Warren Commercial Building

Blackburne & Sons is pleased to present this Purchase Money First Mortgage secured by a 13,829SF office building on a 2.8-acre parcel, located in Macomb County, Warren, Michigan.

The borrower is purchasing the subject property for $675,000 and will bring $240,000 cash to closing, plus closing costs.

COUNTY INFORMATION

Macomb County is located in the eastern portion of the U.S. state of Michigan, bordering Lake St. Clair, and is part of northern Metro Detroit. As of the 2020 Census, the population was 881,217, making it the third-most populous county in the state. Macomb County is part of the Detroit-Warren-Dearborn, MI Metropolitan Statistical Area, with the city of Detroit located south of the county's southern border. Macomb County contains 27 cities, townships and villages, including three of the top ten most-populous municipalities in Michigan as of the 2010 census: Warren (#3), Sterling Heights (#4) and Clinton Township (#10). It should be noted that the City of Detroit is not part of Macomb County, however they are less than 40 miles apart.

CITY INFORMATION

Warren is the largest city in Macomb County, and the 2020 Census places the city's population at 139,387, making it the third largest city in Michigan, and Metro Detroit's largest suburb. The median property value in Warren MI is $122,300 (a 9.49% 1-year growth), and the median household income is $49,619 (a 4.64% 1-year growth) and the home ownership rate is 69.1%.

The economy of Warren, MI employs 61,900 people. The largest industries in Warren, MI are Manufacturing (13,681 people), Health Care & Social Assistance (9,208 people), and Retail Trade (6,927 people), and the highest paying industries are Utilities ($81,534), Mining, Quarrying, & Oil & Gas Extraction ($73,750), and Management of Companies & Enterprises ($67,500). The city is home to a wide variety of businesses, including General Motors Technical Center, the United States Army Detroit Arsenal, home of the United States Army TACOM Life Cycle Management Command and the Tank Automotive Research, Development and Engineering Center(TARDEC), the headquarters of Big Boy Restaurants International, and Asset Acceptance.

SUBJECT PROPERTY DETAILS

The subject property's neighborhood is urban in nature and bounded by Twelve Mile Road to the north, Ryan Road to the east, 10 Mile Road to the south, and John Road to the west. Major travel and commuter routes within the area of the subject property include Eleven Mile Road and Dequindre Road.

The subject property is currently vacant and consists of a 13,829SF office building on a 2.78-acre parcel. The subject parcel is irregular in shape and level in topography. The site is equipped with 65 parking spaces and it's accessibility and visibility are both average.

The subject is a one-story office/research and development property that will be owner occupied post-closing. The improvements consist of one building which was constructed in 1984 with class C Masonry construction. It has a concrete slab foundation, masonry framing, brick exterior walls and a flat / rubber roof.Interior floors consist of tile, carpet and concrete with suspended ceilings.

BORROWER SUMMARY

The borrowers are a married couple and will hold title through a Limited Liability Company. The only member of the LLC is the husband, so he will be the only one signing on behalf of the LLC. They will both provide a personal guarantee.

Working as a business owner and a homemaker, they reported a net loss of $59,681 in 2021 on their personal tax returns. In 2020, they reported a net loss of $124,905. They have not yet filed their 2022 personal tax returns. The guarantors have mid-credit scores of 699 and 758, and report a net worth of $1,315,259.

The borrower is purchasing the subject property to move his lawn care and snow business in it, as they are currently renting a space. They currently pay $42,000 a year in rent payments.

The lawn and snow business reported a net loss of $74,959 in 2021, however after adding back depreciation of $109,454 and rent payments of $42,000, their net income was actually $76,495. In 2020, they reported a loss of $198,269, however after adding back depreciation of $79,095 and rent payments of $42,000, their net income was actually a loss of $77,174.

They have not filed their 2022 tax returns yet, but did provide a 2022 P&L for their business. The P&L reports $97,045 in net income.

VALUATION SUMMARY

We hired a local MAI appraiser who valued this property (AS-IS) appraised value of $710,000. A local broker was also engaged who performed a drive-by opinion of value (BPO) who values this property AS-IS at $835,000.

At an 11.0% yield to the investors and a 61.3% LTV (AS-IS) Appraised Value and 64.4% LTV Purchase Price , 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 Tom Blackburne
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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