Raising Capital Again

We had suspended raising capital until we had some clarity around the valuations of a few of our investments which we expected would reflect some of the difficulties the multi-family markets have endured. The fundamentals appear to be improving as the real estate markets continue to work through the lingering effects of the Covid related impacts.

2023 Audit

We have adjusted the Net Asset Value of the partnership retroactive to 12/31/2023 to reflect the Fair Market Value estimates required by our recently completed annual audit.

Capital Calls

We have provided additional capital to several of our equity investments to help them meet shortfalls on their budgets owing to the well-described market stressors (inflation, occupancy, oversupply) to help them maintain operations and ultimately get to the finish line and a beneficial sale and capital event. In return we received accrued preferred notes with a weighted average yield of 15.7% annual. These preferred notes are first in line of the capital stack when a capital event occurs.

Accrued Dividends Piling Up

Most of our other equity investments have limited or reduced entirely paying their preferred dividend, also to conserve cash. These too have become accruing preferred dividends. Collectively, our investments currently owe us roughly $270,000 in accrued preferred dividends and that figure grows by roughly $16,000 monthly. On balance, we believe that most of the pain in the multi-family markets is behind us and that accepting new investors and capital now offers a better risk-return profile and better potential total returns.

Looking Ahead

The equity deals we now see weekly offer the very attractive total returns that attracted us to the multi-family markets in the first place. We have not been able to participate due to a lack of cash, either from new investors or from capital events—which we have not had since early 2022. We expect multiple capital events in 2025. Our weighted average total return on deals we exited prior to early 2022 was 35%—annualized to 15%. I expect these total returns to prevail once again as we move past the Covid hangover.

Demand and Demographics

Single family housing remains in acute shortage and affordability remains low. The alternative for most is apartment living. For many, apartment living is preferred: no grass to cut, no snow to shovel, walk-to-town, etc. Typically, multi-family properties are closer to population centers and related dining and entertainment venues.

From ZILLOW on June 18, 2024

The U.S. is now short 4.5 million homes as the housing deficit grows

The growing housing shortage is the primary reason for the affordability crisis

-From 2021 to 2022, the U.S. housing shortage grew to 4.5 million homes, up from 4.3 million.

-In 2022, the number of U.S. families increased by 1.8 million, while only 1.4 million housing units were built.

-Those who live in markets with stricter land-use regulations are less likely to be able to afford the mortgage payment on a typical home.

In summary, the fundamentals of our preferred multi-family markets are improving, interest rates are easing, occupancy rates are re-building, eviction moratoriums are lapsing, multi-family unit oversupply is nearly fully absorbed, institutional investor activity is ramping up and demographic trends are in our favor. Rents, Net Operating Incomes (NOI) and valuations will improve as well, driving ultimate sale prices.

We welcome your questions, comments and concerns.