Broken Arrow Commercial

THE LOAN OFFERED HEREBY IS A CANNABIS LOAN THAT WILL BE SECURED BY A PROPERTY UTILIZED TO GROW, MANUFACTURE, PROCESS, DISTRIBUTE OR DISPENSE CANNABIS OR CANNABIS RELATED PRODUCTS. THIS LOAN INVOLVES SIGNIFICANT ADDITIONAL RISKS NOT ATTRIBUTABLE TO LOANS UNRELATED TO THE CANNABIS INDUSTRY AND SUCH LOANS ARE NOT SUITABLE FOR ALL INVESTORS. POTENTIAL PURCHASERS OF FRACTIONAL INTERESTS IN THIS LOAN MUST REVIEW AND UNDERSTAND THE INFORMATION SET FORTH IN THE OFFERING CIRCULAR ENTITLED "ADDITIONAL RISKS AND CONSIDERATIONS OF CANNABIS RELATED LOANS" PRIOR TO INVESTING. PURCHASERS OF INTERESTS IN THIS LOAN SHOULD ALSO CONSULT THEIR OWN LEGAL COUNSEL AND INVESTMENT ADVISORS WITH RESPECT TO THESE RISKS TO DETERMINE IF AN INVESTMENT IN THIS LOAN IS APPROPRIATE FOR THEIR PARTICULAR RISK TOLERANCE PROFILE AND FINANCIAL SITUATION.

George IV Says: "There are several reasons to like this deal. The first, is that the property was recently renovated. Per the borrowers, they have completed $82,600 since early 2020. The second is that the borrowers have 700+ credit. While past performance does not guarantee future performance, borrowers with stronger credit scores tend to make their payments on time. Lastly, the borrower was paying $5,030 a month to his previous lender and never missed a payment. Our loan will have a lower payment, and so theoretically the borrower should be saving money."

Blackburne & Sons is pleased to present this first mortgage secured by a 3,050SF retail/commercial building on a 0.63 acre parcel located in Broken Arrow, Tulsa County, Oklahoma.

The guarantors are refinancing this property to pay off an existing matured note of $381,000, closing costs, and to provide cash out to reimburse themselves for improvements previously made to the property.

The Tulsa Oklahoma Metropolitan Statistical Area (MSA) is in northeastern Oklahoma. It is comprised of seven counties, including Tulsa, Rogers, Osage, Okmulgee, and Pawnee Counties. According to the 2010 census, its population was 937,478. The Tulsa, OK MSA has long been a regional employment center, as well as the economic engine of eastern Oklahoma. The region has diversified from energy exploration businesses to include sectors of aerospace, telecommunications, and manufacturing. Air transportation is provided by Tulsa International Airport, approximately eight miles northeast of downtown Tulsa. Per appraiser, total employment has increased annually over the past decade in the state of Oklahoma and in the area by 0.9%. From 2018 to 2019 unemployment decreased in Oklahoma and in the area by 0.2%. In the state of Oklahoma unemployment has decreased over the previous month by 0.1% and decreased by 0.8% in the area.

Broken Arrow is a suburban community for the Tulsa, OK metropolitan area’s workforce. As of July 2019, the population was 401,190, an increase of 11,129 since the 2010 Census.The city’s economy is supported by the utilities, healthcare, telecommunications, and wholesale/retail trade industries. Due to the city’s location, Broken Arrow is influenced by the Tulsa, OK metropolitan area’s economic trends. Retail presence consists of restaurants, shopping centers, entertainment venues, big-box stores, and locally owned businesses. Broken Arrow is home to a wide range of businesses and industries. Some of the city’s notable employers are Flight Safety International, FedEx Ground, Blue Bell Creameries, Windstream Communications. The subject property is in northern Broken Arrow approximately 8 miles south of Interstate 44 and 6 miles east of U.S. Route 64.

The subject property is a Retail/Commercial property totaling 3,050 SF of net rentable area (NRA) on a 0.63 acre site. The improvements were built in 1998, renovated in 2009 and are in average condition with a remaining economic life of 40 years, per appraiser’s estimate. The property was originally constructed as a restaurant and was converted to a Marijuana/Cannabis retail dispensary in 2020. According to the owner, approximately $82,600 in property improvements were completed since they took ownership in 2020. The property has a single-tenant design that is currently 100% owner occupied.

The subject property was inherited in January 2020. They secured short term financing to payoff siblings in a probate case. In exchange, the wife inherited all of the assets. They currently owe $381,000 on an interest only loan that matured in February 2021. The loan terms were 16%, interest-only, with a payment of $5,030 and the borrowers have provided a 12-month payment history showing they have not missed a payment. The improvements done to the property since January 2020 include new HVAC units for the roof, new siding, gutters, new drive-thru window, bank teller drawer, ceiling tiles, ceiling fans, LED lights and wires, sheet rock, paint, state of the art camera system, wall mural, exterior paint, LED sign, new outdoor sign on the front of the building. Their Cannabis operation opened in August 2020. This property provides a drive-thru window experience, and also welcomes walk-ins.

BORROWER SUMMARY

Our borrowers are a husband and wife, and hold title to the property personally. They have mid-credit scores of 754 & 771 and report a net worth of $611,855. Their 2019 1040s show a loss of ($281) and their 2018 1040s show taxable income of $57,485. The 2020 1040s have not been filed yet.

The borrowers operate two businesses. The first is the aforementioned cannabis operation. This entity is a corporation, and will be leasing the subject property from our borrowers for $6,000 per month for 11 years. This entity reported $638 in net taxable income for 2018 and $143,408 in net taxable income for 2019. A 2020 profit & loss statement was provided on their cannabis business that reports $321,620 in net income. It is important to note that this entity will not be providing an corporate guarantee due to the nature of the underlying business.

The second business is another corporation and was formed in 2012. This entity is primarily engaged in ecommerce sales on various platforms such as Amazon, Ebay and Etsy. In 2019, this entity reported a ($1,367) loss, but if you add back depreciation the taxable income becomes $49,908. In 2018, the taxable income was$13,005, and if you add back depreciation it rises to $83,412.

We hired a local MAI appraiser who valued this property with an AS-IS value of $800,000. A local broker was also engaged who performed a drive-by opinion of value and valued this property at $635,000.

At a 10.0% yield to the investors and a 60.0% LTV (Appraised Value) this appears to be a reasonable investment. Investing in any first trust deed 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 George Blackburne, IV
555 University Ave., Suite 150, Sacramento, CA 95825
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Bureau 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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