Webinar: IncomePlus Fund May Update
On this webinar, Origin Co-CEO Michael Episcope and Managing Director of Acquisitions Dave Welk review the current state of the market and provide guidance about the Fund’s unit price. They also update attendees on the Fund’s assets, preferred equity portfolio and current deal pipeline.
Read a full transcript of this webinar below.
Welcome everybody to the May IncomePlus Fund webinar. I’m Michael Episcope, CEO of Origin Investments. If you are an existing investor, thank you and welcome back. If you’re a prospective investor, welcome and thank you for joining us today. Joining me today is David Welk, Managing Director of Acquisitions. He is a regular co-host on this webinar, and he is joining us from Charlotte today. And he is our boots on the ground. Dave leads our Acquisition team, and he brings a lot of insight into the entire investment process and is always a great host.
So Dave and I have known each other, gosh, almost 15 years now. We went to graduate school and we actually used to do presentations together back in the DePaul Real Estate Center back in the day. So it’s always fun to have you on, Dave. Welcome.
Thank you, Michael. Great to be here with y’all.
The webinar today, we’re going to budget a little bit more time than usual. Normally we have about an hour. This will be about an hour and 10 minutes. We want to leave enough time for Q&A. For the first 45 minutes, Dave and I are going to be covering state of the market, fund performance and then go over a few of the portfolio deals and give you some guidance as well on how the fund is performing and will perform. And then again, we’re going to answer any questions with the time remaining. I do want to clarify the purpose of this webinar. We got a lot of questions early on, basic questions, tell us about Origin, tell us about the fund fees and things like that. This is a fund update, and it’s meant to provide a snapshot of past performance, current status, provide guidance insight into the markets.
So we’re not going to go through any of the details about Origin, the fund strategy fees, or items like minimums in the fund. You can find all of those on our website if you’re not familiar with the origin already. You will benefit from listening to this webinar today. We do talk about the fund strategy and certainly a lot about the portfolio. But that basic information can be found on our website.
I will give a little bit of brief background about the fund, just as a little reminder and level set here. The Income Plus Fund‘s primary purpose is to deliver a stable and tax-efficient 9% to 11% total annual return. And this includes both income and appreciation. It operates as an open-ended multi-strategy fund that builds, buys and lends to multifamily properties in growth cities around the United States. And the open-ended means that we are always taking capital into the fund.
You can invest today. You’ll be able to add more in the future as well. But one thing we don’t do is, this is not a buy, fix and sell fund. This is actually a buy, fix and hold fund. We don’t flip assets in this fund at all. And the reason is because we’ve really changed our strategy about being more mindful about taxes, building wealth. And you build wealth by buying quality real estate and holding it for the long term. That’s true about a lot of assets out there, whether you’re talking about real estate or stocks or other assets as well. They appreciate over time and the upside is unlimited. And this strategy buying, fixing, holding, building value, it maximizes appreciation and minimizes taxes, both of which are required to build real wealth. And that was the genesis and the design around this fund.
The fund is defensively positioned today, and we’re going to discuss why we will continue to grow even in today’s environment.
State of the Market
Let me jump into the presentation now, and I’m going to start with the state of the market. And this part of the presentation could easily be an hour, an hour and a half. I’ve been doing tours around the country, just meeting with investors. And we talk about state of the market and some of these conversations last two hours. So I’m going to just abbreviate this and give you the Cliff’s notes right now because I know many of you see storm clouds on the horizon and are concerned, and we are too. And I know that based on what we’re hearing at these luncheons. I also know that based on the questions that were emailed in. And whether those storm clouds dissipate, produce a small sprinkle or violent storm is up for debate.
What I do want to say is that when it comes to real estate, this is not 2008 all over again. It’s not even close. This is not going to be a real estate led recession. The debt markets are behaving. The equity markets are a little frosty out there, but we don’t see nearly the same fundamentals that set us up in 2005, six or seven, that irrational exuberance does not exist in the market today.
I’m going to jump to slide in the second slide here now, and really go deep into interest rates because we got a lot of questions related to this particular metric. And so what you see in front of you on the right hand side, this slide covers the last eight months of the interest rate movement. And you can see how violent it’s been and interest rates have pretty much doubled in that time period.
Where this hurts the most in real estate is in financing costs first of all. Cost of debt becomes more expensive. Six months ago, we could borrow at 3%. Today, borrowing costs are around 4%. And where this impacts the most is in our common equity portfolio. These are the stabilized assets in the fund. At least you would think this is where the part of the portfolio that’s most susceptible to rising rates, but it’s actually really well insulated.
And the first reason is because it makes up less than 25% of the entire fund. So it’s actually a very small piece of the fund. Secondly, two of the three common equity assets have fixed rate debt and one of the properties, the property in Austin, it has fixed rate debt with a maturity that’s out 35 years. So the risk to higher interest rates in this environment and even maturity risk has been substantially mitigated on two of the three assets that we have in that part of the portfolio, that portion. Where rising rates do have an impact is on new assets being added to the fund. And where new assets are being added to the fund is in our ground-up development. We’re actually not adding core plus or value-add assets in this fund today. We just don’t think that’s a good bet buying three and a half cap borrowing at 4%.
We do believe that the market is a little frothy out there. And the only way to play this market is through ground-up development. And the sleeve in here is a reminder. We are allowed to deploy 20% of the funds equity into ground up development. And that’s where we are, right around 18, 19% allocated to those projects. And those projects are financed with floating rate debt because you can’t lock in fixed rate debt until you stabilize. Now, there are two ways in which we mitigate interest rate risk with respect to this portion of the portfolio. The first is by building value, by building cash flow. We’re developing to a cap rate in the future of between 5.2 and 5.5%. So a property that’s built for 60 million, let’s say, right around there, that’s going to produce net operating income around $3.2 million.
And that produces more than enough debt service coverage, actually about double when we’re completed. So if you think about a project like that, that requires about 40 million of debt on it at 4%, that’s going to be $1.6 million. Well, when your property is producing $3.2 million in NOI, you’re able to service debt and provide a lot of cash flow. And even if your numbers don’t come in quite perfectly, if you’re actually at a 4.5% or a 4% in something like that. Even at a 4%, if the market comes down 4% return on cost to cap rate in the future, you’re still producing $2.4 million in net operating income against a 1.4 million debt expense. So by building that value, we’re actually mitigating risk and the impact against rising interest rates as well. And that’s the first way that you do it is really by creating more cash flow at the asset level.
The other way that we’ve done it and really helped this portfolio out is that back in January, we put a hedge on and we hedge roughly $600 million worth of data across all of our funds. We have more than a billion and a half dollars of development going on between our QOZ funds, our growth fund four, and this funds, and we entered into a swaptions contract with multiple banks when the tenure was trading right around 1.7%.
And a swaptions contract, I’ll just give you the basics, but it essentially makes money when rates go up, and declines when rates go lower or stay the same. So when we put that on at 1.7% and rates went up to 3% or above 3%, it worked in our favor and worked very well. Now we exited the position about 10 days ago, because what I just said, you lose by staying in a swaptions contract if rates go nowhere or they don’t continue to go up, there’s actually a decay in the swaptions.
So we were in this only four months, we never expected an interest rate this move this quickly. And so we exited the position to profit and we had a $15 million outlay that turned into a $24 million profit across all of our funds. And that was in a short span of about four months. The IncomePlus Fund was allocated around two and a half million dollars of that profit. And that was done based on the fund’s exposure to floating rate interest rates. We didn’t hedge our entire portfolio, but we hedged a little more call it about 40% of the ground of development that was in process at that time. And what that is, that becomes a small war chest that offsets the cost of higher debt in the next few years.
And it’s an asset to the fund. So the hedge worked really well. And the other thing that I think you need within this fund, rising rates are not bad for everybody. They’re actually great for lenders and a big strategy within this fund is lending. We are a big lender in this fund, more than 60% of the fund is either in or committed to preferred equity. And for those of you who have been with us for a long time, you’ll remember even going back to March, April, May of 2020, we said, this is how we are positioning this fund to be defensive in nature. We are going to allocate more towards preferred equity because we just didn’t see that buying existing properties at 20, 30, 50% of replacement costs made sense. And so that’s where we are today, where 60% of the fund is in preferred equity.
This is a protected position. It provides yield, and more importantly, a lot of stability. And you’re going to see that later on when I go through a stress test and I show you the base case, a stress test and an upside scenario, the variance just isn’t that wide. Now, rising rates in terms of how they’ve benefit us and preferred equity number one, that position in the fund has benefited because of this ability, but preferred equity rates six months ago were in the 11 to 11 and a half range. Today, they’re in 12 to 12 and half percent right around there, and still well protected because the fundamental of real estate are strong. And that’s 850 to 900 basis points over current treasuries. So we’re getting paid a lot. We’re getting paid outsize returns for the risk we’re taking in these assets.
And so overall, I think we’ve got more questions about these rising rates and we’ve been able to mitigate their impact to this portfolio through both the portfolio construction and then some of the fixing debt at the individual properties, and then hedging it as well.
So they’ve really had it a negligible impact on our returns because of some of the steps we’ve taken and how we’ve positioned the portfolio. And I’ll just tell you, your money is not only safe. It’s growing in this environment and will continue to do so. And the really cool thing about how we’ve got this portfolio position, well, preferred equity is not a permanent piece of debt. So as these roll off in 60% of the portfolio today, well, as these mature, we can decide to allocate that money more into preferred equity and reallocate it into that, or start to change the nature of the portfolio if we see opportunities out there in the common equity space, if we think value add and core plus. So we know that we’re going to have this future stream of income to take advantage of opportunities in the future.
Let me go to the next slide, because I want to talk little bit about the housing fundamentals. I’ve gone over this before, but these are some of the tailwinds that are in the market. And we have been undersupplied in this market for nearly 10 years. And what we’re seeing going on today is really a hangover from 2008, in five, six, seven, we were way over supplied. It took several years to gobble up that supply and create a balance. But the reality is today, we are under supplied. And I think one of the best examples I can give of what’s happening in this market, Tom Briney who’s our managing director of Acquisition lives out in Denver. He was saying that in 2006, more than 500,000 people were employed in construction in Phoenix today, that number is less than 200,000. It’s about 150,000 because since 2008, so many people have permanently left this market.
And today, the market needs around 500,000 units. We’re delivering around 350,000 units per year. And because of the lack of labor, because of what’s happening out there in these markets where there’s so much demand, this is not going to be fixed in a year or two. There is still a lot of runway in front of us. The other thing that’s happening in the market and everybody’s seeing this, is that there’s a permanent demographic shift that is taking place. It has taken place. It’s going to continue to take place in our target markets. And yes, we’ve seen rents go up by double digits. And yes, we believe there is still room to run in this market. We’ve seen what we consider wave one of the work-from-home movement and the flight to lifestyle cities. And like it or not, remote work is here to stay.
I love an office. We love an office. We love building a culture. But the world in which we live in today, we have to give people flexibility. And this is only going to continue. And in many ways, you want workers who are going to be happy. And if they’re going to be happier in Florida, in Texas and these other markets, then that’s the place personally, yet origin, where we’re allowing them to move to. But think about the mental math that’s going on in a lot of people’s heads right now because we’ve seen this big wave. But if you have the choice to move from New York to Florida, there’s all the reasons why you wouldn’t want to move. But let’s say you’re just doing the math equation. The first thing is, there’s no taxes in Florida.
New York City is above 10%. So right away, you’re going to save $10,000 to $50,000 per year in state taxes. You can move to Florida in almost editing city and get a two-bedroom for what a studio rents for in New York City. And even when you’re done paying rent, you still have more discretionary income left over. And that is an equation that is happening around the world and I think more and more people, we just had one of our team members move down to Nashville for this reason. We had a team member last year, moved down to Tampa. And also, we had another team member who moved down to Austin, moved down to Miami, doing this in their head. And so they’re essentially trading these high tax states that maybe aren’t suited around lifestyle to these lower tax states that have more of a lifestyle vibe for them.
And that’s going to continue. It’s been going on for 40 years, COVID accelerated and it’s here to stay. The other point I want to make on this slide is that higher interest rates are actually tailwinds for us as well. They impact financing costs for every would-be homeowner out there. You can see on the right hand side mortgage rates, they were at 3% one year ago, and they just hit 5% this month. Will mortgage applications have cratered as a result? And what you get as a result of higher interest rates and homes that aren’t affordable because as much as real estate apartment costs have gone up, so have home costs. And you have millions of trapped renters out there as a result of this. And this is really creating this perfect storm for real estate. It’s creating this demand because these would-be homeowners they’re forced to rent, to stay in apartments today.
And so those two things, the fundamentals are still very favorable for residential. And those two things that I just named are really driving the tailwinds to this market. So I’m going to go to the next slide. This is the last slide I’m going to cover on state of the market. And this really in the past 36 months, I mentioned construction costs, but they’ve risen by about 40% over the last three years. So a property that costs 50 million to build in 2019, now costs around $70 million. Every single input to building costs has increased. Labor, steel, lumber, land, you name it, it has increased. So why does the mass still work? Well, one reason, because the growth and revenue has outpaced the rise and the cost of construction. This is the great equalizer, growth of revenue. And I put a little math to this just to give you an idea. For every $25 increase in rent per unit, the value of a 300 unit property increases by a little more than $2 million, and that’s a linear equation.
So if you get an extra $50 per unit per month, the value is going to increase by $4 million. So in order to make up that 20 million cost difference, you need about an extra $230 per unit per month. And I will tell you, Dave’s going to talk about how the portfolio is performing a little bit, but every market we are in has risen well in excess of that. Some have risen by as much as 400, $500 per month. And that’s why the math still works in real estate. And I’ll give you a great example how quickly this market is moving. The fund invested in a deal in Jacksonville called Linden house. This was back in the fall and this is a ground up development project. And I remember looking at it. You’re looking at deals that every six months come in 10%, more expensive or 5%.
And it’s really hard to get your arms around this, because you have to believe in the math and the team and the return on cost. And I liked the deal, but it felt expensive at the time. And I voted for it and everybody voted for it. And doing the numbers, we felt like we were underwriting it conservatively. And it’s hard. It’s just hard not to be anchored by the past. You would love to get last year’s prices today, but that’s not how life works. You have to have a little bit of a vision and foresight and take some calculated risk. Well, the team went down there a few weeks ago and rents have gone up $200 per unit in just the last six months alone. So from the time we closed this deal to today, six, seven months, 15 to $20 million, right around there, a value creation has taken place on top of what we underwrote.
And so what felt like an expensive construction proposal, now feels like a bargain. And this is how quickly these markets are moving today. And really, I think, a great example of why you want to be in real estate. This is where the inflation is happening. And if you want to fight inflation, you have to be in hard assets. And if we go back to 1973 and look at a market that was maybe similar today, what you take out of that time period is that public reads the best proxy for real estate, private real estate. They outperform over the next several years. And in order to fight inflation, you want to be in inflationary assets. And that is about being in real estate. Let me go to the next slide, please. This is the fund’s performance. And over the last 12 months, the fund has generated at 22% year over year return and we’ve achieved positive returns in 36 out of the last 37 months.
Our only write-down was in March of 2020. You can see it there, we wrote it down by about -6.9%, but then it’s done nothing but gone up since that time period. And so the fund it’s doing really well this year through the first four months, the fund has generated a 4.3% total return, and we’re on track to generate deliver around 11 to 13% throughout the entire year. So that’s slightly above our target return in this bond of nine to 11%. So things are going very well right now. Let’s go to the next slide please. So here is a quick snapshot of the portfolio. As of the end of April, the net asset value stood at $270 million. We have 18 assets in the fund. If you’re a current investor, you’re going to get this e-mail in the next couple days. The unit price was written up slightly to 1122, so about 0.06 cents. From the previous month as well.
The leverage ratio is low here, 53%. We target generally 65% when we build a property, when we acquire a property. But generally, you’re going to see that go down because as properties appreciate, you can’t hold that leverage constant. You can only get to that 65% leverage mark when you buy a property or refinance a property. So you’ll always see this fund or generally below that 65% leverage ratio. The funds current distribution yield is around 5.6%. I know we got a lot of questions about this as well. And I’ll just say, some of you may not know this, but we increase the yield at the beginning of this year by about 5%. And our goal is to increase it every year. We’d love nothing more than have this fund be a dividend. Aristocrat, that’s one of our internal goals is to continue to increase that every year.
We target five to 7% that yield 6% is that magic bogie. But if the unit price continues to rise, that’s going to fall within a given year. And then we’ll readjust that at the end of the year, when we increase the distribution rate, as long as we think we can hold that consistent. Now, if you’re a new investor, just to let you know. We do have a drip option, you can elect to opt into that. Reinvest those dividends, if you don’t need income. And certainly if you’re a current investor, you can always turn that off and elect to take the cash or turn it on if you don’t need the cash. Let me jump to the last slide that I am going to go over here.
And this is really the best guidance I can give you about the fund. And we created some stress test and a downside, an upside a base case scenario. And the stress test, which I’ll talk about first, this is a world where our development projects make no money, zero money. And those projects generally are written to about a 30 to 35% return on cost. The information we have is they’re actually doing much better than that. I gave Linden House as an example. In this scenario, our common equity portfolio makes no money either over the next year, two years, three years, and our preferred equity position performs as expected because those are very well-insulated. And in this case, the return to the fund is still positive at 6.25%. I personally think this is a pretty draconian scenario. I don’t think this is going to happen based on the information we have today. The upside scenario, it assumes we generate a three X return on our development and the core generates a 10% annual return.
And the preferred equity performs as expected. Well, to me, that is likely or equally could be our base case scenario where we sit here today and you see that this ends up in a 14% return. And I think to get 3x and some of our deals where they’re located with the preliminary information we’ve had, is realistic. It’s not completely unlikely. So what I’m drawing probabilities around this, I think the upside has a much higher probability than the downside case here. And the base case really sits between the two scenarios and chiefs, a 10% or more return. And that’s what we generally target and strive for in this fund.
Again, the variance around all these scenarios, there’s not a huge deviance, if you will. And it’s small, because 60% of the portfolio is in or committed to preferred equity. And that provides the stability in the fund, the stability we are trying to achieve. And the ground up development sleeve is what I’ll call the jet fuel for this fund. And that’s going to help us outperform on the side and really achieve the alpha that you all pay us for not only in the portfolio construction and making sure that our downside is protected, but also that we’re capturing the upside as well. The last thing I’ll say about this, because we get this question on our IR team fills this question. Well, I’m going to wait and everybody sees what’s going on in stock market. And they expect the same thing to happen in this fund as well that things will come down and they’ll opportunistically buy.
And I’ll just tell you right now that if you are waiting for the unit price and this fund to drop before investing, you are going to be waiting for a long time. I don’t believe that’s going to happen this year, next year. I think this fund is really, really well-positioned to outperform in whatever market comes our way in the next three, six, nine, 12 months, two years. And we are going to continue to increase the unit price. Some months will be bigger than others, but over time, you’re going to see that upward trajectory. So thank you very much. I’m going to hand this over to Dave now.
Thank you, Michael. And good morning all. A lot of great intel is covered by Michael there. Let’s jump right into our portfolio highlights. And afterwards, as Michael mentioned, I’ll provide a brief overview of our current Acquisition pipeline for fund investment opportunities, which includes about 152 million worth of potential equity deployment across 11 investments. And as Michael spent a good deal of time talking about the general theme in our portfolio right now is strengthening of operating fundamentals across the board. It’s happening in all of our markets, but in particular, we’re enjoying these benefits at our individual investments.
Monroe at Aberdeen
So the first one we’re going to cover here is Monroe Aberdeen. For those of you who have been following the portfolio for a while, know this is a 120-unit multifamily project built in 2018, located here in the West Loop neighborhood of Chicago. Over the course of the quarter, leasing velocity was pretty consistent, both at the property and also at the submarket level, led to a very strong occupancy average over the course of quarter of about 95%.
And we, through that timeframe, both the project and the submarket removed rent concessions. So there was really no offering of free rent for any leases that were executed at our project. And again, within the submarket. So that, in of itself is a strong indicator of strengthening market fundamentals. Occupancy over the quarter at the particular project here was 94. So as I mentioned, we were just a tick under the overall submarket at 95, where we started to see some real strengthening at the property level itself, as we outperformed our comp set on lease renewals. So we retained about 52% of our expiring leases at the project. And while doing so, we grew our effective rents by 26%. And it’s important to note that again, as we mentioned before, this was during a period of time in which we really aggressively reduced free rent concessions during the quarter.
So we were able to grow our new lease rates over that timeframe and averaging in total 13% on the renewal lease rate growth as well. Due to the outperformance and the renewals and as well as our efforts to increase parking and utility income, we were able to grow the overall revenue per square foot of the project almost 4% during the quarter, compared to a 2% increase by our comp sets. So we almost doubled them up over the course of the quarter. And then to note again, installing some new technology here at the project, we implemented the use of a new AI based revenue management system at the project. And the intent there is to, again, drive aggressive rank growth while finding a way to maintaining our optimal occupancy and also helping to smooth out the lease expiration risk over the course of the year so that we can manage those expirations during the most optimal time during the leasing season. So that that system pulls in a host of submarket dynamics and competitor information to adjust our pricing on a daily basis.
Madison at Westinghouse
The next project in the portfolio that we’ll cover here is Madison at Westinghouse. Again, to give point of reference, this is a 250 unit project located in the Georgetown submarket, which is north of downtown Austin. For those of you who tuned into prior webinars, this has been the absolute all star performer for our portfolio over the past year. It was really one of the projects if you were to break down submarkets, that benefited COVID and the immigration trends as a result over the last 18 months. This specific submarket certainly will lead the way in terms of its performance nationally. So leasing that said over the quarter was relatively flat in terms of overall velocity, but we’ve been able to maintain a pretty strong occupancy as we’ve consistently maintained occupancies somewhere in the 96 to 97% range. We’re starting to see a little bit of supply threats creep into the market, which again is a natural phenomenon you’d expect to see given strong submarket fundamentals.
Other developers are taking note of this strength and are trying to find ways to add additional supply to this submarket. We are protected somewhat with some barriers to entry here, given that the Georgetown planning department is trying to limit the number of new multifamily development projects. But we were impacted by the delivery of a project about a mile away during the quarter. So they were starting to offer one month free of concessions during their resell. So we were starting to see some real competition from them and we did lose some prospects that we would’ve otherwise converted previously had that now project been brought online. We also do, in addition to this project, we do anticipate. We’ll see another project come online towards the end of this year, that likely will place some pressure on rent growth as you would likely see additional concessions being offered in the market similar to the comp that I just mentioned.
We did maintain a pretty strong occupancy in the quarter at around 96%. So we bested our comp said by about 2%. And again, as we mentioned in past quarters, the average new lease trade out here was about 23%. And our increase in our renewals was 19%. So that we exceeded our concept by about 2% and 5% respectively. And, however, because we were pushing rent so aggressively here, we did lag our competition by about 11% in terms of our renewal rate, but we will backfill that vacancy as evidenced by the occupancy that we’ve seen throughout the quarter, similar to the Monroe story, we’re implementing some value, add initiatives at this project as well. We’re looking at rolling out four electric vehicle charging stations in the first quarter. And then we’re also installing a new smart access system with smart thermostats to all of our units and amenities during the second quarter here.
Lastly, we’re also implementing some exterior painting initiatives over the second and third quarters as we look to enhance our curb appeal. And also some of this is frankly being done in defensive nature because we know our newer competitive set will have these offerings. So we’re making sure that we’re keeping pace with new projects that are in the market.
District and Memorial
Lastly, we’ll cover our third common equity asset, which is the District and Memorial project. Again, some context, this is a 326 unit structure park deal located in the info Memorial submarket of west Houston. The fundamentals of this submarket were not quite as strong as certainly the ones we just mentioned with Monroe and then the Madison project up in Georgetown. But if you follow the progress of the operational performance of the submarket from COVID, we’re sitting much, much better than we were and call it August in September of 2020.
So over the quarter, the property itself maintained a 92% occupancy, just a hair below the submarket average of about 93%, but we’ve implemented a number of strategic, new leasing initiatives here, and also spending a lot of time focusing on retention of our residents here and overall, we were able to increase rent above our competition by about 2%. Retention here was about 43% over the quarter, relative to our competitors about 51. So despite the fact, and this is a pretty common theme as you’re hearing here, we are getting aggressive on our renewal trade out leases here by trying to push rates there at 6%. So it’s a balance between pushing rates on your renewals, pushing rates on your new rents, retaining those residents and boosting occupancy. So we’re trying to find that optimal range certainly here, but also in all of our projects.
One thing to note here is that in March of this year, we experienced the highest traffic count that we’ve seen since July of ’21. And we believe that’ll continue through the leasing season here, the strength of the leasing season here, which is May through July. And we’ll continue to boost occupancy and push rentals along the way. Last thing to mention about a COVID throwback here, rent collections here have remained strong. We collected about 97% of our bill rents at the end of the quarter. Just to give you some context where that was in the teeth of COVID, that was roughly in the high 80% range, so significant increase. And as we continue to see the submarket trend upwards, we believe that collection rate will get upwards of 98, 99%.
Horizon at Sereno
On the next slide, what we’re going to do here is we’re going to cover Horizon at Sereno. And this is effectively a case study of our build core portfolio. And we have five such of these assets that fit this profile. And as Michael mentioned, and he used a great line in terms of these being the jet fuel for the broader portfolio. And that’s exactly what this is. The investment performance metrics of a development project will help to boost the stable, underlying performance of our preferred equity portfolio. And the basis that we have on these investments. And we’ll talk a little bit about, again, the benefits of our pref and the insulation that those have. Even if the market were to retreat a little bit, the basis in all these build decor assets, which represent in some cases, pricing on land or construction pricing that was locked in several months ago, provides a lot of protection of the event that we do see a correction.
And I’ll give you for example. So just to broad brush, the basis for most of our build to core of these five assets is somewhere in the neighborhood of 220,000 to $230,000 a unit. That’s an all in development basis. And we underwrote exiting the portfolio on our initial base case underwriting at around 260,000 to 270,000 per door, to give you a rough range. And based on where we’re seeing current trades in the market today, we’re seeing asset trades somewhere in the neighborhood of 350,000 in the unit. So if you just take, rough math and keep it simple, 350,000 a door, a 20% price correction, that’s 70,000 a unit. 70 minus 350, you’re still at 280 a door. My point being is that we’re actually, even if the market does correct from where we underwrote and we underwrote these projects achieving a mid to high teens IRR, we’re still in great shape.
As Michael mentioned before, we don’t anticipate a market correction to occur at that level. But the point I’m trying to make here is that if we do see it, and this is why Michael mentioned that if you’re waiting for our unit price to come down, you’re going to be waiting for a long time because even if the correction occurs, we’re still achieving our baseline underwritten Brents for this portion of the portfolio.
So Horizon at Sereno, just to spend a little bit of time on this project itself. It’s a 320-unit Class A project that is located in Wimauma, which is a suburb, south suburb of Tampa, Florida, located down Hillsborough County. This project’s one of the last undeveloped sites in a master plan community. It’ll span about 17 acres in total with seven buildings. We’re going to have a Class A finishes throughout in terms of the fitness center, a salt water pool, resort style pool, the indoor and outdoor dog spa.
And then we’re constructing a barn here to store golf carts that can be used by the residents to access the nearby retail amenities.
And similar to the story that Michael told about Linden House. We closed on the land here in this project in April, so almost 30 days ago. And we expect to break ground in June. And originally, when we were underwriting this project, we were anticipating breaking ground and call it roughly October, November of last year. And there was a significant delay caused by the local school board as they were not passing any of the permits, because they were worried about capacity issues from all the other residential that both for rent and for sale that was being proposed in the area. So there was a significant hold-up from our groundbreaking, and as we all know what happened in that period of time while construction prices continued to increase.
And what happened was, same story as Linden House that Michael just alluded to, what happened in this submarket over that timeframe is that we saw almost a 20% increase in rents. So now submarket rents, which we underwrote as about 1600 for this project seven months ago, or so are now we can comp out in the 1,800 to almost $1,900 range for our comp set. So a great story about how much conviction we here at origin have in this project. We pass around the hat to cover some of these construction overruns here within origin amongst the employees. And what we did is we do what we do on every investment is we re-surveyed the market. We saw how much appreciation this asset has recognized just through rent growth alone. I haven’t even touched on the fact that our land basis in this project, which we had tied up almost a year ago at this point, reflected a land basis from long ago where you’ve seen an increase of 50 to 100% on land trades in the submarket since then.
So if you look at what happened with the rent increases of 20%, plus our increase in our land basis, that translates into almost a $20 million increase in the valuation once this project is stabilized. So this ended up being the quickest internal origin employee raise and most significant investment made by origin employees for a single deal in our firm’s history. So that’s a Testament to the belief that we have in this project.
On the next slide here, we’re going to cover very quickly, and I know we’re getting long on time, so I’ll try and cover this quickly. But similar to the horizon example, what we’re going to do here is use this Lively portfolio as a case study for our broader pref equity portfolio. And as we’ve been saying for the last number of months and a number of webinars, preferred equity remains to be seen as, from what we see, is the best risk adjusted return in the marketplace. And this particular portfolio of deals, which we acquired or closed on in a variety of timelines since really in late 20 and early 21, these are three deals that are located in around Greenville, South Carolina, and MSA.
And they’re structured in a partnership with a vertically integrated, meaning our development partner has its own internal general contracting company, vertically integrated partner that’s based in around Greenville. And the structure here is very compelling in that we’ve secured tax credits that effectively collateralize our entire position. So those tax credits are realized upon completion of the project, which we anticipate that completion to occur in the coming months. So we love the fact that they’re structuring here in the value of those tax abatements, that effectively once the project’s built, that would cover the takeout of our entire position plus our accrued preferred return. But what I want to highlight here, in addition to that benefit for these particular deals is something that’s similar to every single one of our preferred equity investments.
So if you look at the capital stack example on the right, you can see that where we sit within a traditional capital stack for our preferred equity investments is between the senior debt and common equity. And so in terms of priority, the senior debt gets repaid their investment back first, their capital back first, we will get paid back our capital second. And if you look at the loan to cost numbers that are on the left hand side of each one of those projects, when we originally structured these deals, we sat between roughly 65 and 80% of the loan to cost. 65 was the senior 80% of the costs was our last dollar at risk. And then the common equity filled in the tranches above that. So that roughly 20% of the capital stack was in a first loss position. We would get our return and our capital back before they even see a dollar of return of their capital or profit.
Importantly, to note on the right-hand side of this range, as you can see, is that now we’re seeing because of where these projects sit in terms of their completion, where the market has gone is on average, based on today’s value, we’re sitting at about 60%.
So to rewind that back, the senior loan, when we originally developed these projects were at 65. Now they were getting paid about a 4% interest rate. We are collecting a 13.5% compound annual coupon. And again, you can see how much risk has been removed, or said differently, how much value tion has occurred and how protected this position is from where current value sits today. So to be sitting at 60% of value and collecting a 13 point a half coupon, we’re pretty excited about that. Last slide I believe for me to cover is to run through our deal pipeline, which as I mentioned before, we’ve got 11 projects that are in our pipeline representing about 152 million worth of total equity commitments. And as you can see, geographically, were spread pretty well around the country. There’s are a couple of pins that will get added even further Southwest.
Tom Briney is making some great inroads in terms of our efforts into Phoenix. So we’ll continue to push westward. But as you can see a great cross-section of diversification across the country and the Sun Belt in particular on where these, and I think there’s one pinprick that should be on here in Denver, which we just received word, I think, this week that the deal’s coming our way. So one thing I just wanted to highlight in terms of one project that’s closing this week, selfishly, it’s one of my projects located in Asheville, North Carolina. So about two hours north and west of Charlotte located in West Asheville. So it’s about a mile from the retail and entertainment district. So walkable. Great fundamentals for this submarket. We have an outstanding partner here in Charlotte that will be developing this project.
And again, to build out the story of protection in pref, our basis on this project is about $230,000 a unit. Comps, trades that we’re seeing in real time in Asheville, that every bit would be competitor to this project, are now averaging somewhere close into $380,000 to $400,000 a door. So significant basis protection in this investment. But again, that’s no different than any single one of our projects that we have in the portfolio. So, Michael, I think with 10 minutes left, I’m going to kick it back to you.
We had a lot of questions emailed in prior, and we’ve, I think, answered quite a few of those and we’ll just jump into those first, and then we’ll get to the ones in the Q and A box. So Dave, if you want to take a little break. I really loved your part of the presentation about the Lively portfolio. That’s why we’re so excited about preferred equity, is when you believe in projects and you’re investing with good sponsors and they create value, you are going into these positions where you’re just getting paid outsized returns for the risk that you’re in during that. So love that story.
Question: How often is the net asset value adjusted, and what formula is used to determine it?
So the first question I’m going to answer, this came in a few different ways is, how often is the net asset value adjusted and what formula is used to determine the net asset value, the NAV?
And then there was a question subsequent about how we value ground up development projects. So there is a formula that we use and I’ll go over this.
The NAV is adjusted on a monthly basis because investors come in on a monthly basis. On the first of the month is when you get a trade date. So if you invested today, committed, sent your money in, on June 1st, you would actually be entering into the fund when you’re entering in May. And so we have to do that on a monthly basis. And the way the net asset value is calculated is we take the preferred equity, we value those book, which is basically the price we pay plus any accrued interest. And that becomes the value of those. And then the common equity assets are done on an internal basis on a monthly. And we write those up as needed.
Those also produce cash flow. So that’s creating more to the NAV. We take out expenses as well from that. And then on the development portfolio, it’s a little bit complex. But the general idea is that from zero to 50% of construction, we are discounting that back. We look at a point in time in the future when that portfolio is stabilized and we say, “Okay, here’s what the property is going to be worth in three years from now.” Well, the further you are out to that point in time, the higher you have to discount that because your risk is higher. So from zero to 50% of construction, we’re using about a thousand basis points above the prevailing discount rates in the market for core assets. So you’re adjusting for that risk. And then when it goes to beyond 50%, then we bring it down to 800 because every dollar you put into the project and you get closer to that cash flow, you’re actually reducing the risk.
So the first dollar you put into a project is far more risky than the last dollar or when you’re renting up a project. And so your required rate of return or your discount rate continues to shrink over time. So Mark Turner handles this. He’s really good at doing this. And all of these development deals sort of, they follow the same methodology. And what’s [inaudible 00:52:31] discounted at that very high discount rate. So investors who are in the fund or coming in the fund will get the benefit. That’s it. And then I should add that on an annual basis. There’s an audit in the fund. And then we’re also required to get an appraisal on one third of the assets, as well as a spot check for our internal valuations. And the internal valuation methodology has been approved by the auditors as well. And that’s something that they look at. So that’s how the NAV is calculated and how often, and the way that we handle our ground of development projects.
Question: Which markets are most susceptible to becoming overbuilt?
And so really that’s a two-part question. That’s a supply and a demand question. So you can see a lot of markets and I’m sitting here in Charlotte and we have led the country in terms of percentage of increase of our existing stock. Meaning, we have a largest pipeline relative to the existing number of units in the country. And that’s been for five to six years that that phenomena existed, but what’s happened over that timeframe is that demand has not only continued to keep pace with the supply, it’s actually outstripped it, which has led to very consistent 3% to 5% annualized average rent growth. So we have to look at number of units that are coming online, but also the demand that would then come with it.
And as we know, COVID has created, especially in the markets that we focus in, primarily in the Sunbelt, in the mountain regions, there’s been a huge influx of demand from folks that have relocated here. Michael touched on this a little bit. So if you’re asking generally speaking, which some markets are susceptible to overbuilding, I would say there’s some risk into the gateway markets, the DCS, the LA’s, the New Yorks and over time, because we are stealing in our markets, a lot of the demand set that would’ve existed there.
So I would say those markets probably are most susceptible to be coming overbuilt. Our markets from what we’re tracking and based upon our AI data that we feed into our machine and evaluate on a daily and monthly basis, I have really strong demand fundamentals. So of our markets that we’re looking at, where is the biggest risk that we see? Possibly Houston would be maybe the market that we’re looking at. But Houston’s a massive eight million person MSA, there’s pockets within Houston that will perform well. And those are the areas that we study. So long answer to a seemingly simple question, but we feel very bullish about the fundamentals of our markets that we’ve chosen.
Question: Should this (fund) be held inside or outside a qualified retirement plan?
I would suggest that if you have two buckets of capital that this be held outside, because this fund is meant to be tax efficient, real estate is already tax efficient. So to me, qualified retirement plans should be in tax inefficient assets. But certainly, we have a lot of people who actually come in through their IRAs, because it just happens to be where their money is located and they don’t have two buckets of capital.
Question: What is the difference between Growth Fund IV and IncomePlus Fund?
Michael touched on this a little bit, but the person who asked the question answered the question somewhat and said, is Growth Fund focused on all development? The answer is yes. As we touched on before, we have a development allocation for this fund, that is our 20% build-to-core allocation, which is nearly full at this point. Although as the fund continues to grow that 20% allocations allotment will increase. So we will be able to do new development deals within the fund. The other difference between growth fund and income plus is that growth fund’s a closed ended fund with some open-ended features to it. This is an open-ended fund, evergreen reach structure. So there’s some differences in the structure, but the strategies are yes, no pref, all development and growth fund.
Question: Do you property manage the assets once they’re stabilized?
The answer is no. We do not have an internal property management function and we don’t anticipate having one anytime soon. So that’s a quick no.
Question: In projecting growth rates for multifamily housing going forward, what markets offer the best opportunity right now?
Michael touched on this earlier. We are seeing frankly, unprecedented rent growth across the board for multifamily rent appreciation for 2021. And even through the first quarter of 2022. We have a proprietary AI model that suggests we’re going to see quite strong growth for the balance of this year and into ’23. And then we start to see the middle part or latter part of next year, some deceleration of rent growth, but mind you, this is coming off of unprecedented high rent growth of 20 to 23%. So even if there is some deceleration, we still see that being stronger than historical norms.
We just did a markets webinar about two weeks ago. I would highly advise or suggest you go take a look at the recording for that webinar where we highlighted where we think the best markets are. But to give you a couple, Phoenix in Las Vegas, we highlighted Tucson in Nashville.
Question: Do you do cost segregation analysis on purchases for this Fund?
The answer to that is yes. And that is the advantage of holding assets for the long term, is that you can accelerate depreciation and actually take the advantage of that. When you do it in a buy, fix and flip model, you do cost segregation. It’s very negligible because you’re actually paying on that excess depreciation. You pay normal rates on that, on the recapture. So you’re not actually getting it. But in a fund like this, one of the big things is to be tax efficient, right? One of the goals. And we do that by providing as much depreciation as we can with our common equity assets. And that really offsets what I’ll call the part of the portfolio that is a little less tax efficient, which is the preferred equity.
But even in that, the way we have structured the preferred equity is that it’s not considered a debt product per the IRS rules because it has no maturity date. So when we are in a preferred equity deal for two, three, four years, we’re actually getting the benefit of long-term capital gains in that. So, great question. And we do that. The other question that I’ll answer before going live Q and A, is there a single annual K-1 or one per investment or state? There’s a single annual K-1 and this fund has a weak blocker. It doesn’t produce UVTI or anything of that nature. It’s very friendly. We have an LLC on top of it because the LLC creates more flexibility for us where a lot of times the read is rigid, but it actually creates tax advantages to a fund like this.
Dave, you have any questions remaining on the ones that were e-mailed in and then we’ll jump to these?
Question: Why the focus on the ground-up strategy relative to buying existing properties to rehab?
Seemingly a simple question there, but again, one that we’ve been studying for a long time. Our predecessor funds, and even this fund have the ability to acquire and value add investment properties. And around 2017, 2018, we started to see the valuation for value add projects that we would otherwise rehab to compete with, newly-built projects. We’re trading pretty close to once you’ve baked in the entire cost of your rehab to the cost to build new. It’s a broad brush statement, but a lot of our markets, you were buying a late 80s, early 90s vintage asset that had some functional obsolescence.
And by the time you were done, you’re trying to modernize the unit interiors in common areas, you were pretty close to the cost to build new. And that’s a scary proposition to us. We would much rather take on the risk to go build a new asset and have fully modernized up to date for a very similar basis. And now we’re seeing in a lot of our markets, those value add projects, including the cost of rehab trade above replacement costs. So to us, this became very clear that we should be participating in this segment. And we talked about the insulation that you have on your development basis relative to stabilized trades. That’s another reason as to why we think fundamentals will return where maybe pricing is more imbalance over time, but right now we’re getting paid outsize returns for the risk we’re taking to build ground-up.
Yeah. Essa, that’s a great question. I’m just going to add. We’ve been out of the market for value add core plus for a while because of what Dave’s talking about, the distortion. And it maybe is counterintuitive to think that ground-up development is a defensive strategy, but real estate starts with yes, location, being in the right markets in the right place. But it also is about basis, how you’re getting into the market. And there’s no way to protect your basis, but buying existing. We’re seeing 20, 30 year old properties traded above replacement costs. They work on Excel, but they will not work over the long run. And so we really want to be cognizant and be looking at the rise and be positioning this fund the best we can today. And that’s by being in the right markets and protecting our basis.
And the only way we see doing that is through ground development. So there’s always exceptions to the rule. But generally, you won’t see us buying core plus or value add in today’s market, because we just don’t believe that it’s a good risk adjusted return.
Question: Please provide more details on Monroe at Aberdeen in Chicago.
Dave, I’m going to answer this question from Sydney. Sydney, thank you again, you always ask great questions on this. There were questions that were e-mailed in about Monroe Aberdeen as well, Chicago, our outlook. And I’ll say that Chicago is an interesting market and I would say it’s a contrarian market. We live here and we understand it and we see it. And with Monroe, Aberdeen, there’s a few things to understand. Number one, it’s only 7% of the entire portfolio. So it’s not as if we have a huge risk in this single asset. Number two, that asset actually has a lot of value left to create.
Remember when we got into that asset, we had above market debt, we’re actually paying, even as interest rates have gone up today, we assumed a higher market rate debt when we bought that project because the former owners locked in 2018 at the height of the market. So our rate there is 4.3% today. We could probably refinance that at 3.8. The cost of defeasing that debt though is very expensive. On top of that, we have parking that we’re starting to charge for. So idiosyncratically, the markets matter. But also the value that you’re able to create and the information you’re getting out of the asset equally matters in those situations. So while we’re not buying assets here today, I don’t actually mind holding this and having a bit of a contrarian play because as much as we can tell you that Phoenix is going to grow in these other markets.
Well, one of the things that we’re not talking about is what happens when California and Phoenix run out of water. That could happen. Chicago’s greatest asset is the lake. Don’t we want to be exposed to water and these natural resources and a city that has more connectivity than any city in the country? So there’s a lot of reasons to not be here. There are a lot of reasons to be here as well. I think that we bought that property, it’s in the right submarket and we have a lot of value to add. And candidly, this fund and there was another question that came in about this, it’s not a buy, fix and sell. We’re trying to make long-term decisions and construct a portfolio of assets that will grow over time. And Monroe, Aberdeen will grow over time. It will do well.
It’s not going to hurt this fund. Could there be better uses for that? Yes. But then you’re going into a 10/31 exchange and it creates a lot of complications. And then we have to buy a core asset and you can’t 10/31 exchange an existing property into a ground up development. It’s not that easy. I would say Chicago is a hold market, maybe not a sell today. But we’re certainly not doing more assets here, but it’s a little bit of an insuring play, it doesn’t add that much exposure to the fund at all.
Question: Please differentiate between the IncomePlus Fund and the Qualified Opportunity Zone Fund.
The difference being is that the QOZ Fund obviously takes advantage of locations that are designated as a qualified opportunity zone, which is we have very, very strict boundaries that we have to invest in. So we are relegated to very specific locations each of our markets. The other difference is that this fund you can invest in without capital gains. So you can use non-generated gains to make your investment. Whereas in the QOZ fund, it’s most efficient and beneficial to invest your capital gains that you’ve generated for tax deferral purposes and then for tax avoid or long-term tax benefits.
Question: What are the going in cap rates of these properties?
We answered that somewhat just now saying we’re not actually buying a core plus or value add in the market for the reasons mentioned. Cap rates today in the market, you pick it three and a quarter to 3.75, something like Chicago is four, four and a quarter, adjusting for risk in a Northern market. So it’s the reason why if you’re borrowing at 4%, you’re not going to go out and buy a three and half percent cap rate property and pay the bank every month. And that’s why we’re not really in that market itself. So hopefully that answers your question.
Question: Is there a requirement for time of investment for the IncomePlus Fund?
In other words, what is liquidity fund. Darrell, there is a time for investment. It’s generally five years. There’s a lockout the first year, and then there’s a declining scale penalties. And we want people to think about getting into private real estate, not timing the market, but being in here for the long run as a part of your portfolio. So we generally like to say have a five year time horizon. This isn’t a place to park money. It’s for long term investors. But we do provide liquidity through a tender offer program after year one, to anybody who wants to participate in it.
Question: Do state or local rent freeze directives pose a threat to investments in the future?
Short answer is no, we are not investing in markets that have considerations for rent control. Predominantly, that’s New York, that’s Portland. And I believe Minneapolis-St. Paul. I’ve heard some of those markets that have proposed. Rent freezes, so we are predominantly in the Sunbelt in mountain regions where that has not been discussed and is unlikely to occur. So, no, we don’t see that as a risk.
Question: In an environment where money was cheap and interest rates low, how were you able to get such high preferred equity returns? Why wouldn’t people go elsewhere?
The answer to that really it dates back to, well, two things, 2008 lenders just aren’t willing to go above 65%. And for developers who want to use very little equity and they want to go up to 80, 85% of costs, they need to go to non-traditional lenders. So to occupy that space from 65 to 85, the market rate for that today is about 12, 12, and half 13% for those particular slugs. So that’s how. And then you compounded that in the last couple years with COVID where a lot of lenders pulled out, people put their hands in their pockets. They waited, which provided some great opportunities for a company like ours to enter into those contracts with developers and sponsors.
Question: Which fund is the best value for a new investor: Growth or income?
I’m going to be a little bit selfish here and say it is both. We love your capital in both of our funds and in all seriousness, I actually do think if you have the capital to spread around in building a proper allocation for a real estate portfolio, you should have exposure to both funds. Both income, for all the reasons we’ve spent talking for the past hour, the benefits of this fund, it’s a protection and conservative place to park your money and get real estate exposure. And growth will give you higher risk, but higher returns. So in no different than a common equity portfolio, you should have exposure to both.
Question: When do you expect the dividend to catch up to the 6% projected yield on NAV?
So the dividend yield is a function. We actually target a dividend per unit, which right now is 5.25 cents. And as the unit price goes up, the dividend or the distribution yield is going to go down. Our range for that is five to 7%. And every year we will continue to adjust that. So 6% isn’t a magic number. We’re still within the range of five to 7%. We’re at 5.6% today. And you will see another adjustment coming at the end of this year up. And we’ll try to get it as close as we can to that 6% range. But that’s constantly fluctuating. And it’s really just a matter of planning and preparing and making sure that we can afford, or the fund can afford through cash flow to pay the liability of that cash flow as well.
Question: There was a mention of UBIT. Are the UBIT impacts held in an IRA type account?
No. And that’s a REIT blocker. So you’re absolutely fine if you want to hold this fund in an IRA.
Question: Any preferred deals that have current pay? Are they all accrual predominantly?
They are structured as accrual. I think we have one current pay asset in the portfolio, that is our Ashley Oaks Investment down in San Antonio. But for the most part, these are all accrual.
Question: If we’re new to the Fund, how long before capital will be deployed?
If you invest this month, I think it’s the 25th today. Is it the 26th? Your capital will be eligible to go into the June 1st trade date. So that’s we call capital on a monthly basis. It’s put into the queue doing that. So thank you for the question. And if you, for some reason reach out to your dedicated investor relation contact, if you’re in the queue, but haven’t received a capital call yet.
Question: Why was there some negative fund performance at a point in time in 2020?
We did write down the fund’s performance in 2020. And frankly, we needed to, to a degree, because we had to acknowledge. This is a mark to market fund through the NAV. We are always writing assets up to where the market is. Or in the case of 2020, which was a multi standard deviation event where asset values fell over that period of time, we did reflect the market at that point in time. So we did write the funds NAV down, but then we took on a number of months a number of quarters of write ups there thereafter as we saw market fundamental strengthening. So that’s really the reason, was we reflected market fundamentals in mid 2020.
Question: What is the expected income on $100,000 each year over the next four years without including appreciation?
So you’re asking about yield. The distribution yield today is 5.6%. So if on a $100,000, it would be $5,600 per year. And that distribution yield, you can expect it the increase by 5% each year. So I don’t know what the math is on that. So next year it’ll be $5,900, then it’ll be $6,200. So adding about $300 per year. That’s how the yield is handled.
Question: What is the difference between the IncomePlus Fund and Growth Fund IV in terms of structure?
One is an evergreen open-ended reach structure. The other one is the close-ended structure. IncomePlus has focused on pref, common equity positions and ground-up development, and Growth Fund IV is all development.
Question: I believe an investment in Growth Fund IV means receiving a number of K-1s, one from each state in which it invests. Is there a mechanism to only simplify and receive one K-1 for?
In the spirit of this being an income plus fund webinar, we will answer the growth fund question. I think the answer’s no, Michael, because to do that, you do have to have the re-blocker you mentioned, and therefore we cannot structure this to have one individual K-1 for growth fund. Is that correct?
Yes, but it’s nuanced. So we do allow people to have consolidated K-1s when we can do that. So we do send that out. You can elect to be in the consolidated form. And keep in mind that a lot of the states that we’re in are zero tax states. So you actually don’t have to file your K-1 in zero tax states because there are no taxes due in those things. So in states that do have taxes, then you have to, and there could be a few in here, but we do a composite election in that.
So thank you everybody for your time today. If your questions didn’t get answered, please reach out to somebody in IR, you can get ahold of them via the website. I’m sure if you’re a current investor, you know who your dedicated contact is. You can always e-mail me, Michael@origininvestments.com.
I’d love to hear from investors. And I hope that we are able to convey what’s happening in the fund and how well we’re positioned. And I think we feel really good, especially when we started this journey, not just back in 2009, but in COVID, saying we are going to position this fund to be defensive. And some of the things that we’re seeing and those storm clouds on the horizon are starting to take shape. But I’m personally really excited about this. I have a lot of money invested in this fund. I know my partner does. Everybody in the company is in one way or another exposed to, or benefits from the performance of this fund as well.
So it’s been a pleasure doing this webinar today. And again, if you have any further questions, please reach out to us. Thank you and enjoy the rest of your day.