[00:00:03] Hi, my name is Fred Gortner, I'm co-founder and head of US strategy at Paladin Realty. I want to thank you for your interest in our firm. I also want to share some information about our value-added apartment fund. This fund will invest in all of the value-added apartment investments we make this year in Southern California until the fund is fully invested. The fund has pretty attractive fees and terms compared to our typical club investor offerings. To start with, the fund will have first priority to invest in all new investments that we make ahead of our deal by deal club investors. That's a valuable right for the fund, because the equity raises on our new deals can often get filled up pretty quickly by our Keystone and our club investors, and this first priority right for the fund will continue until the fund's capital is fully invested. Second, the fund has built-in investment limitations designed to ensure balance and diversification across multiple assets, and that's an important feature for any investment strategy. The incentive fee that's payable to the sponsor, Paladin Realty - sometimes this is called in the investment world, the "general partners promote" - our promote is cross collateralized, and based on the performance of the aggregate fund portfolio rather than each individual deal. That is very attractive as well. And lastly, the preferred return is higher - the investors in the fund will receive 100% of their invested capital in the fund back, plus an 8% annual preferred return before the sponsor earns any promote.

[00:01:43] So, let's talk a little bit about the fund's strategy. It's basically a continuation of the same value-added investment strategy that Paladin has been pursuing since 1995, across 90 plus transactions and totaling over 15,000 apartment units, and nearly $800 million of total cost. And simply put, we acquire older, rundown, poorly performing Class C, Class B apartment buildings in stable working class and middle class neighborhoods throughout Southern California. We look for properties where the current rents are 20% to 30% below market. We typically capitalize our investments with conservative amounts of fixed rate debt that matches the duration of our business plans. We then renovate and upgrade each property with contemporary exterior and interior unit improvements. And then we apply professional management to optimize operations, and reduce expenses where possible, all with a goal of increasing net operating income. And then we sell or refinance the property - we harvest the value that's been created after our renovation plan is complete. And usually that's typically in 3 to 5 years from acquiring the property. This has been one of our most successful strategies to date - this Southern California apartment strategy. We've generated a 26% IRR net to investors on 83 value-added apartment investments across the US sold to date. We've never lost money in Southern California. That's an important point and let me touch further on why the Southern California apartment investments we've made have been among the best performing in our portfolio to date.

[00:03:31] There's several unique attributes of the Southern California apartment market that set it apart from other US markets, and which make greater LA a really attractive place for our strategy, particularly today. So first and importantly, there are far fewer institutional competitors like Paladin for our strategy here in Los Angeles compared to other markets. And it seems counterintuitive, doesn't it? LA is a major gateway city; it's one of the largest, most dynamic markets in the country. And yet there are relatively few institutional caliber firms like Paladin active in the apartment market here. The short reason for why that's the case is that most institutional investors view the LA apartment market as simply too management intensive. And this is because the bulk of the existing infill rental housing stock here in LA consists of lower density, smaller assets, typically 20 to 50 units in size. In fact, 85% of the existing rental housing stock here in Los Angeles is 50 units or less. So, an institutional investor would have to acquire ten times as many assets here as they would in other markets, like a Dallas, or an Atlanta, or Phoenix to achieve the same scale. So they simply avoid LA for that simple reason. There's are a lot of good videos and articles on our website that explain this phenomenon in more detail, but it's very important. Now, because of the preponderance of smaller assets here in SoCal and the resulting lack of institutional competition, the LA market is instead dominated by a huge and fragmented pool of smaller investors, typically unsophisticated investors - individuals or families that may have owned their assets for decades.

[00:05:29] We call them "mom and pop" owners for short. Most don't realize their assets are underperforming market potential. Most view rent control as a nightmare rather than an opportunity. Most don't have the knowledge, they don't have the financial resources, or even the desire to invest in their properties to optimize value. They'd rather keep capital expenditures low. They want to keep unit turnover to a minimum. And those are rational objectives for many of these investors. They don't want to spend money to make money - they'd rather run these like ATM machines. But that's what creates, really, a unique market opportunity here in Southern California for a sophisticated operator like Paladin. And if you drive around Los Angeles, you will see this second unique attribute of the LA apartment market firsthand. There is an abundance of value-added opportunities everywhere - thousands of tired, rundown apartment properties with current rents that are 20% to 30% below market potential. Now, by the way, that raises another important feature about the LA market. That 20% to 30% discount to market rents - that's called the "loss to lease", and it is rare to find such a large loss to lease in other US markets that have broad institutional ownership.

[00:06:54] Capturing that loss to lease is the essence of our value-added business plans, and it can be very profitable in a low cap rate market like Los Angeles. For example: for every $1 of increased cash flow that we can generate through value-added business plans, there's $20 to $25 of incremental value created in a 4% to 5% cap rate market - 20 to 25 fold increase in value. That's huge upside potential. And because there are fewer institutional players in this market, it means that we can often avoid auctions when buying assets. That obviously can help our returns as well. But perhaps the most important unique attribute about the Class B/C apartment market here in Southern California is the really unparalleled downside protection it provides for our strategy, especially when you compare it to similar strategies in other US markets. One of the reasons is the assets we target - these smaller, low density Class B/C assets are truly irreplaceable. It would not be feasible to develop those same assets today, given the high land costs and barrier to new constructions that exist here in Southern California. So, that gives us a huge cost advantage - typically, a 50% discount, our all-in basis, including renovations, will be a 50% discount to replacement cost and the asking rents of newer Class A apartments. You simply can't find that same discount to Class A product in other US markets, where ownership is dominated by sophisticated institutions like Paladin, and where auctions are the norm when buying assets.

[00:08:48] And because we're active in one of the most chronically supply-constrained markets in the US, we're able to target what has become a permanent renter class. These are renters by necessity, as opposed to renters by choice who typically are attracted to the Class A product. Our renters by necessity are working class, middle class households who were priced out of home ownership in this market well before interest rates spiked in 2022 and who cannot afford Class A rents, and they have no other affordable housing choices besides our properties without facing very long, typically 2 to 3 hour commutes each day. So, our properties are providing, really, an essential need to this permanent rental class - what we call workforce housing. People always need an affordable place to live, and as a result, the demand for our workforce housing assets is very resilient through all stages of a market cycle. In fact, if you look at how Class B and C apartment buildings in LA have performed during the last several recessions, they always stay filled with occupancies well north of 95%. And lastly, perhaps most importantly, because we target this permanent renter class, and because we target assets with a huge loss to lease - 20% to 30% below market, we have the pricing power to raise rents at our properties, even if market rents were to decline, even during recessions.

[00:10:33] So, in summary, all of these factors that makes the Southern California apartment market unique: the lack of institutional players like Paladin, the fact that we're buying assets from a large and fragmented pool of "mom and pop" owners who don't really know what they own. The ability to avoid auctions when buying properties. The abundance of value-added opportunities, and most importantly, the asymmetrical risk reward proposition that comes out of that. The combination of attractive upside potential, the ability to generate attractive value-added returns that are rewarded by a low cap rate market. But the unparalleled downside protection for invested equity because of the resiliency of demand and, really, the rarity of these types of assets - all of these factors are why the apartment investments that we've made to date in Southern California (and this accounts for about half of the 90 plus investments that we've made over 30 years across the US), it's why our Southern California portfolio have been among the best performing investments in good times and in bad. So, again, I want to thank you for your interest in the fund. I want to encourage you to feel free to reach out to any of us. If you have any questions, we'd be happy to talk with you more about the firm, our strategy, and this fund. Thanks very much.