East Liberty Road Industrial

Blackburne & Sons is pleased to present this purchase money first trust deed secured by a 2,000 SF industrial building located on a 2.53 acre parcel, located in Clements, San Joaquin County, California.

The borrower is purchasing the subject property for $515,000, and will be putting down approximately $154,500 plus closing costs. After the close of escrow, the borrower will open a Boat and RV Storage business on the subject property.

Blackburne & Sons currently holds the note on this property. The prior loan was made in October 2021 to a different set of borrowers, who are now selling the property.

San Joaquin County comprises the Stockton, CA Metropolitan Statistical Area. According to the 2020 census, the population was 770,631. San Joaquin County is bordered by the Sierra Nevada Mountains to the east and the Pacific Coast Range and San Francisco Bay to the west. It is also bordered by Sacramento and Stanislaus counties to the north and south, respectively. There are seven cities in the county, including Stockton, Lathrop, Lodi, Manteca and Tracy. The area’s main thoroughfare is Interstate 5.

The San Joaquin Valley first received acclaim for gold discovery, then for world-leading watermelon production, and now for grape production. San Joaquin County, the city of Tracy in particular, is becoming a popular locale for industrial and commercial clients. Fueling this growth are low property prices, expansion out of the Bay Area, freeway access, and residential growth.

Diversification of the economic base has historically brought in jobs and money to San Joaquin County. While agriculture and government remain important base components, new businesses are coming to this region made desirable by a complete transportation network and affordable housing. However with the last downturn in the economy, unemployment rates increased in the area and property values declined. Population and development figures indicate that San Joaquin County is continuing to grow at a limited rate. Continued employment diversification and economic growth is anticipated to slowly improve based on the overall improvement of the economy.

The subject is located in Clements, California, within the San Joaquin County. The immediate area features a mix of light industrial, agricultural land, supporting retail, and limited residential development. The major arterials are defined as commercial with a concentration of small retail plazas, fast food vendors, restaurants, and service-related uses. Clements was laid out in about 1872. The founder, Thomas Clements, gave the community his name. A post office has been in operation at Clements since 1882.

SUBJECT PROPERTY DETAILS

Built in 2006, the subject property is an industrial warehouse property totaling 2,000 SF of NRA located on a 2.53 acre site. The improvements are in average condition and have a remaining economic life of 35 years based on the appraisers estimate. It is noted that approximately 10,750 SF of the subject site is asphalt paved and is in average condition, where the remaining site area is gravel paved. The subject is a single tenant design that will be owner-occupied at the close of escrow.

The subject property has access to water via a well on site, septic, electric services via PG&E, and gas via PG&E. At the southwestern corner of the site there is a landlocked, 10’ x 10’ square parcel. This parcel, 021-200-21 represents a cell tower. The cell tower leases will be transferred to our borrower at closing. There is an easement on the southwestern boundary of the subject site totaling 7,475 SF granting access to the small parcel. As such, there is no additional income generated from the cell tower. The appraiser notates that this 7,475 SF is considered unusable land in this analysis, and it is assumed that the area of the unusable land provided is correct.

The subject property has good access to Highway 88, and access to Highway 99 approximately 12 miles west via Liberty Road. The nearest Greyhound bus station is located in downtown Lodi as is the Amtrak-Lodi station. Major airports within the proximity to the subject include Stockton Metropolitan Airport, located approximately 25 miles southwest of the subject.

It is noted that a portion of the subject site is zoned General Agriculture (AG-80), however the majority of the subject site is zoned Crossroads Commercial (C-X), which allows a very limited number of permitted commercial or industrial uses. The AG-80 zoning permitted uses include single family dwellings, small farm employee housing units, small group care facilities, small emergency shelters, family food production uses, educational animal project uses, family day care homes, crop production uses, and farm produce stands. As such, the subject’s industrial use is also considered a legal non-conforming use within this zone.

The subject’s use is permitted via a conditional use permit specific to the subject development. Based on the appraiser’s interview with the San Joaquin County Planning & Zoning Department, the subject is permitted for its current use with site approval to have leisure equipment sales and repair. The subject could be rebuilt if destroyed, as long as the foundation is still intact and construction commences within 12 months. After that timeframe, all new construction would need to conform to the current zoning.

The borrower is a married couple who will hold title to the property individually. He is a Fire Captain for the Contra Costa County Fire District and she is a Veterinary Technician. They will both keep these jobs and the subject property (RV & Boat Storage) will be their side business.

Our borrowers report a net worth of $1,702,957 and have mid-credit scores of 799 and 800. They reported $139,490 in adjusted gross income for 2021, and in 2020 reported $116,704 in adjusted gross income.

We hired a local MAI appraiser who valued this property (AS-IS) appraised value of $515,000. A local broker was also engaged who performed a drive-by opinion of value (BPO) who values this property at $485,000-$510,000.

At an 8.0% yield to the investors and a 70.0% LTV (AS-IS) 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 Justine Smith
555 University Ave., Suite 150, Sacramento, CA 95825
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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