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7/31/2019 Srep Pvof1 q2 Update
1/4
Thesecondquarterwitnessedcon1nuedandsignificantprogressinthePacificOpportuni1esValueFund
I,aswehavecompletedthesaleofoneassetandnearthesaleofasecond,bothsingle-familyhomeswe
acquiredandrenovated.Moreover,residen1alrentalmarketfundamentalscon1nuetoimprove,justaswepredicted.Infact,accordingtoREIS,awellregardedrealestatedatacollec1onfirm,secondquarter
averagerentsincreasedinall82marketstheytrack,whilethena1on'sapartmentvacancyratefellto
4.7%(thelowestlevelseensince200).
Thegoodnewsisthatweexpectthesefavorablemarketfundamentalstopersistduetocon1nued1ght
credit,marketuncertainty(Europe,elec1ons,taxes,employment,etc.),andapersistenceinthetrends
wehavediscussedinpriorupdates(e.g.,hightransporta1oncosts,needforlabormobility,excessive
studentdebt).
Wecon1nuetoseesignificantopportuni1esinboththesinglefamilyandapartmentmarkets.Sincethe
vastmajorityofthisfundscapitalhasbeendeployed,nonewassetswereacquiredduringthequarter,butwecon1nuetoevaluateandaggressivelypursueselectopportuni1esforotherlargeinvestors.We
willsoonannouncetheopeningofPVOFIIandinviteyoutopar1cipate.
WeareverypleasedwiththeFund'sperformancetodate,andareexcitedbythepossibili1esthatlie
ahead.Ourtwocoreassets-theapartmentbuildings-con1nuetoachieveincreasingrents,net
opera1ngincome,andvalue.Con1nuedunitturnsandrenova1onsshoulddriveresultshighers1ll.With
thesaleoftwoFundassets,wehavedemonstratedtheprudenceofourstrategy,andwilllikelymakea
modestcashdistribu1onthisquarter.Wewillkeepyoupostedinthatregard.
DetailsoftheFundassetsareasfollows:
APARTMENTASSETS
318S.CommonwealthAvenue,LosAngeles90020
Threestories,24units(8singles,6,onebedroom,
onebath)
Purchaseprice:$.329million($53Kperunit)
AcquiredNovember20
Equitydeployed$400,000
Yearbuilt:927(rent-controlled)
Construc1on:Brick
Es1matedValueincreasetodateapproximately
$650,000
Sequoia Real Estate Partners
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Duringthefirstquarter,werenovatedandre-leasedoneunit,whilewearecurrentlyrenova1ngtwoaddi1onalunits.Althoughweareabletodrivesubstan1allyhigherrentswitheachunitthatisvacated,
renovated,andre-leased(thirtypercentincreaseinrents,on
average),becausethepropertyissubjecttorentcontrol,wecannot
turnall24unitsimmediately,butmustwaitforunitstobecome
vacant.However,wewillhavereposi1onedover20percentofthe
buildingwithinninemonths.Asaresultofourefforts,wehave
increasedthenetopera1ngincomeofthepropertysignificantlyto
anannualized$40,000orso(basedonrecentresults),whichwould
likelyplacethevalueofthepropertyinexcessof$2million.Atsome
point,ifweareunabletogenerateenoughunitturnnaturally,wemayoffer"cashforkeys",essen1allyamonetaryincen1veforthose
tenantswithleasessignificantlybelowmarkettovoluntarilyvacate.
Atthispoint,wewilllikelymarkettheprojectforsalesome1mein
203,onceweturnandincreaserentsonaddi1onalunits.
245N.AlvaradoAvenue,LosAngeles90026
Threestories,60units(36,onebedroom,
onebathroom;9,twobedroom,two
bathroom;fivetwobedroom+lo,one
bathroom;and,onenon-conforming)
Purchaseprice:$7.525million($25K/unit)
Equitydeployed$2.7million
Renova1oncoststodate:approximately
$500,000
AcquiredNovember200
Yearbuilt:990(notrent-controlled)
Construc1on:wood-framestucco
Es1matedValueincreasetodateapproximately$2.0million
Wehavenowrenovatedwelloverhalfofthebuildingunits(38),includingeightinthefirstquarter,while
oneaddi1onalunitiscurrentlyundergoingrenova1ons.Projected202netopera1ngincomeforthe
7/31/2019 Srep Pvof1 q2 Update
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buildingapproximates$560,000(annualizingrecentresults),likely
transla1ngtoapropertyvalueabove$9.0million,andperhapsas
highas$0million(dependingoncaprateapplied).Althoughwe
originallythoughtwemightmarketthepropertyforthesaleinthe
firsthalfofthisyear,Ibelievethemarke1ngandsalewillbea
secondhalf202orfirsthalf203event.Thereareacoupleofminorcommonareaimprovementsthatares1llneeded,andwe
wouldliketodrivenetopera1ngincomeevenhigherbeforesale.
SINGLE-FAMILYRESIDENCES/OTHERASSETS
4161MandalayDrive,LosAngeles90063-nochange
Single-Familyhome
Fourbedrooms,threebathrooms
AcquiredMarch20
Purchasepriceof$22,000
Renova1oncosts=approximately$45,000
Currentlyleasedfor$2,250permonth
Es1matedfairmarketvalue=$325,000
908FrigateAvenue,Wilmington90744-nochange
Single-FamilyHome
Sixbedrooms,threebathrooms
AcquiredAugust20
Purchasepriceof$220,000
Renova1oncosts=approximately$,000
Currentlyleasedfor$2,600permonth
Es1matedfairmarketvalue=$356,000
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3118PaloVerdeAvenue,LongBeach90808
Single-familyhome
Threebedrooms,twobathrooms(,86sq.feet)
AcquiredSeptember20
Purchasepriceof$37,000
Renova1oncosts=approximately$35,000
Wewillbelis1ngthispropertyforsaleshortly,and
an1cipatethatthegrosssalesproceedswill
approximate$440,000,resul1nginanetprofitof
$72,000,anROIof2%,andanIRRof
approximately23%.
3137W.108thStreet,LosAngeles,CA90303
Single-familyhome
Two-bedrooms,onebathroom(969sq.feet)
AcquiredNovember20
CostofAcquisi1on$62,000
Renova1oncosts=$36,000
Otherholdingcosts:$5,000
NetSellingPrice=$44,000
NetProfit=$32,000
ROIof5.8%
Pre-taxIRRexceeding2%.