transition to the targeted family/young professional demographic.

Q2 2023 - Update

Portfolio AZ did complete its sale this quarter with disappointing results. Even though the business plan was executed beautifully, rising interest and cap rates put them in a difficult spot.

Although I have been continuing to follow and consider the new offerings this company makes, I have not made any additional investments this year, and likely will not do so anytime in 2023. There are several reasons for this. The company has completely transitioned to being a secondary Sponsor on very large projects. That is, they no longer create or manage the opportunities. That is left to a variety of other companies that are the real Sponsors. That was fine, until some projects started to experience difficulties due to rising interest rates, a slowdown in rental demand, less organic rent growth and other reasons that proforma projections failed to be met. With those issues, some of the companies became less transparent and/or timely with their reports. Worse, several K-1s were issued as much as 6 months after they were due. This company I invested in had little to no control in making these actual sponsors more accountable or controlling the projects.

Along with being a secondary partnership, the company has their own layer of acquisition & management fees to operate the partnership LLC that invests with the actual Sponsors. The advantages of investing through this company included that the minimums investment could be considerably less and that this company vetted the actual sponsors, underwriting many such deals to come up with ones that met their criteria for investing. Sometimes the portfolios included multiple projects (2-3) in the same portfolio. Both of these factors allowed me to diversify my investments over a wide range of projects in many locations. All good.

However, recently I discovered that the management fee was altered in a way that I was not proactively made aware of at the time – some 21 months earlier. As an investor working with this company for many years, I should have been informed that this change was in fact being made at the time, rather than just burying them in the PPMs. I assumed that the PPMs were very similar from project to project and did not comb them for every detail. Yes, my mistake, but it was due to the trust I had in the company to be transparent. (Note: I just made the CEO aware of my not knowing of this change, and he kindly offered to waive the new fee for me on all relevant investments).

With the changes in the market, and with my own financial changes (I am now accredited) I have found a route to invest directly with Sponsors (no second layer fees) with excellent track records that are continuing to perform exceptionally well even during this difficult period. Thus far, I have made multiple investments with just one such Sponsor, who reports & distributes monthly with outstanding timeliness and transparency. One potential disadvantage is all the deals are in one city’s MSA.

Where appropriate, I am updating hold periods on all investments to reflect the closing date for the purchase on existing properties rather than the time I sent in my cash for the investment. This is the way the Sponsors are all calculating returns and that seems to be consistent with other syndication sponsors that I have seen. This will remain rounded to the nearest ½ month. Reminder: Percent in brackets ( ) reflects the distribution for this quarter calculated on an annualized basis toward capital invested. For example (0%) means no distribution was made. While the percent before the brackets is all to date distributions calculated on an annualized basis.

Equity Portfolios

Portfolio HV (30 months): Distribution not expected ‘til early ‘24
Portfolio AZ (26 months): 4.2% (All capital returned) – Sold
Portfolio RHA (24 months): 4% (0%)
Portfolio PRO (23 months) 4.9% (0%)
Portfolio HM (23 months): Distribution not expected ‘til mid to late ‘24
Portfolio FAY: (19.5 months) 1.7% (1.9%)
Portfolio LP: (16.5 months) 4.2% (0%)
Portfolio NH: (18.5 months) .04% (0%)
Portfolio BTC: (18 months) .06% (0%)
Portfolio LCF: (12 months) 3.4% (0%)
Portfolio CA: (12.5 months) 0% (0%)
Portfolio GR: (11.5 months) 2.7% (2.8%)
Portfolio AM: (9 months) 3.2% (4.6%)
Portfolio CP: (9 months) 5.9% (2.9%)
Portfolio ESA: (6.5 months). Now no distribution expected until at least Q1 ‘24

Portfolio HV: Based on budgeted projections this completed construction project is expected to start producing distributions at 114 units occupied (87%). Anticipated by early 2024. 23 move-ins this quarter for a total of 64% occupancy. This project has benefited from a fixed interest rate of 3.25% on a five year loan.

Portfolio AZ: Sale closed mid-May 2023. A reconfiguring by the Sponsor caused previous distributions to be counted as profit on the sale. The total return came out to 4.2% annual. However, as the property was sold to a tax-exempt purchaser a 2023 tax refund is expected to be distributed to investors prior to end of this year. That amount is expected to be 2% of the original investment. If that is case, it will add about 1% to the annual return. Even lower than previously anticipated in the Q1 report.

Portfolio RHA: Distributions are now said to be suspended for the foreseeable future as interest rates increased to the full cap price of 5.25%. With the increase in interest rates they want to build cash reserves. They hope to restart distributions in early 2024. One multi-family was leased at 93%, and pre-leased at 95%. They are extending leases to increase occupancy. They have been spending resources to beautify the property through improved landscaping.

The second multi-family is 94% occupied and 97% leased with strong collections. They have renovated 94 units to date, capturing $150 rent increases on renovated units. They have a rate cap expiring July 2024, and are currently evaluating a refinance prior to the end of 2023.

The hotel sponsor finally received approval from the city to begin construction. As of now construction is expected to be completed Summer of 2025.

Portfolio PRO: The Sponsor has said that distributions are suspended until the refinance is completed, now expected to happen early 2024. They report continues to operate well. Occupancy is 91% vs. budgeted of 92%. As of end of quarter NOI was about 10% below projections. This is due to a combination of income being about 7.5% under budget, and expenses (increased advertising) being 3.5%.

Portfolio HM: Leasing is progressing well with 13 move-in this quarter. A total of 28 of the 130 units (22%) are occupied. Leasing to tour ratio is 81%, which is really great. This project benefits from a fixed interest rate loan at 3.85% for 5 years. They provided a link to photos and floor plans.

Portfolio FAY: This quarter ended May 31st. Operational performance is consistent with business plan. A small distribution was made. Occupancy is stagnant from last quarter, now 76.1%. This is attributable to selling single family homes and duplexes within one complex of the 4-pack of complexes. Early reporting for Q3 demonstrates improved numbers. Look for that in my next update.

Portfolio LP: The Sponsor withheld distributions for this quarter. Cash is flowing nicely but was insufficient to both make distributions and complete renovations. They expect renovations to be completed in six to eight months (end of 2023/early 2024). Occupancy was 88%, which was at budget. Team forced vacancies on certain units, so to expediate renovations.

Portfolio NH: No distribution, as they are conserving cash. To date the capital call brought in 51% of that requested. (Note: I did not contribute as it was voluntary). That leaves a 49% cap in funding needed, and they are considering new equity investors to make the difference. This will certainly dilute my invested capital. The Sponsor reports both the leasing activity and renter demand have improved substantially since the capital call was made in April. The property is 88.2% occupied and leased to 94.2%.

Portfolio BTC: Like the previous quarter the Sponsor has elected to suspend distributions to build a cash buffer. One of the two properties reached a full strike price on the cap in December 2022. It sits at 5.65% and will expire in December 2024. Similarly the second property is capped at 5.4%, with an expiration on the cap in January 2025. On the second, the Sponsor hopes to make a distribution by end of year.

The first property is 94% leased and achieved $175 rent increases on average on renovated units. 114 units have been renovated so far. Current rents are above initial projections. The second property is 93% leased and 91% occupied, with strong collections. All renovations (304) have been completed. $350 rent increases on new leases are being achieved thus far. Reportedly tenants are very pleased with the changes made.

Portfolio LCF: Distributions are suspended until a refinance is completed, which is hoped for by end of year. Property is 91% occupied with strong collections. Team has completed approximate half of renovation units (150). Depending on floor plan, $175 to $250 rental premiums are being achieved on these renovated units.

Portfolio CA: No distribution again this quarter has they build a cash buffer to handle the handle the increased interest rate costs. Capped at 5.75% and set to expire July 2025. They are cash flow positive and have reserves, they want to continue to build. 92% occupied and 94% leased. Full renovation have been completed on 64 units, with about $200 rent premiums on these units that have been leased. Amenity upgrades are also continuing to be worked on.

Portfolio GR: A small distribution was made. The annualized distribution is below projections, but at least they are making distributions. Occupancy at the end of quarter was 90%, with growth in both occupancy and rent collection growing each month of the quarter. Still NOI is 23% below projections. 7 units were renovated during quarter with 32% rent increases on these units. 8 additional units are in progress. With 12 units set to be completed in July.

Portfolio AM: Q2 distribution came in at a 4.6% annualized rate, in line with projections. The two properties were 94% and 96% occupied. Rent increases were 11% and 7.4% respectively. NOI is about 16% under projections due to lower income and higher expenses than projected for the year. No units have yet been renovated at the one property as rent increases have been achieved with out them. They do expect to start renovations soon on some units. There is a business center remodel accruing within the building. Lobby renovations have been completed. Other amenities and common areas have also been improved.

In the second complex, 10 units have been renovated with rent increases of $400 to $500 achieved on average.

Portfolio CP: A small distribution was made. It is said to be on track with projections. This mobile home park lost 2 occupied units. It is 92.3% occupancy, two units below projections. Rent increase of $143 goes into effect September 1st, and which they believe will more than offset the vacancies. NOI is currently performing behind budget by over 12%, but that is expected to be temporary.

Portfolio ESA: Distributions are not now expected to start until at least Q1 of 2024. The property ended the quarter with 92.4% due to end of lease terminations. The Sponsor is gearing up for the first phase of converting from student to traditional renters at the property. It plans to convert 60 units through January of 2024. During the vacancies of the conversion process, Sponsor expects to hold back distributions.

Q3 2023 - Update

Equity Portfolios
Portfolio HV (33 months): Distribution not expected ‘til early ‘24
Portfolio AZ (26 months): % (All capital returned) – Sold
Portfolio RHA (27 months): 3.6% (0%)
Portfolio PRO (26 months) 4.4% (0%)
Portfolio HM (26 months): Distribution not expected ‘til mid to late ‘24
Portfolio FAY: (22.5 months) 1.6% (.5%)
Portfolio LP: (19.5 months) 3.6% (0%)
Portfolio NH: (21.5 months) .36% (0%)
Portfolio BTC: (21 months) 2% (0%)
Portfolio LCF: (15 months) 2.7% (0%)
Portfolio CA: (16.5 months) 0% (0%)
Portfolio GR: (14.5 months) 2.2% (0%)
Portfolio AM: (12 months) 2.4% (0%)
Portfolio CP: (12 months) 4.5% (3.1%)
Portfolio ESA: (9.5 months). Now no distribution expected until at least Q1 ‘24

Portfolio HV: This new construction senior village is continuing to perform better than budgeted. 26 new move-ins this quarter. Now 110 of 131 units are occupied (84%). Sponsors have continued to increase rent an average $20 per month. Given strong leasing activity the Sponsor is optimistic about the continuing leasing program. First distribution still expected early 2024.

Portfolio AZ: The Sponsor reported Dec 15th that the county has approved the tax-exempt status the purchaser applied for. It is expected to be remitted to Sponsor in the coming weeks. There is also another adjustment to closing that favors the Sponsor (seller) that will be added to the final distribution.

Portfolio RHA: Sponsor has said distributions will continue to be suspended due to lagging performance & high interest rates. On the complex R, the first project, reported 90% occupancy with strong collections. Due to new developments coming on market with more to come over the next 24 months, leasing traffic has slowed. Interest rate is capped at 5.25%, set to expire in June 2024. Upon expiration a new rate cap will be purchased, and loan extended. Two one year extensions are possible.

Project H, the 2nd of this 3-part portfolio is currently 92% occupied with consistent collections. Interest is capped at 4.85%, expiring in June 2024. Sponsor is exploring refinancing options. Very concerning, the Sponsor says the refinance at this point would not be enough to cover the current loan, and that a significant capital infusion would be needed. However, interest rates are in a downtrend which lends some hope that a lower interest rate and greater funds on a refinance will be achievable.

Project A: the hotel, the Sponsor reports that the city gave full approval for the start of construction, but then additional delays from the lender cause the start of build to be slated to start sometime in Q1 2024. Contractors and materials are all lined up and ready to go. The Sponsor’s other properties in the market have gone exceptionally well and report their best year yet with 86% occupancy and average daily rates of $189.

Portfolio PRO: As before no distribution until after refinance is completed in early 2024. Sponsor reports that the property continues to operate well. They don’t expect a capital call at anytime during the holding period. The Sponsor personally invested significant capital into this project. Occupancy was 93% vs 94% budgeted during last month of quarter. NOI for September was 10.4% higher than budgeted.

Portfolio HM: Lease-up on this new construction senior living village is progressing well with 15 move-ins this quarter. 43 of 130 units (33%) are occupied. The current trend is about 5 leases behind budget. To grow occupancy management is offering 1st month rent-free. The marketing team is engaged in heavy outreach to promote additional site traffic.

Portfolio FAY: Report & tiny distribution came near end of Q4. This is one of only two portfolios I have with this company that is currently making distributions. Occupancy across the 4-pack of properties in this portfolio is 71% down from 76%. This is primarily due to executing the business plan of prepping the duplexes and single family homes in one of the 4-pack for sale. Excluding that one complex, the occupancy as of November was 80.6%, with lease-up at 85%. Increased expenses and decrease in rent collection caused a drop of over 30% in NOI. Sponsor expects occupancy and NOI to increase as business plan is executed. As of October, 340 units have been renovated, with another 47 units in progress.

Portfolio LP: Sponsor is continuing suspension of distributions. Cash continues to flow nicely but is not enough to continue renovations and make distributions. Renovations are expected to be completed within six months. Ten renovations were completed during the quarter. Those units are achieving $300 or more premiums. Quarter ended with 87% occupancy, 3% below budget.

Portfolio NH: Still awaiting Q3 update, no distribution expected.

Portfolio BTC: Distributions continue to be suspended due to lagging performance & the increase in interest rates which are capped at 5.65% for one project & 5.40% for another. The capital call on one of the projects was “ineffective”, and the Sponsor is talking with their lender on how to proceed. Occupancy is in the mid-90’s and average rent on renovated units are achieving a $175 premium. 120 units have been renovated so far. Current rents are exceeding projections.

On the 2nd project the Sponsor is transitioning property management to one of the largest management companies in the country, and one the Sponsor has a long history with. Occupancy is also in the mid-90’s, and all 304 units have now been renovated. $350 rent premiums are being achieved. They report that they are starting to see weakness in the market for both vacancy rates and rent contraction. The Sponsor is exploring options for refinance or recap in the future.

Portfolio LCF: Distributions will continue to be suspended, due to lagging performance & high interest rates. While the Sponsor previously reported plans to refinance this quarter, difficult debt markets have them exploring alternative options that will result in the best outcome for the property. 89% is current occupancy, slightly below the 92% projected. NOI for Sept came in $3k under budget. Upgraded units continue to achieve $175 to $250 increases.

Portfolio CA: Sponsor has said this property is cash flow positive and is building cash reserves. With interest rates capped at 5.75%, they want to continue to build reserves before initiating distributions. This Sponsor is the same as Portfolio BTC and like the second project in that portfolio, this multifamily is in the same market, and the Sponsor is transferring to the same property management company. Total revenue came in near 6% under budget, and NOI nearly 12% under. The good news is the revenue continues to increase, and they have a focus on cutting expenses.

Portfolio GR: No distribution this quarter. Occupancy rates dropped each month of the quarter, from just below 93% to 88.6%. Collections were also very low at 83%, in part due to five evictions. September NOI increased over the prior month, mostly due to decreased expenses. Property management was changed to a company with “deep knowledge” of the local market. The company had previously managed this property with high performance. They expect to achieve 95% occupancy in 90 to 120 days. 75 unit renovations have been completed, with an average 16% increase in rent on these units. That is about 1/3 of the units. Distributions are being suspended while sponsors are proactively exploring refinancing options or a loan modification with current lender. The current loan doesn’t mature until July 2025, with two one year extension options available. Current rate cap is 4.25%, which is quite favorable in the current rate enviroment.

Portfolio AM: With 93% occupancy averaged at the two buildings, rents are up 12.28% at one, and 7.14% at second. Renovated units are getting $569 average premiums. No distribution this quarter as NOI was off due to several factors. These included delays in implementing utility billbacks (legal hurdles) and commercial income off due to loss of commercial tenant, which they are now seeking to replace. In other building a corporate tenant vacated 15 units in August. The Sponsor is in midst of renting those units.

Portfolio CP: A distribution of about 3% annualized was made. Utility charges increased over 11% and were passed on to renters via the new utility back method. No change in occupancy from Q2. No delinquent accounts.

Portfolio ESA: The property ended the quarter with 43.1% occupancy due to commencement of significant renovations toward first phase of conversion of student housing to traditional renters. 63 units went under renovations in the summer, and 26 were completed by the end of quarter. 37 are awaiting final walk throughs. Feedback is that exterior renovation greatly improved curb appeal. Since inception revenue is 16.7% higher than expected, expenses 20.5% higher, with NOI lower by 23.2%. Photos of recent renovations were provided.

Q4 2023 - Update

Equity Portfolios

Portfolio HV (36 months): Distribution not expected ‘til early ‘24
Portfolio AZ (26 months): 5.4% (All closed out) – Sold
Portfolio RHA (30 months): 3.2% (0%)
Portfolio PRO (29 months) 3.9% (0%)
Portfolio HM (29 months): Distribution not expected ‘til early ‘25
Portfolio FAY: (25.5 months) 1.4% (0%)
Portfolio LP: (22.5 months) 3.1% (0%)
Portfolio NH: (24.5 months) .3% (0%)
Portfolio BTC: (24 months) .04% (0%)
Portfolio LCF: (18 months) 2.3% (0%)
Portfolio CA: (19.5 months) 0% (0%)
Portfolio GR: (17.5 months) 1.8% (0%)
Portfolio AM: (15 months) 1.9% (0%)
Portfolio CP: (15 months) 4.3% (3.5%)
Portfolio ESA: (12.5 months). 0% (0%) Won’t start distributions until refinance.

Portfolio HV: The Sponsor reported that while there is no distribution for Q4 ’23, the project is in a very strong cash position. They expect a substantial distribution around Q2 ’24. They are outperforming budgeted expectations, had 7 move-ins during Q4, and 117 of the units (89%) with 5 applicants expected to reserve a unit in the next month. The leasing team is continuing to increase rent $20 per month. As expected, leasing activity decreased during the winter. The fixed interest rate of 3.25% will expire in December 2025.

Portfolio AZ: I received the final distribution from the tax credit late January of 2024. To recap this now fully completed portfolio: upon sale, the Sponsor changed all previous distribution to return of capital rather than return on capital (profit). While the business plan was executed very well, the interest rate environment caused both a rise in cap rates (thus driving value of property down) and an environment where it didn’t make sense for the Sponsor to refinance. They sold with only a small profit. Return on my investment was 11.6% over 26 months of ownership. That makes for an annual return of about 5.4%, about 36% of the projected IRR.

Portfolio RHA: Distributions continue to be suspended due to lagging performance and high interest rates. Property R was 85% occupied at the end of Q4, with consistent collections. This is a decrease of 5% from previous quarter. Leasing traffic is slow and impacted by a lot of new products coming online in the market. To counter, the team is investing effort in outreach marketing, offering move-in concessions and lower rates. They hope to regain occupancy with the pick-up in leasing season. The rate cap of 5.25% is set to expire in June ’24. A one-year loan extension option will be picked up and a new rate cap will need to be purchased. Preferred equity partners are being consulted about how to pay for this new rate cap. My concern is this could result in a capital call.

Project H is 94.4% occupied with consistent collections. Current loan terms are set to expire in June ’24. The Sponsor is negotiating with Freddie Mac for a refinance with a 35-year amortization which helps with net proceeds. They hope to have approval in the next few weeks. Based on current Freddie Mac quotes the proceeds would not be enough to pay off the current loan balance. Once approved they expect to send out a capital call to cover the gap. Uggh!

Project A, the hotel finally achieved all approvals from city and lender, and construction is expected to begin in Q1 ’24, and take about 18 months to complete. All materials and the contractor are all lined up and ready to go.

Portfolio PRO: Sponsor reported at end of year that operations continue to improve, with collections 40% more per month than they were at time of purchase. All renovations were completed during Q1 of 2023. At just over 2 years of ownership, collections exceed projections for the end of year 4. The downside is the huge increase in expenses, led by the near doubling of debt due to the rapid rise in interest rates. Other expenses have also increased, with insurance more than doubling. Total expenses have gone up about $500k annually. Rate cap on the loan expires in September, so a refinancing is required. They are proceeding with getting the new loan application requirements met, and ready for a lock down on rate. They are time it for maximum proceeds from the loan.

Portfolio HM: The timeline to begin distributions has gotten pushed back again, now to early 2025. Based on budget projections this would start with 114 units (87%) occupied. Q4 ended with 39% occupancy. While lease-ups are continuing to progress, they have been at a slower pace than anticipated. Winter saw a decrease in tours, but that is expected to pick up in spring. The project is benefiting from a fixed loan rate of 3.85%

Portfolio FAY: There has been no distribution for Q4 as of yet, and it is uncertain whether there will be. Sponsor (same as Portfolio NH is undergoing property management revisions across their portfolios. As of February ’24, they are going into a hybrid model of PM with a company that PMs over 300,000 units. Once fully in place they anticipate much more clarity in quarterly reporting, which will include an Operating Statement, Balance Sheet, and Unit Statistics.

Portfolio LP: A continued suspension of distributions. Sponsor reports that 153 units have been renovated (77%). These have been getting $200-$300+ premiums. Many cases they are achieving $500+ premiums on units that had been occupied by longer-term tenants. Occupancy has been lagging in the low 80s for most of the hold period, which is common when major renovations are taking place. There were also some collection issues resulting from fraudulent tenants. Cash flow is still positive at this low occupancy rate. With the Spring/Summer leasing season coming up, the Sponsor is expecting a lot of progress toward filling up on occupancy. In February ’24, they put out a call for a “capital injection.” Unlike a traditional capital call this will be formed as a 2-year loan at a 13% interest rate. It is meant to pay off renovation contractors bills to avoid them placing liens on the property. The call is for 10% of our original investment but have an opportunity to do more. I have decided to participate at 20% of my initial investment. Also reported that February collections were $30,000 higher than January.

Portfolio NH: Received another capital call, and a very, very cautious outlook that includes potentially more capital calls this year. The current capital call is just to get through the current quarter – Q1 2024. I almost certainly will not see any more distributions from this investment, and likely will lose some or all my capital invested. The Sponsor for this portfolio has been terrible in timely reporting and transparency, so I don’t intend to participate in this or any future capital call.

Portfolio BTC: No distribution. As of the end of Q4 property B was 94% occupied and 97% pre-leased. 64% of units are now renovated, and these are getting about $175 rent premiums. Despite strong occupancy, there is a cash flow shortfall to make the debt payments. Sponsor is currently discussing with lender on how to proceed and to get a good long-term solution in place. Hoping for the best on this one.

The TC project is working through a significant vacancy issue even as the property management is being transitioned to a 3rd party PM. Some of the issues are due to court backups in evicting tenants. Also, there is a continued market vacancy issue and some rent contraction, and that is expected to continue for the short to medium term. To counter the team will focus on heavily on marketing, retaining tenants, and is offering a free month rent. Property is currently 83% occupied, with 86% collections. Since acquisition, the PM has achieved approximately $240 rent premiums. Cap on interest rate has about another ten months left, and the Sponsor is exploring a refinance, or buying a new cap.

Portfolio LCF: No distribution. Collections are up about 13% over what they were when purchased 18 months ago. Still, they have not been able to raise rents to the level that was projected, due to the competition from developers who are trying to lease up quickly in a depressed environment. Interest rate increases are playing havoc on the market. However, with strong 93%+ occupancy, the team has resumed raising rents to previously anticipated levels. 107 of the 305 units have been fully renovated. For those units they are getting about $250 premium over the classic units. All units are expected to be completed in Q2 of 2025. Refinance or a 1-year extension of the existing bridge loan (with purchase of a new rate cap) must happen by June 2025. If a new rate cap has to be purchased that could necessitate a small capital call of 5-7% of the initial investment needed. Stay tuned.

Portfolio CA: Sponsor is continuing to hold off on distributions. Cash flow is positive, and they are building reserves. Q4 ended with 90% occupancy with strong collections. They expect occupancy to reach mid-90’s over next few months as leasing season picks up. Rental premiums of $150-$200 have been achieved on renovated rental units. Total income for the year was about 6% under budget. NOI for the year was under budget by 13.1%.

Portfolio GR: No distribution for this quarter. Occupancy at the end of Q4 was near 86%, while collections were at 91.5%. While NOI is tracking higher, it is still below projections. Sponsor is focused on getting occupancy to 95% or greater and collecting 95% consistently. 96 units have been renovated, with average rents on these units achieving a 21% increase over the original rents. Due to new supply in the market, the PM is seeing aggressive pricing and heavy concessions. To remain competitive, the team has lowered pricing and offered concessions. The market saw negative rent growth of 6.9% in 2023, and it is expected to remain negative through much of 2024. Distributions are expected to remain on hold, while the Sponsor explores loan modification and refinancing options. The current loan is capped at 4.25% and doesn’t expire until July 2025.

Portfolio AM: No distribution for Q4 due to “constrained cash flow.” This portfolio of two separate properties in two NE cities closed the year with 90% occupancy, down 3% from Q3. Collections are over 90% at both properties. The 15 units vacated by a corporate tenant at one property in August is the main thing impacting occupancy. Negotiations with two corporate tenants are ongoing, and the Sponsor anticipates finalizing them by end of Q1 ’24. Income for 2023 was about 10% below budgeted mainly due to lower-than-expected occupancy. Expenses for the year were slightly above the budget. For the year, average rents increased 12.3% for one property, and 7.1% at the other. Focus going forward is increasing and maintaining occupancy while keeping non-operating expenses to a minimum.

Portfolio CP: Quarterly return for Q4 was 3.5%, a little behind projections. Q4 occupancy ended the quarter at just below 95%, up 2% from Q3. Rental income was slightly below projections, which was more than compensated for by much lower expenses than budgeted for the quarter. Trailing 12-month NOI is exceeding budgeted margins.

Portfolio ESA: Sponsor has decided to withhold distributions until the second phase of the conversion (student to family rentals) is completed. Then they will evaluate for a refinance possibility – currently fixed rate loan, with interest only payments for the first 3 years. They will begin distributions once refinance is completed. They’re erring on the side of caution, as property is in “very comfortable cash position.” Ended the quarter with just under 50% occupancy, and 75% leased. They anticipate full occupancy by the end of February (?). The second batch of student rented units are set for conversion, leases expire in August. They will be released as conventional units. 46 units fully renovated to date. Rents have come in 9.6% below projections due to focus on occupancy coming into the Holiday Season. Sponsor expects to push rental rates with second batch of conversions.

You Can Read Part 1 Via This Link
You Can Read Part 2 Via This Link
You Can Read Part 3 Via This Link