Behind The Scenes Banter

SPEAKER_01 0:00

Good afternoon, everybody.

SPEAKER_02 0:02

Hello, welcome everyone. I'm chuckling over here because Nick is like, okay, and then you hit record, and I'm like, Nick, do you think this is my first Zoom call?

SPEAKER_00 0:10

Pilots have checklists. Uh there are an army of people that are making sure that we don't miss details, and so I'm here to here to serve.

SPEAKER_02 0:17

He also said that I encroach encroach on his space. Let's look at the frame right now. And I said it is our space.

SPEAKER_00 0:25

We want to have nice framing for our audience here. Absolutely. Every now and then I do a webinar where I'm kind of like this. I think we're perfect.

SPEAKER_02 0:32

Perfect. That's a little bit of the behind-the-scenes banter. We always try to keep it up.

SPEAKER_00 0:37

We'll have a blooper reel at the end of this recording.

Seated Webinar And Baby Update

SPEAKER_02 0:38

Yes, try to keep it fun, keep it interesting. Welcome everyone. Lots of attendees today. So glad to see everyone for our Q2 2026 update. We have a lot to share, a couple of really fun, interesting updates that I think you guys will enjoy that we have toward the end that are for the entire portfolio in terms of operations and management of the portfolio that I think you guys will get a lot of enjoyment out of. Looking forward to sharing those. So welcome everyone. This may be our first ever in the history of the company seated webinar. I think that's never happened before. Nick and I love to stand up and yeah, have have full breath, full diaphragm, everything. I'm 35 weeks pregnant. And I said, Nick, I don't think I can stand today. I think we're gonna have to figure out how to do this seated. So hopefully that doesn't change the experience too much for you guys. Q3 update will be that we will have had our sixth child by the next time we start drafting that slide deck. By the next time we see you.

SPEAKER_01 1:39

Definitely not pregnant for the next quarter.

Webinar Format And Disclaimers

SPEAKER_02 1:40

That's pretty exciting. And so we have spent really the first half of this whole year just really staying very focused on operations, getting the portfolio in the best shape possible, focusing on acquisitions, financing conversations, even for financing that's a year or 18 months out, getting everything ready to go so that when baby Elizabeth joins us in mid-May, we can step away for a few weeks and enjoy her. She's our first girl in 10 years. We have a girl and then four boys. We're having another little girl, and then that is it for us. Six kids is more than enough. There's never an upper limit of the number of apartment buildings that Nick wants to own, but there is an upper limit to the number of children I am willing to have. So that's our big personal update. That's why we're seated, in case you're wondering. Let's go ahead and jump in to our presentation. Welcome everyone. Glad you're here with us today. Per usual, if you have any questions, pop those into chat. We try to do our very best to incorporate those into the presentation as we go along. And if we need to, we address those at the end. But we want you to get the questions answered that you came with and to enjoy your time and leave feeling like you understand what's happening in the portfolio. Let's get started. All right, so this is our Q2 2026 update. Hard to believe. We've been doing these about five years now. Time just flies. Our usual disclaimer: everything in this presentation is for informational purposes only. This is not a solicitation to sell securities to non-accredited investors. All of our funds in the Black Swan portfolio are reg D 506C opportunities available to accredited investors only. If you are considering making an investment decision, be sure to consult with your trusted advisors, such as your financial advisors, CPAs, attorneys, make sure you read the full documentation. All investing has risk, including potential loss of capital. And in the presentation, we do both retrospective information of what has happened in the portfolio, and then we also weave in prospective statements of what we predict might happen ahead. Prospective statements are just that. But there are many variables both within and outside of our control. And again, investing has risk. So if you're considering investing, keep all of those things in mind.

SPEAKER_00 4:18

We've got close to half a billion in assets under management, a couple thousand units, over over a couple thousand units. Now we've raised over a hundred million dollars of capital. We also do a little bit of real estate sales. We're sitting in our corporate headquarters here and uh the local Keller Williams is here as well. That's where we hang our real estate license. We've had we're getting close to a quarter of a billion dollars in lifetime real estate sales. Actually, I've got a trophy.

SPEAKER_02 4:43

It's over there. We don't need to get it.

SPEAKER_00 4:45

I actually just got a trophy. We had we were number three for real estate sales in our region. So not just our state, but our region. So that was a really cool little classy trophy that they just gave us here two days ago. And then we also do some ground-up construction. Uh, over$50 million of ground-up construction. Just finished our most recent building less than a year ago, and we're working on our next one right now. So that's just a little about us and our background to give you some context for the updates we're going to share here on our fund.

Podcast Launch And Buzz

SPEAKER_02 5:08

Absolutely. In case you haven't heard, we launched the Real Estate Real Life podcast this quarter. I think we're around episode 12 or 13 now. This has been something we have had on our radar for a number of years, and finally we're able to pull all the pieces together. So many thanks to our many team members who are contributing there with making sure the audio sounds great, getting everything uploaded to all of the platforms. Would love for you to check it out if you haven't already, real estate real life podcast.com. And you can listen to it on your favorite podcast player. We start with a really comprehensive multi-episode series on our origin story, and then we're going through some of our core values, some of our core beliefs of how we have operated the portfolio over the last 15 years. Some fun stories, lots of chatter and laughter. I think you'll really enjoy it. We've heard a ton of good feedback about it and would love for you to be a subscriber as well and share it with anyone in your life who you think may benefit from it. It is exactly as the title describes. We're going to do a lot of real estate teaching, but then also weave in the real life portion because we've always believed that the two go hand in hand and we're excited to have that podcast format. This will also be our first time that we publish our quarterly update to our podcast. So if you're hearing this quarterly update on our podcast, welcome.

SPEAKER_00 6:30

Gotten more positive feedback about this. I was just messaging some broker I've never met before about an apartment building that that we're trying to buy. And they were just like, Hey, I've never met you, but I just want to tell you I really love the podcast. It's awesome. Which they're a broker, they're always trying to flatter you about something, but just tons of people very spontaneously just love the podcast. So if you haven't checked it out, go check it out.

White Coat Investor Highlights

SPEAKER_02 6:50

Absolutely. We also had the pleasure this past quarter of sponsoring the White Coat Investor Conference in Las Vegas, Nevada. Both Nick and I were there along with Rachel and Justin and Stephanie, core members of our leadership team. So many of you may be joining this quarterly update, having met us for the first time at the White Coat Investor. So welcome. It was a great time, really well done conference. We had a couple of speaking engagements, a lunch and learn, a nice dinner. Lots of folks visited our booth. It was just a great way to get to see existing investors, meet new future investors, and welcome new people into our community. We had a really nice time. It was a great conference. We look forward to next year as well.

SPEAKER_00 7:32

That photo in the lower right-hand corner, that's my favorite photo of the whole slide deck. So if you're in podcast mode, this is our team dressed up for the 80s night at Whitecoat Investor. Justin has his 80s wig. It's solid gold.

Quarter Headlines Overview

SPEAKER_02 7:43

Yep. It was great. It was a really nice time. So here are our headlines of the quarter. This is what we're going to go over during our presentation here. K1s have been delivered for all of the funds. So that's fund one, two, three, four, and the secure freedom fund. A small handful of you, maybe about eight or ten, are awaiting an amended K1, would say a name change or something like that. If you're in that situation, you know about it because we've personally communicated. But 99.5% of all of our K1s are out.

SPEAKER_00 8:12

How many K1s have we sent out?

SPEAKER_02 8:14

About 800.

SPEAKER_00 8:16

800 K1s, 800 investors receiving returns. Unbelievably proud. It seems like an impossible to believe number. Just 800 investors.

unknown 8:24

Yeah.

Fund Performance Snapshot

SPEAKER_02 8:25

We have two new assets under contract for the Secure Freedom Fund. We have offers outstanding on five additional potential acquisitions on top of that. So Nick has been very busy with acquisitions over the last several weeks. We added three additional assets to the Secure Freedom Fund this quarter. We'll talk about that. We are increasing our distributions for fund three and four. Investors in fund three and four received an email earlier this week letting them know that that would be happening on May 1st. And we'll describe what has happened in the portfolio over the past quarter that has allowed that change in distributions for funds three and four. We got a cash out refi on Colby, which is held in fund two. We have some stats to share for our rent growth. And then the two really interesting updates that we have to share at the end is what we call dispatch defense, where we're working hard on optimizing our maintenance experience for our residents to improve the resident experience and in doing so to drive massive cost savings and efficiency to the entire portfolio. And then also what we're doing in terms of automation. So many of you know that prior to running Black Swan Real Estate full-time, Nick had a long career in tech and spent, what, 15 or 20 years in enterprise software, running large software teams. And so that culture has always been a part of who we are at Black Swan, and we've always brought that ethos over into property management, which is a much more naive industry. A lot of the success of Black Swan Real Estate has been taking the professionalism and the creativity from Nick's experience in technology and my experience in medicine and bringing it to a much more naive industry with property management. And everyone knows about AI and automation. I'm sure you're reading some news article or some headline on it every single day. And so we're going to give you a behind-the-scenes look into one of the ways that we're bringing that into the operations of the company. So that's what we'll go over here in the next hour or so. Let's jump in.

SPEAKER_00 10:23

We've just got a couple few summary slides here on each of our major funds. So fund one, we've returned 20% over 20% capital to date. We're doing 1% distributions via monthly distribution, 1% annualized distributions via monthly distributions right now. And it's been just a quiet, successful quarter for much of the portfolio. And that's definitely the case for fund one. Just really strong, strong performance from these assets as we go into high season. Fund two also had some kind of quiet strong performance on some of the assets, but we definitely want to celebrate that we got a full cash-out refi on Colby. So this was originally something we bought to knock down, but this thing has just performed so well, really outstripped our wildest expectations, like you can see in the photo there. It's not a sexy asset. It's a very modest asset, but it's in a phenomenal location. And at this time, there's so much construction going on. There's probably$7 billion of construction happening in downtown Rochester that it seems unwise to do a development play right the second. We're going to wait until some of that other construction winds up. And in the meantime, we just put permanent debt in place and we got very favorable permanent debt. I like that the appraisal came out with the exact value that we predicted, which on a refi is unusual. So that tells us that our expected values for our portfolio are probably pretty accurate when we get a third-party validation of our internal valuations. This asset has just done extraordinarily well. And then just for fund one and two, we were doing 4% annualized distributions last year. For 2026, we're planning on doing a 1% annualized distribution, just making sure that we are staying ahead of any potential capital needs we have for the future. We live in a time of unprecedented uncertainty. We're going to talk to that more in just a little bit here. We're in a really great place in terms of overall liquidity, loan maturities, and everything, but we're just being probably overly conservative. Check out the Q1 2026 update if you want to hear more about that. On fund three, we're able to do the opposite. So we've actually increased our annual distributions from a 4% annualized distribution to a 7% annualized distribution on both fund three and four. So we're extremely excited about that. Fund three, we had a successful cash-out refi on Bayswater apartments in Tacoma. We're going to talk about that more in just a little bit. And then Fund 4 has had a tremendous amount of success with Stonehaven Apartments that's launched very successfully. Fund three and four both own Boulder Ridge and Georgetown townhomes. Georgetown is doing extraordinarily well. We nearly obtained a cash out refi on Georgetown, but Fannie Mae has been just too busy with loan origination for new purchases and frankly, operators that are kind of in trouble. And so Fannie literally said, Hey, you guys are doing fine. We don't need to help you with a cash-out refi right now. So you're just going to stick with the loan you got. And we're okay with that. You never want to be the first person in line in the emergency department, but it's been a really strongly performing asset, tremendous amount of cash flow, over half a million dollars of cash flow in the last 12 months from just that single asset. And then Boulder Ridge, we're continuing to stabilize, get off of the watch list with HUD, which we bought the asset distressed on the watch list. And we think we have half a million in cash in that particular project right now. That at some point, probably in the next nine months or so, HUD is going to allow us to draw from the asset. They want to see like a year of stable financials. Fund three and four just doing absolutely phenomenally well. And we're excited to increase our distributions on both of those funds to reflect that strong performance.

K One Delivery And Filing Tips

SPEAKER_02 13:44

Absolutely. Super exciting news. So investors in fund three and four, you will see your distribution amount change for your May 1st distribution. A little bit more of an in-depth update for our K1s. Your K1s have been uploaded to the InvestNext portal, blackswan.investnext.com. You can log in there with your username and password. If you need any help resetting your password, it's just a usual website. You click that to reset your password. And the benefit of that is that you can access it there, but then it's also stored there safely in perpetuity. So it's like a filing cabinet there for your important files. Some important reminders for K1s. The Black Swan Portfolio is principally located in Minnesota. Funds two and three do have a few assets located in the state of Washington, but you will only need to file at the federal level your own state and Minnesota. Because the state of Washington does not have a personal income tax, even those investors in fund two and three, they don't need to file in Washington because there's no such mechanism to do so. And then you'll also notice probably the number one question that comes up on the K1 packet is it's a pretty long packet. And you'll see that there's multiple state returns that vary for each individual fund. And that is because for many states, if there is an investor living in that state, the fund itself as a business needs to file in that state. And then once we create that K1 packet, we have to release that whole K-1 packet to you. That does not mean that you need to file in that state. It's just information that we are required to disclose to you. You only need to file at the federal level, your own state, and then Minnesota. There's a really educational video created by Kaylin Deaver, CPA at Hall CPA. You can find that on our YouTube channel. You can just search for it on YouTube, Black Swan Real Estate K1. Rachel will pop the exact link here into the Zoom chat as well. She goes over how to read a K-1. A K1 is not a super intuitive document, the way, say, like a W-2 might be, right? You earn a certain salary, you see that number very clearly listed on your W 2, or say a 1099, you have some interest income, you see that very simple number on that 1099. A K-1 is a somewhat complicated document because it factors in partnership law and taxation. Depreciation is a major tax advantage of real estate, but isn't super intuitive. So I encourage you to watch this video with Kaylin if you have any questions about your K1 so that you can understand the tax advantages that are flowing through to you and that are reflected there on your K1.

Secure Freedom Fund Reopens

SPEAKER_01 16:18

All right. Now we've got a sound effect to go with our graphic.

SPEAKER_02 16:22

Yeah, here we go. Drum roll, please. So here is our next biggest update. So we are excited to open the Black Swan Real Estate Secure Freedom Fund for the first time in about a hundred days. We were last open in late December 2025. We will be opening on Monday, April 20th at 6 p.m. Central. This will be a limited opening only to existing investors and to those who are already on the wait list. This will be a small raise of approximately 2.5 million. So we do anticipate we will fill likely within just minutes. So if you know that you are an existing investor or on the wait list and you would like to join us in this upcoming opening, I would be right there at your computer, logged into InvestNext, ready to go right at 6 p.m. So that you can refresh. You'll see that the investment pops up as an open offering. You'll be able to click that and then get started with your paperwork. Once you click into it and you enter in your name and your investment amount, that's what holds your spot. So it's not as though it's a race to finish the paperwork, take your time, make sure you spell your name and your address and everything correct in the paperwork. But we would love to join you and we do anticipate it will fill very quickly. So here are some of the updates to share with you about why we are opening this spring.

SPEAKER_00 17:40

So right now we're under contract on the quarters. That's a 63-unit community here in Rochester. We're going to be closing on that here in about two weeks. It is a place of privilege that there are so many investors that we've been able to serve so well who are so eager to invest with us that we can open for funding days before closing. It allows us to have a tremendous amount of capital efficiency, which is what allows us to deliver such strong returns in the Secure Freedom Fund. These are student housing units that are adjacent to the local community college, Rochester Community and Technical College, which is a very solid and successful community college in southeastern Minnesota. When this was built, staying on campus for a community college was much more of a social norm. Today that's not as much the case. And so there's very high vacancy, and the existing ownership group just has really struggled to keep it full as student housing. So we're going to pivot it to market rate, and we're very excited about we're getting at an extraordinarily low purchase price, about$134,000 per unit. And these are all four-bed, two-bath, twelve hundred and forty square foot units that has a fully amenitized clubhouse fitness center. It's surrounded on three sides by a beautiful wilderness preserve, just an absolutely incredible kind of project. It's a a huge opportunity to serve, and we're going to do some really cool things with uh with this particular property. One of those things is that we're going to potentially be able to infill some additional units. So if you're listening to podcast, we'll kind of try to talk through it. But there's a slide here that's very helpful. There's two potential sites. This is a very low density site when it was built, and it's the there's so much zoning and building safety, and there's so many things that go into this. However, from a high-level perspective, we could potentially put a new apartment building on the southeast corner or the northwest corner. We've already met with our architect, engineer, city, all the stuff. Who knows how likely this is to go through if none of it goes through, then the project will still be financially successful, but it'll be extremely successful if we are able to add some units here that will basically model it after Stonehaven apartments will be a much more affordable product. It probably won't have quartz countertops and huge units. It'll probably be studio and one-bed units that students or other people in that area might want to use in it. It'll augment the unit mix of existing units, which is almost all four-bed, two-bath units. But anytime you can infill apartment building where you get free land, you are off to a running start from a financial perspective. And then again, this is surrounded by this wilderness preserve. So if we are able to put the building on that northwest site, which is where we want, you just have gorgeous views, absolutely gorgeous views from both sides of the buildings looking out on that wilderness preserve. So unbelievably excited about that project.

SPEAKER_02 20:10

So much like the Colby, which is owned in Fund Two, very similar overall business plan here, where when we acquired Colby, we thought that there is a high likelihood that over a long period of time, say five to 10 years, there would be an opportunity for new construction there. And in the meantime, owning and operating the underlying real estate and doing so successfully. The quarters is like that. Now, with the quarters, there won't be anything that's knocked down to build this in. So it's even better from that perspective. So just know that the infill construction could be 18 months, could be five years, seven years. It's really hard to predict these things, but working on it, and that's a you can think of that as a long-term value add play in a project that we're excited just to own the actual real estate that already exists there. So very excited about that. We have been working on this acquisition probably for four or five years, I would say.

SPEAKER_00 21:03

So on our radar for a long time.

Pipeline Offers And Essex Park Stabilization

SPEAKER_02 21:05

Yeah, when we got it under contract, it was a nice, like, okay, that one's been on our checklist for a long time. And then we have another asset that we are under contract on called West Willow. We're also closing on this one right around May 1st, trying to get these closings in before we deliver this baby. So trying to get everything going here in the springtime. This is just 28 units, very close to our headquarters, less than a mile away, purchase price of 3.35 million, so 120,000 per unit, very favorable per unit acquisition price. This is all two-bed, one-bath units, which across our whole portfolio tend to do very, very, very well. You can see here it's just a simple class B, good housing. Anyone would be pleased to live here, just slots really nicely into our portfolio. And so it is because of those two acquisitions where we have the closing dates set and we are we're moving full steam ahead. That we're opening the Secure Freedom Fund for that small raise to have the capital to acquire those two assets. And if you'd like to join us for that, that is Monday, April 20th at 6 p.m. Central, is when we will open the portal. And we just opened that in a first come, first-served basis. So I would encourage you to be there kind of right at your computer in the first couple of minutes. I anticipate it will fill very quickly. And then we have another series of acquisitions that we're targeting for the Secure Freedom Fund. So one of our potential acquisitions, I think we shared this in our last update, is Northern Valley apartments, very similar to West Willow. You can see they kind of look similar. This is 16 units, class B,$2 million purchase price,$125,000 per unit. We're not yet under contract on this one. I think it's likely we will be, say, over the coming year. The seller's working on a 1031 exchange. So we're not rushing them. They're not rushing us. We know it's likely a good fit, but they're working on their 1031. So hopefully we're able to get this actually closed into the fund, say sometime throughout 2026. And the NYX calendar has been quite busy. You want to tell us what you've been doing the last couple weeks?

SPEAKER_00 23:09

So we have offers outstanding right now, written offers outstanding on four additional properties. So that's five properties that we have outstanding offers on for Secure Freedom Fund at this time. It would be about 300 additional units across all these assets. Just there's a lot of opportunity out there right now. There's not a lot of groups that are making offers. And there's back in the early 2020s when the market was bubbly, it was difficult for a broker to give us the time of day. And now brokers are calling us every day because we're one of the few groups that are buying and we're getting some absolutely phenomenal deals that can hit that 10% cash on cash rate return for Secure Freedom Fund. So these things, we'll know more on some of these deals in the next week or two weeks. And then some of them tend to be longer term. And sometimes we're told that we didn't get the deal. If only we'd offer a little bit more, then a month later they come back and say, oh, just kidding. You know, do you want it? So it's a whole game. But we have a huge amount of acquisition opportunities. So if you aren't able to get into Secure Freedom Fund at this next round that's coming up, we will almost certainly have more opportunity available in the near future. There's just a lot of great acquisition potential here.

SPEAKER_02 24:12

The big story for Secure Freedom Fund over the last several quarters has been our villages at Essex Park acquisition. This was a$40.4 million acquisition that we worked on through much of 2025. There was a HUD loan assumption. HUD loan assumptions are always pretty challenging. And then you may remember that the government shut down for a long period during 2025. So that shut down everything with HUD. We ended up closing on this asset on December 30th so that we could pull off all the stops to get it closed during the 2025 tax year so that we could get our cost segregation and get bonus depreciation out to investors on your K1. So super pleased with the amount of depreciation that we were able to share out with our Secure Freedom Fund investors for 2025. And then we really just focused 100% of our efforts, our team's effort, on stabilizing this asset. 288 units. It's one of the largest communities here in Rochester, very large campus. And that was part of the reason that it's been about 100 days since we've opened the Secure Freedom Fund, is we are always big believers of stewarding what we already have extraordinarily well and not just racing to the next thing. Acquisitions are fun and exciting and the thrill of the chase and something new. But there's no sense doing that if we're not well stewarding what we already have. And so we've been laser focused on villages at Essex Park through the latter half of 2025 and then through Q1 of 2026. And it has stabilized very nicely and far faster than we anticipated, which was has allowed some of our focus to shift back into acquisition mode and get those two new acquisitions under contract for the Secure Freedom Fund. It has been a busy beehive, is what you might call it over at Villages at Essex Park. Lots of staff members there at any given time of the day, lots of residents onboarding folks into our system, talking to them about how we run the community and some of the changes that they're seeing, lots of maintenance and projects happening, utility efficiencies. Over 500 toilets have been installed for water conservation efforts, 244 keypad locks. That's a big one that we do in all of our communities to really help with management efficiencies is we try to get rid of physical keys as quickly as we possibly can and put electronic keypad locks on everything. We were doing that before it was cool. We were doing that in the early 2000s, and it has proved to save countless hours of management time across the portfolio, securing common areas, working extensively on security cameras. That's always been a big value of ours. We want our residents to feel very, very safe in their homes. And then with the changes in technology that have happened over the last couple of years, camera technology is much more sophisticated while also being much less expensive than it was even two or three years ago. This is a very large campus with, I think, 17 acres, 288 units. So we have over a hundred security cameras that have been installed. Our team has leased 30 units already. So about 10% of the community are now residents that we have placed with our Black Swan screening criteria and our lease and all of the benefits that come from the turn of a community while keeping the extreme majority of the residents in place, which is a big value of ours to have stabilization, not just in this community, but in the broader Rochester community. And then focusing on unit turnovers and bringing these units up to our quality standard while not over-renovating them. That isn't what makes sense in the market right now. So really walking that line of bringing it up to our quality, but doing so in a way that is financially sound. It's really been a nice quarter for villages at Essex Park. I'm excited to see how this continues to evolve over not just the next year, but the next many years. We are big believers in that long-term hold. We've never sold a single asset. Things tend to be just like having a baby. That first year is intense, and assets demand a lot of you, and they want, want, want, want, want in that first year. And then they really start to stabilize and to mature and to see how well villages at Essex Park has done in just the last 90 days has been a really favorable experience.

Fund Round Reminder

Adding Equity Buildings

Bayswater Refi Win

Geopolitics and Antifragile

Oil Shock to Inflation

SPEAKER_00 28:26

And just a reminder again, we're opening our Secure Freedom Fund for a small round of investment Monday, April 20th at 6 p.m. Central. You can go to SecureFreedomfund.com right now if you'd like to learn more about that. Again, we expect this round to fill very quickly in a matter of minutes. And so we're just trying hard to set expectations that if you aren't able to get into this round, there will almost certainly be opportunities for you to invest in the near future because we have offers outstanding on five additional apartment buildings, in addition to the two that are under contract right now. So if you can join us in that round, we would love that. And if you aren't able to get into that round, we would love to serve you here in the next few months. Couple fun announcements here. So we've added three apartment buildings to Secure Freedom Fund. And these are apartment buildings that Elaine and I were the only investors in those apartment buildings, and they had to have their own standalone tax returns. And we have kind of kind of lazy equity in these buildings that doesn't really do much for us. So we've contributed these buildings to Secure Freedom Fund, and that's added quite a bit of additional equity, additional security collateral for our investors in that fund. So here's Midtown apartments built in 1964, 32 units, all two-bed-one baths. We did a nice renovation on this property, recently appraised for$3.35 million. In place, that's only$2.4 million. So there's about a million dollars of equity that's been added to essentially the balance sheet for Secure Freedom Fund. And then we also have the George Neandrew. The George is 18 units 1967 build, all one bed, one baths in just an absolutely incredible location across from the Mayo Clinic Foundation House and just in the heart of the city. Our estimated value on this property is about 2.7 million. In place debt's about 1.9 million. So about 800,000 of equity that's been added to Secure Freedom Fund with that building. And then Andrew is just a couple blocks away from George, kind of a brother or sister building. I'm not sure what the expression is. They're a companion building to George. And that's 23 units all, one bed, one bass, incredible downtown location, in-place debt of 2.3 million, estimated value of about 3.4 million. So about 1.1 million of equity added to Secure Freedom Fund. So about 3 million of equity that's been added to Secure Freedom Fund. Over time, I expect when the opportunity presents itself, we'll probably keep adding any of these buildings that we own, be able to put that equity to work. So it's just a huge opportunity to create value for everyone involved here. All right. So we mentioned that distributions are increased for fund three and fund going from a 4% annualized distribution to a 7% annualized distribution. Just really successful funds and a really bright runway for those particular properties. We mentioned the Bayswater Cash Out Refi. So this is a really incredible project. This is an income-restricted Section 42 community, which is something that we specialize in. I grew up in affordable housing. Elaine lived in in Section 8 housing when she was a young person as well. And there's a lot of regulatory compliance that goes with these properties. It's uh there's a lot of social intelligence needed to serve the residents in these properties. And the way these properties typically work is there's a 30-year income restriction period, and then when that income restriction expires, it becomes market rate. So most of the projects that we purchase are properties that are towards the end of that 30-year time frame. There was just a year and a half, something like that, remaining on Bayswater when we bought it. We bought it about two years ago. And we made a ton of renovations to this property. We were able to keep nearly every single tenant in place. We're unbelievably proud of what we achieved there, the few vacancies. So we did a kind of a deep value add renovation on those, and it created a just a tremendous amount of value for the property. And then as that income restriction expired, it's now market rate. The value of that property has gone up significantly. And we've had just a phenomenal financial outcome as a result of being able to manage all those factors I just mentioned. So we originally invested about two million in this property from fund three and bought it for about five million bucks. We spent about six hundred thousand on renovations, so we're 5.6 million all in, and it just raised for 7.645 million as is. So we've doubled our money. We've created about$2 million of equity in this property that we put$2 million into two years ago. So that's about a 50% annualized rate of return. That's not a typo. We've got about a five zero annualized rate of return on this particular property. And then the renovations that we've made to this property, where we've done all new exteriors, new decks, new siding, just huge value add we've done to this property. This gives us a kind of a catapult which will allow us to add even more value to this property in the future. We'll probably get to a place where it's worth nearly$10 million here in the next couple years as we continue to renovate this property and operate it as a market rate property. So super exciting outcome with a successful cash-out refinance at Bayswater. And Elaine has a cough from her pregnancy. So she we've been pausing here and there. She's stepping out to try to clear her throat just a little bit if you're watching the video and wondering why we're pausing and why Elaine's stepping out there. Let's do a couple industry and economy updates. And this is one of the most common questions that we get from our investors, where they see something on the front page of the newspaper. I guess people don't read the newspaper that much anymore. They see something on the front page of CNN or your news source of choice, and they say, Well, how does this conflict in Iran or whatever the political, geopolitical, just news item of the day is, how does this impact my investment? And we'll call out Jerome Powell Goodlead JP's quote: No one has been able to successfully predict the economy, not a single person. We believe that black swan theory apposited by Nassim Nicholas Taleb, the idea that big things tend to shape the future. And if you are simply prepared for those big events, those big changes when they come, and you're not just resilient, but you're anti-fragile, you get stronger in times of uncertainty. If you lean into that reality in the universe, you're going to be extremely uh extremely successful. That's what drives everything about what we do. And I'm just going to give you some examples of how we think about that. And hopefully this might answer any questions you might have about how the current conflict in the Middle East impacts us and hopefully gives you we never miss an opportunity to do a little bit of teaching. We can't help ourselves. So hopefully we can share with you a lens through which we see the universe and how we're able to very confidently and clearly articulate our investment thesis and go out and buy a lot of apartment buildings when a lot of people are retreating with fear and uncertainty. So, what's going on right now? February 28th, there's uh a new conflict in Iran and the Middle East. I was born in 1983. I grew up to like desert storm and stuff like that. And there's been conflict in the Middle East for thousands of years. So this is nothing new, and this should frankly never be a surprising thing for anyone to see on the front page of the newspaper. Because we live in a petrodollar global economy, and there's so much oil supply in the Middle East at this time. This has a huge impact on the global economy because global oil supply gets constrained. Went from$72 a barrel on February 27th to$120 a barrel, is where it peaked. It settled down now to about$95 a barrel. Last time I checked when we put these slides together yesterday or the day before. These higher energy costs, like energy is the lifeblood of the economy. So these higher energy costs create inflation in everything. And it's a feedback loop that the Federal Reserve needs to keep a close eye on when setting interest rates. This particular situation certainly harms China much more than the U.S. The current administration in the United States has little incentive to capitulate to end this conflict. Iran is facing an existential threat. They know that it's unlikely that we're going to put boots on the ground and invade. And if they capitulate, that could be the end of their government. So just something that's hard for an American to understand, but in China and Iran and many other foreign countries, most of their defense spending is spent on forces to police their own population. So you have soldiers with armor and guns and tanks, but they're not pointed at other countries. They're pointed at your own country. They live in fear of their own people more than outside forces. The U.S. is trying to negotiate with someone whose guns are not pointed at us, but pointed at their own people. And that doesn't work very well. Iran has very little incentive to capitulate because if they do, if they show weakness, then they might face civil war or the end of their government. So what this means is this situation is likely to persist in some form for the long term. The current exact situation is not sustainable for anyone, but this situation will almost certainly persist in some form for a long time. And a situation like this has existed for decades. So I think a lot of people have a lot of fear, a lot of uncertainty, a lot of concern about this situation. So first let's just live in the reality that this is truly nothing new. This is truly nothing new. It's something that I've seen in my lifetime many times. And the way that interest rates and the economy respond, we've seen it before. And history doesn't repeat itself, but it sure does rhyme. So let's riff off that and take a look at those rhymes.

SPEAKER_02 36:56

Thanks for carrying the load. Absolutely.

SPEAKER_00 36:58

As I was explaining how you've got your pregnancy cough going.

SPEAKER_02 37:00

I do.

SPEAKER_00 37:01

Yeah.

Five Year Treasury Watch

SPEAKER_02 37:02

Four more weeks, guys. We're going to get to the end of this. Certainly, one of the things about I feel like I have said unprecedented more in the last three years than I did in the first 37 years of my life combined. And a lot of that is because of technology and pace of change. And that's just human progress, right? Things moved more quickly 500 years ago than they did a thousand years ago, than they did 2,000 years ago. But a lot of it is because Trump enjoys chaos, right? Whether you agree or disagree with any of his decisions or anything, that's completely irrelevant. As a negotiating tactic, he enjoys sowing chaos. He enjoys getting people talking and scheming and negotiating and feeling all flustered and those sorts of things and then coming in with his decision. And that's the world that we've been living in during this administration. And it's important during those times to just to stay calm through it and just to know, like, okay, this is this person's psychology. And this person has the ability to impact not just the country, but the entire world. And of course, it feels chaotic. That's what the person at the top who's kind of leading the charge wants everyone to feel and controlling what we can control or you controlling what you can control in the midst of that chaos. That's definitely the theme of the last couple of years and will be the theme for the next several years. And then we'll see how things continue to shake themselves out with the next election as AI continues to change society, all of those sorts of things. But we kind of have to stop using the word unprecedented because it's just status quo now and is going to continue to be status quo for the next little while. Let's talk about the impact on the five-year treasury. I mean it when I say the five-year treasury is literally the first thing Nick checks on like every morning.

SPEAKER_00 38:41

He How are my kids doing? How's my wife doing? How's the five-year treasury?

SPEAKER_02 38:44

Exactly. It's usually like, is the baby awake before we are? Okay, if the baby's awake, we can like we got to get moving, get him going. If he's still sleeping for a minute, we can take a breath. He'll say good morning to me. And then he's immediately checking the five-year treasury. And it's a bit of a roller coaster. So things were looking pretty good with the five-year treasury about what, six weeks ago or so before the things are looking phenomenal. Yeah, before the Middle East conflict started. And then things escalated very, very quickly in the setting of all of that uncertainty. The economy does not like uncertainty. Economy does not like uncertainty. Economics is basically just the study of human behavior as it intersects with money. And when there's uncertainty, it's very, very hard for the market to absorb that. And you see that impacted with higher five-year treasury rates. You can see there the sharp incline in rates. And then things have stabilized over the last couple of weeks as the newness of the Middle East conflict is settling down. There's still a ton of uncertainty. The straits open, the straits closed. Now Trump's doing different things in the straight. What's going to happen with energy prices, you name it, but the uncertainty is less new. And so the market is going back to more of its normal behavior and rates are stabilizing a little bit. Anything you would want to add there for the five-year treasury?

SPEAKER_00 40:00

Paul Rose just said, what's the plan for these properties for the next five years? Sale. Great question. No, we've never sold a property. We probably will at some point. Our our business plan is to a cash-out refinance. And those refinance rates are often closely correlated to five-year treasury rates. And that spread between kind of where rates were at before February 28th and where they are today or where they were with their peak, that could mean the difference of millions of dollars of cash-out refinance proceeds on our property. So we have to be incredibly attuned to the markets to do our best to make educated guesses about the future of treasury rates, of interest rates, of Fed rates, so that we can set ourselves up for opportunity, which is exactly what we're talking about here. As I was saying to kind of exposition, this is one of the most common things people ask us about. And yet, Elaine and I, we think of this as like one of the least important things. We do a good job, I think, of trying to avoid consuming the news. There's nothing wrong with the news. The news is not evil, but it's not there to inform. The news is entertainment. They're selling advertisements. Their goal is to inspire fear and to keep your eyeballs looking. Same with social media and stuff. Doesn't make these things evil. Just know what they are and put yourself on a news diet and think really carefully about what you can control, what you can't control, what matters, what doesn't matter. So just let's think about this situation from a really simple perspective. There's an energy shock, nothing new. That leads to inflation, nothing new. Those inflation expectations mean that the Fed is no longer planning rate cuts. They were planning one to two rate cuts this year before February 28th, and now they're not, which has a huge financial impact on us and our portfolio, but that's not something that we can control. We need to be aware of it, but there's not, it doesn't make it sense to perseverate on it. The good news is that rates are expected to remain steady. There's no one saying that they think rates are going to go up in the foreseeable future here, but we can't control any of those things. So what we do is we come into the office in the morning, we talk about marketing, occupancy, cost control, efficiency, hiring, making sure we've got tons of cash. Cash is ultimately the only thing that really matters here is do you have the liquidity to defend yourself against like loan maturity and to make bold moves on the acquisition side when opportunities present themselves? And leaning into our relationships, like relationships with our bankers. Y'all, I have already spoken with three bankers today. I spend a tremendous amount of my time talking to bankers because these relationships are so critical.

Predictable vs Unpredictable

SPEAKER_02 42:09

Nick's email is like broker, broker, banker, banker, banker, broker, broker, leadership team, banker, leadership team. You can kind of see the effort that he's putting into the portfolio just reflected in his emails. It's all bankers, brokers, and our leadership team. One of the questions that came up a couple of minutes ago is what is our long-term plan for fund one and fund two? Same as it's always been since we acquired those portfolios, since we started investing 15 years ago, really having that long time orientation. And right now it's controlling what we can control, which is increasing our liquidity in those funds so that we're as positioned as possible for loan maturities. And because those funds are so much older than funds three and four. Fund one started in December 2021, fund two in December 2022. And then we took almost an 18-month break before we launched fund three because of the uncertainty that was in the market. So the loan maturities for fund one and fund two are much more near-term than the loan maturities for fund three and fund four. So we're spending much more of our effort and focus on fund one and fund two on preparing for those loan maturities. And you can check out the Q1 update at blackswanteam.com forward slash update for the Q1 2026 performance update webinar. And there's also the brochure there where we explained our thought process on fund one, fund two, loan maturities of navigating the market for about 45 minutes. So we don't have time to rehash all of those details in this webinar, but all of that is available there at blackswan team.com forward slash updates, also available on the YouTube channel.

SPEAKER_00 43:42

All right. So just trying to put a boat on this overall thought process. Cause again, we're trying to equip you with the lens through which we see the world, which I think gives us a lot of clarity, a lot of calm in a time of unprecedented uncertainty. So again, focus on what is knowable and what is predictable. And you can just it doesn't matter what celebrity is doing well. What like there's a lot of noise out there that it just does not need to consume your focus. So here's a few things that are probably unlikely to be predictable. We do not know what's gonna happen in the Middle East tomorrow. Y'all, I don't think the current administration has any clue what's gonna happen in the Middle East tomorrow. I don't know if the Middle East has any idea what's gonna happen. We certainly don't. We don't know what interest rates are gonna look like. We don't know what Fed share is gonna be in power next month. And it probably doesn't serve our ourselves well to spend a ton of time perseverating on that. We want to have awareness, we want to check on rates and we want to be ready to move, but it doesn't make sense to tilt it windmills. Here's a few things that are probably quite predictable. The current geopolitical situation, like the exact situation right now, it's unsustainable. There's no way that that the US and Iran can keep operating the way they're operating right now. It's probably a matter of days, it could be weeks or months, but I think the situation is rapidly becoming unsustainable for both parties. If it escalates, if America goes boots on the ground or something, rates probably won't increase that much because we've already experienced the shock from that oil supply coming off the market. And that's all the signals that we've received from the current Fed chair is that it's very unlikely that rates are going to go up. Now, if the situation de-escalates, rates are probably gonna go down. And if it de-escalates, here's the kicker, y'all. Something's probably gonna happen soon after that because that's the time that we live in right now. That's the time that we live in right now. So how do we prepare for that? So I I hope you see how we've just segregated. Here's things that we can potentially predict or know, and here's things that we can't. So how do we leverage that? Now's probably a terrible time to sell. Now's probably a great time to buy. Now's probably a poor time to do a refi because there's a decent chance that a few months from now we could probably get a little bit better rate. And we must be ready to rate lock to execute that refinance the moment things look calm because it could be a short window in time when things look calm. So I I hope that's valuable to you. And here's some ways that you could you may apply that in your personal life. When we think about the Secure Freedom Fund, just as an example, we don't know how much an apartment building is worth today. So it's it seems crazy. How do you buy a bunch of apartment buildings if you don't know what they're worth? The market is in such flux right now that it's not knowable. And most funds, most people who buy apartment buildings, not only are they saying, oh, well, we're gonna get a great deal on it today, assuming that they know what it's worth, but they're penciling into their pro forma some assumption about how much that apartment building will be worth in the future, is not knowable. It's just completely unknowable in the extraordinary time of uncertainty that we live in right now. And we certainly don't know what rates are gonna look like in a week, a month, or a year. What we could successfully predict though is if we get long-term fixed rate debt, we're gonna know exactly what that interest rate, what our interest rate is gonna look like for five, 10, 30 years. I'm gonna say that again. We don't know what the market interest rates are gonna look like next month, next year, whatever, but we know what our interest rate is gonna look like for a long time. It gives us extraordinary certainty. This is why we got fixed rate debt over the last five years of time when the vast majority of other operators did not. And we know that if we can hit a 10% cash on cash rate return on that apartment building today with that fixed rate debt, we can probably hit that 10% cash on cash rate return for years to come. And if we don't sell that property, we're very insulated from changes in property value. We don't have to think too hard about are we getting a great deal or not on that property? Are our values gonna go down a little bit? Are they gonna go up a little bit? Are they gonna go up or down a lot? It doesn't really matter. What matters is we can hit that 10% cash on cash rate return and make that payment to our investors. We're buying like crazy. We're buying more than ever before. We're making offers at a price where we can hit a 10% cash on cash rated return. Our pro forma is like 1% of the complexity of most groups' pro forma because that's our only, that's our only target that we have to hit. And ultimately, we want to help people get on the Security Freedom Fund wait list that we have the debt, the equity, the deals, we have all the ingredients to put together, amazing abundance, financial abundance for everyone involved in the transaction. So we hope you look at this and you can see how our thought process is very different from how most groups approach things and how we can come to you from a place of calm and clarity and just yeah, we are gonna go offer on a bunch of deals where we can get a 10% cash on cash rate of return. And when brokers call and they're, hey, we've got this, what do you think about that? I don't I don't care about any of those things. Can I get a 10% cash on cash rate return? Yes or no? And that's it. It gives us extraordinary clarity. So hopefully that's helpful for you. You can see our mindset and how we approach the current geopolitical interest rate market situation.

Rent Growth and Supply

SPEAKER_02 48:14

Absolutely. Let's talk about rent growth. That's something we try to include in as many of our updates as possible. We really believe that in any business, whether it's an apartment community, a lemonade stand, a restaurant, a hair salon, it doesn't matter, revenue is the lifeblood of an organization because that's what keeps the wheels going, right? You have to generate as much revenue as possible and then control your expenses so that there's profit. And so we focus really heavily on rent growth. We're very fortunate that the extreme majority of our portfolio is in Rochester, Minnesota, where there's this huge boom because of the Mayo Clinic and all of the jobs that are coming in from the hospital expansion. And that creates increased growth, increased demand at a time when national rent growth, the picture is not so rosy. National rent growth, it does, it continues to decelerate. So rent growth has been negative across the country over the last, say, two and a half to three years. And remember, all of these things are cyclical and they take 18 to 24 months to play out. So during the pandemic, when interest rates were at historic lows, there were many new project starts. Well, it takes, say, two and a half, maybe three years to get an apartment building out of the ground. So all of those projects that started in, say, 21, 22, when interest rates were very, very low, they came to fruition in 24, 25, and early 26. And so a lot of new supply came onto the market. And when there's new supply of anything, right? Go back to your economics 101, more supply causes price to go down. And so that's largely what's happened across the country over the last several years. And you see that here, where through the pandemic, rate rent growth went up to extraordinary levels, far more than we had ever written into any of our pro formas, going all the way back 15 years when we started investing. And then they really came down to what is a much more normal level as all of that supply came back onto the market. Many markets have concessions.

SPEAKER_00 50:14

This is in addition to the negative rent growth. So it's not just that rents are going down. These concession rates are crazy. If you're in Austin, there is a 33% chance if you're looking at a unit that they're offering free rent. That's just it's mind-blowing.

unknown 50:28

Yeah.

Why Minnesota Wins

SPEAKER_02 50:29

Very normal tactic in the industry. A concession could be anything from a free television or a restaurant gift certificate. It's usually something like a month of free rent or two months of free rent. Very normal, right? When you're competing, when you, the property manager, are competing with other new units on the market, you want to do something attractive to get people to move into your building. And so you try to compete not just on price and amenities and leasing, but you try to have something to sweeten the pot. And you'll see the areas that had the biggest boom of development are the ones that are offering the most amount of concessions. And much like we talked about just five, six slides ago, when we talked about how to stay calm and how to have some level of clarity in your own thinking, even when there it seems like there's an insurmountable number of variables and things that are outside of your control. You just have to understand seasons and patterns, right? There's a reason why we teach about these things over and over and over again. We have been so heavily influenced by Ray Dalio. If you have not read his book, Principles or Changing World Order, or you're following him on social media, I highly recommend you consume his thinking. He is a thinker of patterns. And you can basically look to see what is the area that has the most new construction permits. That's the area that's most likely to have decreasing rent growth and higher concessions about 24 months later. Like you do not need to be an expert on, say, Las Vegas or Phoenix or even new construction. You just need to know a couple of key variables. And it's not a 100% guarantee. This isn't a crystal ball or a direct line, but the patterns generally emerge. And so that's one of the things that we looked at through the pandemic and why we chose to keep our portfolio principally in Rochester and then in Greater Minnesota, and a small portion of our portfolio is in Tacoma, Washington. And we did not flee to say the Sunbelt or the Carolinas or Phoenix that were very hot markets that many people invested in, because we had a concern that with so much new construction coming into those markets, that this is the pattern that would reveal itself years later. And it's interesting to see that we have always believed that Minnesota is just this quiet, Midwestern, boring market. Technically, Rochester is a tourist town for medical tourism, but we don't have a mountain, we don't have an ocean, we don't have beautiful tropical trees. Minnesota as a whole, we've got a lot of fresh water, we've got a lot of Fortune 500 companies, but it's not a place that people aren't vacationing here. It's not, oh man, I've wanted to visit Minnesota since I was a little kid, right? That's just not the vibe that Minnesota has going for it. But it's just this quiet, steady market. And I think because Nick and I came of age in Oklahoma City, neither of us are from there. Nick is from Rochester, Minnesota. I'm from Pittsburgh, Pennsylvania. We moved there in our very early adulthood. Nick spent 15 years there. I spent 12 and we saw the boom and bust from oil and gas in Oklahoma. We just have loved that Minnesota is just this quiet, steady eddy. It just like shows up and produces and isn't it doesn't have an ocean. It doesn't have a mountain. It's just this kind of like a little mini Canada at the top of the United States, basically. And so what's happened over the last many years is the Twin Cities has just been this kind of quiet, boring market. And because of that, it is now, you can think of it as like a spring that's compressed, that has like all this built-up potential and built-up demand, that it now has the highest rent growth forecast of all major US markets at 4.7% rent growth projection for the twin cities over the next year in comparison to Phoenix, which is the very bottom city listed here, which is negative 6.2. So that's an over 10% spread in rent growth forecasts to go from negative 6% to positive almost 5%. And so we're super excited about not just the position of our portfolio in Rochester, but as we continue to expand into greater Minnesota and continue to have more and more acquisitions that are 30, 60, 90 minutes away from our company headquarters here in Rochester, the economic drivers that are happening in the Twin Cities and the rent growth that is likely to come as a result of that.

Portfolio Rent Growth Stats

SPEAKER_00 54:42

Yeah. This is a big deal. It's a very big deal. So let's talk about how Black Swan compares. So focusing on the things that we can control, we were very deliberate in choosing the markets that we invest in. And that's not just us looking at a spreadsheet. Elaine and I went and lived in Jacksonville for a month in one of these new class A apartments. And I remember looking down the highway and seeing what must have been 10,000 units under construction.

SPEAKER_02 55:06

No joke. The community we lived in was a thousand, and there were like nine or ten of them on that street, you know.

Record Renewal Rates

Rent Growth Proof Points

SPEAKER_00 55:11

And I remember being there and just being like, it has got to be brutal to be an investor here. In a few years, all these things are gonna come online, and it is gonna be brutal to be an investor here. And in Minnesota, you just don't have that sort of boom and bust cycle. It's just a nice steady eddy market. In the Black Squan Portfolio, we're achieving a 7% year-over-year rent growth on renewals alone. So it's easy to kind of be gamey about these stats. We're trying to give you the most straightforward stats. We love sharing rent growth stats and stuff because these should be really clear and easy to understand. If the people who are living in your units today want to stay at a high percentage and they're willing to pay a premium for it, that is a really good sign, y'all. That is a really good sign. It's one of the things that I look at most closely. Despite these extraordinary renewal percentages, January and March 2026 were our highest renewal rate months ever at 71.58% and 67.83%. These are crazy numbers. National average is 54 to 55%. And it is not uncommon if you live in the Sun Belt to get a concession on renewal. You might get another month or two of free rent on renewal, let alone a rent increase. So we've been extraordinarily successful on this front. This is something we're laser focused on. I personally review every renewals. I spent an hour working with the renewals team this morning. This is this is it's the most important thing that we do from a revenue generating perspective. And we're in peak season for it right now. We've put some automation pieces in place. We've got half a dozen people working on it. This is not something that happens easily or simply, but this is an extraordinary success. An extraordinary success. Fund one, you see some kind of before and after rent growth figures there for Nicholas, Hamptons, RDS, Riverview. So just as an example, I'll pick out Colby since we just got a cash-out refi on that. Our in-place average rental rate when we bought it was$721 a month. It's now 1075 a month. Dakota, an income-restricted community where people say you can't raise rents and these are poor people who don't deserve any better. Have some very negative things to say about income-restricted communities. In-place rents have gone from$1,000 a month to$1,451 a month. That's a 45% increase in rental rate. No one is staying in a community with a rent increase of that amount unless they're getting a tremendous amount of value from their landlord. And there are people who have been at Dakota since we bought it. I'm unbelievably proud of what we have here. Got a few more slides of some rent growth. And you can check this out on blackswanteam.com slash updates. Check out the brochure if you want to dig into these numbers more completely.

SPEAKER_02 57:34

You read my mind, literally. I was just thinking there's a lot of data on these slides. We're moving quickly through them. Um, but not only will the replay go up, but all of this goes into the brochure. And you should take a minute to look at it and look community by community. The the left hand bar is ours, always our acquisition date, and the right hand bar is our rents for that past quarter. And it's just it's so fun to look at. There's just it's hard to describe. And this is where the real value creation happens.

SPEAKER_00 58:02

Laura, our renewals officer, actually just happens to be on the webinar with us. I didn't realize she was here, and she says renewals are crushing it. No, Laura, you are crushing it. Absolutely phenomenal work. So we've got some more slides on rent growth here. You can see Boulder Ridge, for example. I love this one, and we'll have a chart on this here in just a moment. We bought this a year ago, and our average rent when we bought it was$15.71. Average rent today is$1808. Now we've spent a million dollars on improvements to this community since we bought it, but it's a$20 million community. Incredible rent climb, an absolutely incredible rent climb. Since we've purchased that property, we've brought incredible value to that property. Some slides for our Tacoma properties where we've seen similarly dramatic rent improvements. So a Tanara Villa, when we purchased that,$938 average in-place rental rate today, it is$1627. And then here you've got a little chart that shows this kind of longitudinal data. So Boulder Ridge that we purchased just a year ago and the in-place rent going from a little over$1,600 to$1,850. And then Colby, more longitudinal data. So this is one that we we just refinanced. And you can see over the course of three years, two, two and a half years, climbing from an incredible seven, seven hundred a month to$1,100 per month. So we brought just extraordinary value to these tenants, uh, and an incredibly high renewal rate. Uh, and I'm unbelievably proud of our outcomes here.

Operations Create Value

Dispatch Defense System

SPEAKER_02 59:21

All right. Now we have two fun updates, a little bit different than we've usually shared in our quarterly updates before. We'll probably spend about 10 minutes on each of these. So if you're able to stick with us for another 20 minutes, even if you're just in listen-only mode, I think you'll get a lot of enjoyment out of these and hearing about how we think about creating value, right? So if you zoom all the way out, we're talking about like tapping in the Middle East. We don't have any impact on what could possibly, all we can do is monitor and think about how we're going to behave in that situation or, you know, even within the pandemic, or who's the president, or you name it. But what we can have some level of control over is how we behave within the portfolio on a day-to-day basis. So there's probably 12 to 20 of these types of initiatives happening in the company at any given time where we are thinking about various ways to increase the resident experience, increase our marketing in the community, increase rental rates, drive efficiency, bring down costs, streamline things, like you name it, all these different initiatives to operate the portfolio at the highest level. We have always been a believer that operations is everything. Someone can buy a ho-hum property in a ho-hum area and take phenomenal care of it. And things will get better year over year over year over year. And over a long-term hold, they're likely to be pretty financially successful. The opposite is true. Someone can get the best deal on the best property with the best debt, like the best of everything. And if the operations are in shambles, all of that value can be lost in six, 12, 18 months. We've seen that unfold many times. Many of the assets that we own in the portfolio are a result of the original owner passing away and they didn't have a great estate plan. And so it might have passed to a sibling or an ex an estate or something like that. And they're just, they don't have that same level of management care, and millions of dollars of value can be lost in very short order. So we have two initiatives that we've been working on over the last, say, three to six months. We presented these at our whole company, what we call high season retreat in February. And so we wanted to share them with you. I think you'll, I think you'll find them to be pretty interesting. A lot of this is Nick's work in tech and management and bringing that into our portfolio. And the first is called dispatch defense. So as you would imagine, in a portfolio of over 2,000 units, maintenance is a huge thing. Maintenance, so taxes is always the number one expense. Turnover, which is essentially a form of maintenance, is the number two expense. And then just the day-to-day routine, normal wear and tear of properties or living, breathing things. And so we receive hundreds of maintenance tickets every single week. And we need to think about what kind of tickets are we getting to understand that. What's the breakdown between plumbing tickets versus electrical versus simple things like, say, a lockout? What are the things that are coming through the maintenance system that aren't even maintenance? Like I've lost my package, or we need more dog poop bags at the doggy station, those sorts of things. And then most importantly, what are the times when we don't need a technician? What are the times when we don't need a technician? That is a great way to think about a way to drive cost savings to the portfolio. But also in this day and age, people have been accustomed to wanting an instant solution, right? It's not like when we all grew up and you had to wait for your favorite song on the radio and like, okay, everyone, quiet. The song's playing. We don't know when we might hear it again. No, you go on Spotify and you listen to the song right then and there. Well, that consumer behavior has carried over to every industry that residents want a solution instantly. So if we can solve something without a human being involved, without needing to dispatch someone, which takes time to schedule and having notice of entry and all of those sorts of things, not only is it good for the portfolio because it drives down costs, but it's good for the resident because it it meets their expectations for kind of that instant solve to the problem.

Toilet Auger Hack

Maintenance Analytics SOPs

SPEAKER_00 1:03:18

There's some graphics here if you're listening in podcast mode that might be good to check out. But we did a ton of analytics. We found that somewhere in the neighborhood of a third of our highest volume tickets could be solved without a dispatch. This is kind of what you might think light bulbs and smoke detectors and toilet clogs. So we're going to talk about toilet clogs for just a second here. What we would do in the past when we had a clogged toilet was we would basically dispatch a drain clean out company. And then if they came to the conclusion that it was the resident's fault, we'd bill back to the resident. And it's this weird kind of energy of like, well, you clogged the toilet, so you need to go, you need to go unclog that toilet. And no, you need to send somebody to fix it. And it's just, it's not positive energy. So what we do now is we give them the opportunity to call a vendor if they want to, and they can go hire a vendor if they want to. But what we do is we do a same-day dispatch on a toilet auger, a commercial grade toilet auger from Home Depot. So I don't know if you're aware of this, but Home Depot does same-day delivery. They will put apart a tool, whatever, on an Uber and send it somewhere. And they do this at an extraordinarily low cost because they want to win your business, and they have won a millions of dollars of business from us as a result of offering these types of services. So we have our staff that are full-time staff in the Philippines, where when a ticket comes in, the first thing they do is they call that tenant. So someone submits a ticket, and what I've said is I want there to be an uncanny level of customer service. So you submit a ticket, and if you get a call seconds later, that's what I want. Our average turnaround time right now is six minutes. If you submit any maintenance ticket within six minutes, you're getting a call from our staff. And if it's something that we can fix over the phone, we fix it over the phone. If you can get a photo uploaded, or they're just gonna provide a concierge level of customer service with that, so you get that kind of immediate gratification. And in the case of the clog toilet, we're gonna put a toilet auger on an Uber and we're gonna send it to you. And that toilet auger on an Uber costs about$40. And a dispatch from a drain cleanup professional is about$125. But the kicker is it's the same few people who tend to clog their toilets over and over again. Once they have that auger, they don't clog their toilet anymore. And we've we've saved tens of thousands of dollars just on toilets alone, but we're also doing this with light bulbs, batteries, drain snakes for slow drain from your sink for your shower, whatever the little hair snakes will send you a screwdriver, whatever it is that you might need. There's some fun, playful photos of toilet augers and other things sitting on various people's front porch. And sometimes they don't want it. They're like, No, you need to send someone. We're like, well, you can call someone, but no matter what, there's a toilet auger on the way, and there's going to be an auger sitting at the front door of the apartment building with your name on it in about an hour. So you should go pick that up, unless you want the whole building knowing that you've clogged the toilet. And all of a sudden, their toilets unclogged, just like magic. We have some incredible analytics. We're able to classify. These tickets now. We're spending a tremendous amount of time and effort on classifying these things so we can focus on the dispatches that can be avoided. We're constantly refining this. We've dramatically improved our SOPs. Here's an example of some of our SOP documentation. It's extraordinarily high-quality documentation with troubleshooting trees, the sort of stuff that was at Dell when I worked at Dell, really sophisticated troubleshooting trees and live ticket analytics of how many tickets are outstanding, closed for pretty much every property, every kind of ticket. Some of these analytics are built into like property management software, but these are probably a hundred times more powerful than the analytics that are that are built into that. So, I mean, so far we've already saved, I'm guessing this is going to save us at least a million dollars this year, and it's going to give us an extraordinarily level, uh, high level of customer service. So the number one reason why someone renews their lease timely maintenance response. That six-minute turnaround time, that might want us a renewal. That renewal, that's a that's like a$5,000 profit item for our company when we win a renewal versus having to turn over that unit. So could talk about this for a long time, but that's a quick high-level view of dispatch defense. And also want to show you some really cool stuff we're doing on leasing automation, and then we'll wrap up.

SPEAKER_02 1:07:06

Go for it.

SPEAKER_00 1:07:07

Leasing is the most like labor-intensive, critical activity in our company. We have quite a few leasing agents. We get quite a few leads each week. I think we got nearly a thousand unique leads last week, and all those people need phone calls and text messages and emails, and they need to go into our CRM, and maybe they inquired for this building, but there's not a vacancy that lines up with their desired move-in dates. We need to see if they would be a good fit for a different building. It's an extremely high-stakes, vast body of work and knowledge domain to manage. So, in the last yeah, three to six months, we've written a lot of custom software. So we have basically one to two full-time people who are doing nothing but writing custom software for us that that manages how leads are processed and followed up on. So it checks for duplicates. This is like a significant portion of all of our leads, probably more than half of our leads are duplicates. And it can be incredibly difficult to figure out if something is a duplicate or not. It does uh automated follow-ups. You get the opportunity to, when you inquire, again, I want there to be an uncanny level of customer service. When you click the inquire button on Zillow with one of our properties, you should get a text message and an email within seconds that say, Hey, thanks so much for acquiring at Boulder Ridge. We'd love to serve you. Mike is going to be your leasing agent. Here's his personal cell number. You can call him right now if he doesn't call you first. That is literally what happens. And I said, if we reduce the number of leads generated in our market to the point that Zillow and Apartments.com notice, that's the goal because people they tend to go inquire with 10 apartment buildings at once. And I want them to get halfway through that loop, they click on one of our buildings, they get a reply, and they're like, I guess I'm going to go tour with these people, and they don't keep inquiring. But let's take a look at what that looks like here.

SPEAKER_02 1:08:47

And I'll just add that the overall ethos here goes all the way back to our very first property ever. The very first property that Nick and I had in our real estate portfolio was my personal home. We kept it. We moved into his home after we got married. And we figured out very quickly that the bar for property management is very low. So someone might, but that time it might have been like an email or a phone call back in 2011, but someone would submit an inquiry and it would take three, four, five days before they even heard back from the other property management company. And in that time, we had already leased them the home because Nick would call that same day. Hey, you want to come over after dinner? Like, you know, we we will show you this property this evening. That's true in any industry. Speed to lead is something that applies to restaurants, hair salons, you name it. And particularly in the property management industry, it is a weakness in the industry overall. And so we have always trained ourselves and our team that the faster we can close someone on a lease, the more likely they are to lease from us. It's a good customer service experience. People get nervous. Where am I gonna live? What's it gonna cost? They want to get moving, that they have an energy inside of them. And that has become increasingly hard as our portfolio is now in the thousands of units. And also as so much digital marketing has become part of the scene, because exactly as Nick said, someone will click on 10 different apartment buildings and they don't even exactly know which what they clicked on, right? They just know that they liked this kitchen or this entryway or this one had a dog park or this one was close to work. And in the time that another property management company is even like figuring out how to get back in touch with them, it's our goal that we are in an actual conversation with them, moving them forward. One of the things that we don't really talk about here because we're focusing here on leasing automation is all of our background checks are complementary. So that's a huge barrier for people, is they'll want to see the apartment, they'll want to make all the decisions, and then they submit the application. Well, maybe they're not actually approved. If we just say, hey, submit the application, might take you 15, 20 minutes. It's complimentary. It applies not just to this specific unit in this apartment that you're considering, but the entire portfolio, we can get so much momentum with that lead before the other property management companies have even figured out that they've submitted an inquiry. And that's an example of finding clarity in the midst of chaos and focusing on things that you can control and focusing on fundamentals. So all the way back when we had one teeny tiny little single family home that we were a mom and pop and we managed ourselves to a portfolio of almost half a billion, the main fundamentals have stayed the same. Speed to lead, really good customer service experience, minimize any friction to get people through that value pipeline. We just have to find new ways to implement it as the portfolio evolves, as technology evolves, as consumer behavior evolves. So this is the most recent iteration of it from a logistics perspective and from a teamwork perspective. But the overall theming goes all the way back to the very beginning of the portfolio.

Fraud Filtering AI

SPEAKER_00 1:11:49

So here's what this looks like for our leasing agent. When someone inquires in the past, and for most property management companies, it takes hours or days to get the message from the portal that goes to some centralized system, and then someone has to figure out is this a duplicate lead? Is this someone that we have rejected their app in the past? And all that is now adjudicated in seconds, and that leasing agent gets a push notification. You can see what that looks like on their phone. Here's the person who's inquired. This is a brand new lead. We've never seen this person before. Here's their phone number, here's their email address. Tap here to text them, tap here to call. So if the leasing agent is available, they get that push notification on their phone. When you inquire on Zillow, it'll say, Thanks so much for inquiring at Boulder Ridge. Mike is your leasing agent, and then you might get a text from Mike a few seconds later saying, Hey, this is Mike with Boulder Ridge. Would you like to submit an app? Would you like to do a tour? Unbelievably powerful. This is 1,000 times faster than what we were doing before and what most groups do today. The knowledge domain here is so vast. So here's just a random example of what our team has to deal with on a daily basis and how incredibly difficult this is to adjudicate. So it's extremely common. So, so people will do like a skip trace on me personally. They will somehow find my cell phone number somewhere and say, Hey, your team did a bad job serving me. I need you to give me an apartment or something something of that nature. And you go look in our CRM, and there's uh records of them inquiring with one leasing agent, they get a denied application, they inquire with a slightly different name, and they get another denied application, they inquire with a different leasing agent, and they have a new story, and they have a co-application, and ultimately we figure out it's them, and they get a denied application. They inquire with our accounting team and then they inquire with our legal team, and then ultimately calling CEO, and that's called triangulation, when you're trying to communicate with multiple parties and fabricate like a story to try to manifest your outcome, which is living in an apartment when you are like a convicted fraudster, frankly. So these are just a few examples, and the software is able to adjudicate all this using AI and matching technology and stuff. So what this means is when our leasing agent talks to someone, they know exactly who they are talking to, how many times we've talked to this person. We have a database of, I don't know, probably a hundred thousand people in it, and it cuts down on the amount of noise for our leasing team so much. Yeah.

SPEAKER_02 1:13:57

The role of a leasing team is not just to lease the units, it's to keep the people that will cause grave financial harm to the company out of the units. A typical apartment unit might cash flow on the orders of tens to low hundreds of dollars per month. So an apartment unit might cash flow, say,$100 per month after all expenses are considered. One person who needs an eviction or who has what we call a train wreck turnover where there's a lot of expenses, we do everything we can to pursue things in small claims court and all of those sorts of things. But you just do the math, right? If it's a$5,000 turnover as compared to say$100 per month for typical cash flow for an apartment unit, you need a lot of those good months to overcome one challenging situation. And so the second role, really the first role of a leasing team is to keep the people who do are not qualified to live in our units out of the units and then serve with robust energy and excitement those people that do qualify. Part of the reason that we offer our applications complimentary, and we do that right up front. But this ability to flag suspicious leads is huge critical.

AI Advantage Reflection

SPEAKER_00 1:15:05

There's so many crazy situations, you wouldn't believe it. Like there's one individual who has inquired with our company every single day for years. And this person is quite real. We've actually done a skip trace on them, figured out where they live, gone and like knocked on their door, like, how are you doing? And they are they're just a fraudster. These like these are real people, and unfortunately, it's it creates a tremendous amount of noise. This first contact, this is what your experience looks like as a prospective resident on the other side here. So this is a text and email that you receive. It carbon copies your leasing agent. It gives you we don't want to do a group text because that can look spammy, and it also different phones respond to that differently. So you have to be really careful about this. Prospects today, they frequently have it set so that you are not able to receive communication with from someone unless they're on your contacts list. Then they go inquire with the apartment building, and then they're frustrated that no one is contacting them. We literally cannot reach them, so we have to contact them through three or four different means to try to break through those blocks that are in place to be able to reach someone. So it's a fascinating problem to solve. Uh, there's uh a comment from someone talking about follow-through and how challenging that is in the property management space. Yes, absolutely. This system also automates that as well. It will say, okay, the leasing agent has reached out at this time, the next follow-up should be at this time. If the leasing agent doesn't follow up at that time, there's like a like an alert essentially that goes out to that leasing agent and then eventually to their supervisor that says, hey, this person is behind, they're not on top of their leads, what's going on? And their supervisor, oh shoot, this person's on vacation today. I forgot to get someone to cover their leads. Let's get someone to go and get in there and cover leads. The fortune is in the follow-up. So it's first speed to lead and then it's follow-up. And this custom written software that we've made. This is all completely custom stuff that we've written in-house. I've never seen anything like it in the entire apartment industry. This is a hundred times faster, more effective than any other product I've seen. We could pay hundreds of thousands of dollars per year for different software suites. We actually tried using one software product several years ago, and it resulted in a 99% reduction in our lead conversion rate. Not making that up. We piloted one of our properties and we have about a 7% lead conversion rate, and it was less than a 1%. It was about a 0.07% lead conversion rate. It was just bananas because all it was doing was filtering people out, and it wasn't trying to pull people in. And this is like how do we reach out to people in as many ways as possible, as quickly as possible, and with as much follow-up as possible. So unbelievably, so Dan Daniel was the individual that put uh all this software together, and none of this would be possible today without AI. Like AI has made it possible for one solo developer to do what it took a team of 10 to do before. And this gives us just an a hopelessly unfair advantage in the marketplace. It's an incredible advantage that we have. So unbelievably excited about this, could spend the whole day talking about it. But just want to give you a glimpse of it's not easy for us to pay that 10% rate of return on Secure Freedom Fund. It's not been easy for us to preserve the capital that was invested in fund one and fund two. And we're unbelievably proud of the extraordinary efforts our team has put in. And this is what it looks like. This is the block and tackle work that has allowed us to, in many cases, like double the net operating income of apartment buildings. This is what it looks like.

Real Estate Real Life Event

Quarterly Wrap Up

SPEAKER_02 1:18:12

Nick is definitely in his element over the last, I don't know, three, three to six months as AI has really picked up. So this past weekend, we went away for four days with no kids, very little on our agenda. We only had one appointment each day, basically for a dinner reservation. It was my 40th birthday, and so I'm doing journaling on the decade of my 30s, and I'm walking down memory lane and doing some visioning for my 40s, and I'm like blubbering and tearful. And Nick is back in his element, like coding, working on AI, doing all of these things. It's just, it's so neat to see greatness comes from decades of planting seeds. And I'm probably more in that mode right now because I just had a big milestone birthday and thinking about my own life, but thinking about the young Nick in his early 20s learning software to then have a whole career in software, to then have this huge pivot to real estate first with our own personal capital and our family, and then working with investors very in a small way in the beginning, and then in our private equity funds, and to carry that vibe all the way through. But now there's this like resurgence of bringing that skill set into the portfolio because of AI. It's just been so fun to see him. It, it like I have this like muscle memory of the phone calls that he would have when he was more in his tech career, when he would be speaking to his developers. And the phone calls these days sound more similar to that. And I can tell when he's say speaking to, say, one of our property managers about a maintenance ticket or something like that, versus when he's speaking with our automation team about dispatch defense or leasing or some of the other things that we have going on. That's what it takes. It takes bringing creativity, it takes having clarity among amongst a lot of chaos in the world. I believe that long-range thinking protects us as humans for all things, whether it's our financial decisions, our health, the important relationships in our lives. I think long-range thinking is an ethos that I hope all of you bring into your life in one way or another. And then remembering that the seeds and the resources that you had from long ago, that is often your strategic advantage today. And so that was just a fun way for us to share some of the things that we've been working on as a company over the last about six months. Again, we presented these to our whole team in our February retreat and thought it would be fun to share these with you guys so that you see not just how we're handling interest rates and refinance and all of those very tactical things that are directly related to our investors, but that you see how we spend our time behind the scenes and how we're driving value in ways seen and unseen. If you want to see what this is like up close and personal, we try to pack as much as we can into these quarterly updates, but there is no substitute for our annual event, Real Estate Real Life. 2026 is going to be our fifth year. We hold it right here in Rochester, Minnesota, September 17th through the 20th, with an optional VIP day on September 21st. You can join us here in Rochester. We do a tour of the portfolio. We do a lot of speaking and teaching throughout the weekend. It's hosted at the number one Hilton in the entire brand for the last three years, which is just really impressive for that Hilton to be able to claim that honor. And then we have our optional VIP day as well. We have a virtual option as well that we've had over the last couple of years. And last year we piloted that our virtual audience actually attended the property bus tours with us. So we have a number of people with sophisticated cameras. Like you're just joining right along. All of the ticket types get lifetime access to the replays as well. Would love for you to join us for that. You can get your tickets at rerl2026.com. And that's where you get the full dose of getting to meet us, getting to meet the team, getting to see the properties, getting an immersive weekend, not just in real estate, but in real life, bringing together all of the things that we think are most important. That the point of real estate is to live a big life and to create what it is that you really want. So we would absolutely love to host you this September, either in person or virtually. You can learn more at rerl2026.com. That is a wrap for our quarterly update this quarter. Thank you so much for the comments and all of the compliments in the chat. It does not go unnoticed. That definitely is the wind beneath our wings that keeps us going when the days are hard, and they often are. But we try to keep our thinking crystal clear through that and celebrate the wins. So our update in summary, we launched our podcast, real estate real lifepodcast.com. Check out those episodes. K1s are out. Lots of updates for the Secure Freedom Fund, two new assets, five additional offers outstanding right now. Added a couple more assets to the Secure Freedom Fund this past quarter. We talked about distributions, we talked about rent growth. And then we hope we got a lot of enjoyment out of hearing about dispatch defense and leasing automation. I'm sure we'll have more of those types of updates in our quarterly updates in the quarters to come. As always, if you need anything, you know how to reach out to Nick or I or Rachel. We're here to help you here with anything you need. The replay will go out in about 48 hours. We always upload the replays to our email list. If you're an existing investor, they go out to you via InvestNext as well. They get uploaded to blackswan team.com forward slash updates. And then they also get uploaded to our public YouTube channel. So when in doubt, you can just go to YouTube, search for Black Swan Real Estate. You'll find our channel and you'll see all of the updates there. We wish all of you a happy spring. Thank you for dealing with me today as I sat. I think this is the first time I've ever had to exit a quarterly update. So appreciate your flexibility and Nick, appreciate you carrying the load a lot more for me today. We look forward to seeing you in our next quarterly update. We'll have a picture of a beautiful baby girl to share with you in that update and lots of updates for the portfolio then as well. Until then, you all take care.

unknown 1:24:06

Bye.

SPEAKER_02 1:24:07

Bye, everyone. Thank you for being here.