Blue Gill Bar & Grill

Angela says, “This is a 60% LTV purchase-money first mortgage, with the borrower coming to closing with $60,000+ cash and has a 6-month payment reserve. The subject property’s market value is supported not only by the purchase price, but an MAI appraisal and a local broker’s opinion of value. Also, the borrower is a seasoned restaurant owner/operator, as well has been employed by the City of Columbus for the past 21 years, with $111,000 cash in the bank for the down payment and operating capital. At a 60% LTV and a 10% yield, with a 6-month payment reserve, this may be one to consider to add to your private-money trust deed/mortgage portfolio.”

Blackburne & Sons is pleased to present this purchase, money first mortgage secured by a 2,936SF, freestanding restaurant, on a 1.023-acre parcel located in Columbus, Ohio.

Borrower will be using this first mortgage to purchase the subject property; purchase price $300,000. The seller will be holding a $60,000 2nd mortgage (to be subordinate) for 60-months, at a Note rate of 9%, with interest-only monthly payments of $450. Borrower will be coming to closing with $60,000, plus closing costs.

COUNTY and CITY INFORMATION

The subject property resides in Franklin County, the most populous county in the state of Ohio. Franklin County’s seat is Columbus, which is also Ohio’s state capital. Established on April 30, 1803, less than two months after Ohio became a state, this county was named after Benjamin Franklin. This county is also home to one of the largest universities in the United States, The Ohio State University, where our very own George Blackburne IV is an alumni. As of fall 2017, the school had an enrollment of 59,837 students on the main campus.

According to the U.S. Census Bureau, the county has a total area of 544 square miles, of which 532 square miles is land and 11 square miles (2.1%) is water. The county is located in the Till Plains and the Appalachian Plateau land regions. Franklin County is full of beautiful neighborhoods, as well as 19 Metro Parks with more than 200 miles of trails. It has a critically acclaimed food scene and top-ranked attractions like the Columbus Zoo and its neighboring water park.

As previously mentioned the City of Columbus is the state capital and the most populous city in Ohio. With a population of 892,533, as of 2018 estimates, it is the 14th-most populous city in the United States and one of the fastest growing, large cities in the nation. Named for explorer, Christopher Columbus, the city was founded in 1812, at the confluence of the Scioto and Olentangy rivers, and assumed the functions of state capital in 1816.

Columbus has a diverse economy based on education, government, insurance, banking, defense, aviation, food, clothes, logistics, steel, energy, medical research, health care, hospitality, retail and technology, and reportedly employs 476,000 people.

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SUBJECT PROPERTY DETAILS

The subject property is a 2,936SF vacant restaurant building that was formerly a fast food restaurant. After purchase the borrower will complete minimal repairs to the building and will re-open her restaurant, the Blue Gill Bar and Grill. Estimated cost of improvements to get open is $1,800. Per borrower, seller made approximately $85,000 of improvements in 2014, so the work needed for her is minimal. More on this later.

Constructed in 1978, originally as a Rax Restaurant, the interior is basically configured into a large open dining area, a small modular office and rear kitchen area, as well as two restrooms. The rear kitchen area is painted perimeter drywall with vinyl coving, rubberized flooring and includes a walk-in refrigerator. The restrooms are painted perimeter drywall with moisture resistant wainscot panels and are reportedly ADA complaint (unconfirmed by Blackburne). Plumbing fixtures are of average quality, including wall hung China sinks and metal grab bars.

The 1.023-acre parcel has a trapezoidal shape and is generally level in topography, with 40 parking spaces and adequate drainage, as noted by the appraiser. The subject property lies within property within a Zone X, an area of minimal flooding, where flood insurance is not required. It has adequate frontage and access throughout the community. With a remaining economic life of 15 years, the subject is concluded to be in fair/average overall condition.

BORROWER SUMMARY

Title to this property will be held through an LLC and the principal of this entity will personally guarantee this loan (‘Guarantor”).
The Guarantor is an unmarried woman, with a reported net worth of $367,239 and has a mid-credit score of 616. She has been employed by the City of Columbus for 21 years working as in Administrative Support, and has owned and operated the Blue Gill Bar & Grill since 2008. In late 2019 her landlord lost the property where she ran her restaurant in foreclosure and she was forced to close and relocate.

For 2019, the Guarantor’s taxable income was reported as $61,269, which consists of $36,519 in personal wages, $22,422 from the restaurant and modest amount of $3,912 as pension distribution. Personal income for 2018 was $79,620, which includes $35,577 of personal income and $47,391 in net business income from Blue Gill Bar & Restaurant.

Our borrower was previously running the Blue Gill Bar & Grill at another location. Her landlord lost the property to foreclosure in 2019, causing our borrower to close. She will be reopening in this new location, thus the reason for the purchase of this property. Only a few small renovations to the property, including painting the interior and adding a bar which will require plumbing only, are planned.

Borrower has provided not only proof of funds for the $60,000 down payment, but also that she has additional cash reserves for operating capital during the time she re-opens.

VALUATION SUMMARY

A local MAI appraiser was engaged, who valued the subject property at $300,000 (AS-IS). Additionally, we engaged a local commercial broker who completed a drive-by inspection of the subject property to conclude an AS-IS opinion of value of $325,000. Given valuations were completed pre-COVID Shelter in Place orders, our office reached back out to the local commercial broker for an updated opinion of value. As of early July, 2020, the local commercial broker provided a range of $325,000 to $350,000, AS-IS for the subject property.

Purchase price of the subject property is $300,000. This loan will include a seller second in the amount of $60,000, and the borrower will be coming to closing with $60,000, plus closing costs.

At a 10.0% yield to the investors, a 60.0% LTV (based on AS-IS MAI appraisal and purchase price) this appears to be a reasonable investment. Investing in any first mortgages involves substantial risk, so be sure to read the Risk Factors section of the Offering Circular carefully before investing. A large and prolonged decline in real estate values is possible. Foreclosed commercial properties almost always need to be renovated before they can be leased or sold, so be sure to maintain some liquidity.

You should spread your mortgage investment portfolio out among lots of different deals. If you have $300,000 to invest, you should invest $10,000 to $20,000 in 15 to 20 different fractionalized first trust deeds. For example, if the deal is a $300,000 first trust deed on an office building in Boise, with a $15,000 investment you would own 5% of the loan. By spreading your money out into a bunch of different deals, you are achieving the diversity of a fund without the failed fund sponsor problem. If you are extremely wealthy, you could double (or even triple) my suggested investment amounts, but be careful about pouring too much money into a single deal. We once had a whole building fall into an old coal mine. Ouch.
Be wise and resist investing in any first trust deed yielding more than 9%. I would personally never invest in a first trust deed with a double-digit yield. The payments slowly grind the borrowers into the dust.
Blackburne’s Law theorizes that a portfolio of 8% and 9% first trust deeds will outperform a portfolio of 11% and 12% first trust deeds over a seven-year term. Only our wisest (and eventually the happiest) investors listen to me.
You can also buy some of our smaller deals in their entirety, but I only recommend this if you are richer than Crassus.
It is very easy to lose money in hard money first mortgages, so fight-fight-fight against the temptation to invest in high-yield deals. As Nancy Reagan used to say, “Just say no.” But if you choose 7% to 9% first mortgages, I predict that you will be very, very pleased.
During the S&L Crisis, commercial real estate fell by 45%. Within three years, values reached new highs. During the Dot-Com Meltdown, commercial real estate fell by 45%. Within three years, values reached new highs. During the Great Recession, commercial real estate fell by 45%. Within three years, values reached new highs. Some time in the next decade, we will have another opportunity to snatch up prime commercial real estate at a huge discount. You will be terrified, but when Blackburne and Sons invites you to join a syndicate to buy a nice commercial property at a 35% discount off its prior high, just remember that the best time to invest is when blood is running in the streets. Why not when real estate has fallen by 45%? You’ll never catch the very bottom because historically the bounces off the bottom happen much too fast. Bounce-soar. You will be terrified, but just remember that the best time to invest is when blood is running in the streets.

Blackburne & Sons Realty Capital Corporation--For more information, contact Angela Vannucci
4811 Chippendale Drive, Suite 101, Sacramento, CA 95841
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Department of Real Estate -- License Number 829677 -- NMLS Number 103430
Publicly advertised to California residents only under California Department of Business Oversight business plan permit.
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