Joining Caliber’s CEO, Chris Loeffler, was George Pace, Senior Vice President of Investments. The discussion revolved around hotels & hospitality, Fixed Income fund discussion and Caliber infrastructure.
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Quick & Digestible Highlights
- Chris kicked off the online meeting with George, they’re excited about live events starting to pick back up.
- To bring more structure to the calls Chris mentioned that the call will be grouped into segments to make it easier for listeners to select the segments that interest them most.
- The first half of the call was an update on hotels and hospitality, followed by the second half that covered fixed income investing and the new development loan program that Caliber has piloted.
First, on CDIF (Caliber Distressed Real Estate Income Fund) – Caliber placed $1.5 million of cash balance into a distribution reserve that will start making distributions over the next four quarters. These are funded from the sale of Treehouse Apartments. A CDIF specific fund call is going to be scheduled and George will be reaching out.
Second, an update on Caliber’s public offering journey. We are on track to get listed on a major U.S. Exchange. As mentioned before, there are a variety of public debuts that Caliber is pursuing.
Hotels and Hospitality
Coming back, but still depressed. Initial forecast: Occupancy is inching back with leisure travel leading the charge as more vaccinated people begin traveling more.
George noted an important driver is the return of corporate events. Chris opined that he attended a live event recently a observed a greater level of comfort among the attendees since most had been vaccinated or had contracted the virus and recovered from it.
A $56 million loan is encumbered by three hotels at the airport. It’s the largest loan on our hotels, and Caliber completed a successful modification by extending the term to October 2022.
Regarding prepaid interest and operating costs; the lender waived the fees associated with the covenants of the loan as well as the costs associated with the restructuring. We also signed a land lease modification that will allow us to assign it to another project. We will send out a formal announcement with more details in the near future.
Caliber’s hotel assets are well-positioned and are seeing an upswing; George mentioned that we’re in a growth mode and a lot of exciting things are building, but Caliber remains focused on its core business and effectively managing the real estate assets.
Caliber is also in the process of refinancing the loan on the Tucson property. The new loan will come with prepaid interest and an option to extend for one year.
Celebration of DoubleTree by Hilton Tucson Grand Opening
The DoubleTree in Tuscon hosted a successful event where the mayor of Tucson spoke to a full audience comprised of investors, employees and partners who helped bring this project to fruition.
Salmon Falls Resort in Alaska
This property accounts for approximately 2% of the portfolio; It’s still underperforming. Last year this hotel was down 15% – 20%, which was one of the better hotel performers in the portfolio and generating $1.4 million in income in 2020. Looking forward, we anticipate that this property will generate approximately $2.8 million in revenue, having already recorded. $2.3 million. The ultimate goal is $4.5 million in revenue by 2023 – 2024.
Holiday Inn Ocotillo – Chandler
Adjacent to the Intel Ocotillo plant, which has now placed the hotel in advantageous proximity to a major employer in the area. Anticipate more business travel as a result. In addition, the governor of Arizona has an initial expansion plan around the hotel and the intel plant, which should provide some significant tailwinds.
Hotel REIT Update
Our 10 hotels should roll up into a public REIT which will be listed on one of the major U.S. Exchanges. It should allow Caliber to accept institutional investments. We now have several portfolios estimated at $5 – $7 billion that Caliber could roll up into. Currently, the REIT in discussion is in various stages of negotiation.
As mentioned before, investors could benefit more from a publicly-traded REIT than in a private hotel real estate fund due to the tax efficient structure and a prospective valuation methodology.
State of the Market
Chris asked George what he saw out there in the world of fixed income. George stated that the current environment has caused many investors to go up the “risk” curve and looking for solid investments. Caliber has many short term and longer-term opportunities to hedge this market risk.
Fixed Income III
The next topic was about Caliber’s Private Lending fund, which lends against real estate in general. More specifically, investing in mezzanine loans and private equity positions within Caliber assets. Better risk profile in a challenging economy. Use this vehicle to fund our various projects as opposed to using a third-party preferred equity or mezzanine lender. The current preferred payout structure is 6.25% – 7.25% with a 1% interest payout bonus if your investment is locked up for a year or more. The interest rate has come down from 7.25% – 8.2% due to compression in interest rates.
Development Loan Program
Caliber acquired a $15 million loan to build an apartment community in Scottsdale. They offered a 10% interest rate on an unsecured loan, which essentially funded 100% of the equity to acquire the land. It has a bit of a higher risk profile, due to the 6 – 9-month zoning process.
Typically, Caliber has funded this with cash-on-hand or from our funds. Due to Caliber’s growth trajectory, a new strategy needed to be sourced to fund this project without straining the balance sheet. This is in a state of evolution, which could end up being another investment vehicle for Caliber investors where you could essentially be a lender.
Chris stated that this is the beginning of what he hopes will be additional fixed income funds that will provide an investment vehicle for retirees and those seeking more stable payments.
George commented that this growth spurt at Caliber will cause a lot of new hiring to support the growth. Currently the Company has 20 position open and actively investing in Caliber’s infrastructure to position it for this outsized growth phase.
George and Chris added that the current economic environment continues to improve, and Caliber is ready to pivot to take advantage of potential upswings and any potential downturns. Simultaneously, Caliber is actively expanding its network with institutional investors, as well as real estate and other capital markets professionals to create synergies within the organization. They believe these relationships will continue to evolve and mature and will ultimately benefit all of our investors.
The next CEO Call is scheduled for Thursday, June 17, 2021. Sign up here to join.