Dearborn Heights MI Warehouse Refinance

IMPORTANT UPDATE - We have restructured this deal and now have a new borrower to present to you with great credit and income. The original loan structure we presented did not sell in full, so we started calling investors for feedback. Most of the feedback that was given was that the borrower’s credit scores were too poor (low 500’s). We told the borrower we were having issues raising the necessary funds, and asked if the seller would subordinate some of the balance owed, so we could make a smaller loan. The seller and buyer are friends and talked about it.

The seller/land contract holder came up with a resolution: ” What if we did a cash out refinance with 5616 Van Born but I remained the owner and was a signatory to the loan? I have strong credit and personal financials. We could dissolve the land contract and I could instead lease the property back to him, with an option for him to buy me out of the entity upon eventual repayment of the mortgage to you. For your investors, I presume this is a far better option with me on the loan. For me, if any problems pop up I would have the ability to step in and solve them without first foreclosing from a second mortgage position.”

Our new borrower has a 778 credit score, good income and real estate experience and already owns the property. He will provide a NNN at $5,200 per month for 60 months.

George says: “This is a whole lot of real estate for a modest $360,000 loan."

Blackburne & Sons is pleased to present this First Mortgage secured by 14,456 SF, 2-unit commercial building, on a 0.81 acre parcel, located in Dearborn Heights, Wayne County, Michigan.

The purpose of the loan is to provide cash out in order to invest in other real estate projects the borrower owns and operates.

COUNTY INFORMATION

Wayne County is the most populous county in the U.S. state of Michigan. As of 2020, the United States Census placed its population at 1,793,561, making it the 19th-most populous county in the United States. The county seat is Detroit and the county was founded in 1796 and organized in 1815. Wayne County is included in the Detroit-Warren-Dearborn, MI Metropolitan Statistical Area. It is one of several U.S. counties named after Revolutionary War-era general Anthony Wayne.

According to the U.S. Census Bureau, the county has a total area of 673 square miles (1,740 km2), of which 612 square miles (1,590 km2) is land and 61 square miles (160 km2) (9.0%) is water. Its water area includes parts of the Detroit River and Lake St. Clair. Wayne County borders on Oakland County and Macomb County to the north, Washtenaw County to the west, Essex County, Ontario, Canada to the east, and Monroe County to the south. The eastern (and sometimes southern) boundary is a water boundary in the Detroit River and Lake St. Clair with Essex County, Ontario. Automotive traffic crosses this boundary at the Detroit-Windsor Tunnel and the Ambassador Bridge. Due to the southwestern course of the river, this small portion of Canada actually lies to the south of Wayne County. The southern communities of the county are usually referred to as "Downriver", in reference to their location downstream of downtown Detroit.

CITY INFORMATION

Dearborn Heights is a city in Wayne County in the U.S. state of Michigan. An inner-ring suburb of Detroit, Dearborn Heights is located about 12 miles (19 km) west of downtown Detroit. The city shares a small border with Detroit, and is considered a bedroom community. As of the 2020 census, the city had a population of 63,292. According to the United States Census Bureau, the city has a total area of 11.75 square miles (30.43 km2), of which 11.74 square miles (30.41 km2) is land and 0.01 square miles (0.03 km2) (0.09%) is water. The southern portion of the city is in the watershed of the north branch of the Ecorse Creek (also known as Ecorse River). The area surrounding the Ecorse is subject to flooding. The northern portion of the city is in the Rouge River watershed.

In 2021, the median property value in Dearborn Heights was $134,800, with a homeownership rate of 70.7%, and the median household income was $$55,190. The economy of Dearborn Heights, MI employs 25.2k people. The largest industries in Dearborn Heights, MI are Manufacturing (4,105 people), Retail Trade (3,928 people), and Health Care & Social Assistance (3,846 people), and the highest paying industries are Management of Companies & Enterprises ($90,050), Utilities ($70,938), and Finance & Insurance ($69,164).

SUBJECT PROPERTY DETAILS

The subject property is located at the north end of Van Born Court and is identified as tax parcel number 33 044 99 0005 701. The subject site is a 0.81-acre parcel and is a one-story, owner occupied, office property. The improvements consist of one building which was constructed in 1956. The site is irregular in shape and level in topography. It should be noted that the property is located in both A and B flood zones. The site is improved with a 14,456SF mixed-use commercial building with two units. The building is equipped with a concrete foundation and concrete block exterior walls. It also has a flat, rubber roof and painted drywall interior.

There are currently 3 tenants in this property. One unit is occupied by an indoor skate park. It consists of 7,000SF of skate park space and an office space. The 2nd space is occupied by an LED light business. This unit consists 6,000SF of warehouse and 1,500SF of kitchen, office and bathroom space. The 3rd tenant is subleasing 4,000SF of this unit to a licensed medical cannabis grower. It should be noted that our borrower (the owner of the property) is not an owner in any capacity of this cannabis business. This tenant just started leasing the property in February of 2024.

At the close of escrow, our borrower will be leasing the entire subject property to the owner of the LED business. It will be a NNN lease for 60 months at $5,200 per month.

BORROWER SUMMARY

The borrower holds title to the property through an LLC that was formed in 2018, and is the sole owner/member. He is married but his wife will not be on our loan or on title. Our guarantor will also provide a personal guarantee on our loan. The guarantor self-reports a net worth of $13,675,658 and has a mid-credit score of 778. His 2022 personal tax return reported adjusted gross income of $155,528. His 2021 personal tax return reports adjusted gross income of $1,084. The borrower has not yet filed 2023 tax returns.

Our guarantor owns several properties and businesses. He is the founder and President of a real estate company, which was founded in 2005. He is a licensed residential builder and Real Estate Broker with an educational background in Economics and Real Estate Finance. Since transitioning the company to real estate full time, he has overseen the redevelopment of more than 150,000 square feet of vacant, blighted property in and around the local market, with a total of about 370,000 +/- square feet currently under the company’s management.

The new borrower had this to say about his relationship with the original borrower, now the lessee: "I was introduced to Drew a handful of years ago by a close family friend. I had just finished remodeling the Van Born property for the first time and he was interested in renting it. That worked well for a while, then he wanted to buy it. We set up the original land contract deal and all went well. Now we want to finish that transaction but he needs more time to structure things in a way that allow for traditional bank financing. So I am helping him to make that transition, but trying to do so in a way that allows me to step in and easily solve any issue if anything doesn’t go smooth. I find Drew to be trustworthy and straightforward. I don’t want to go too far out on a limb unprotected, but he does have my respect based on his track record. "

VALUATION SUMMARY

We hired an MAI appraiser who valued this property (AS-IS) Appraised value of $950,000. A broker was also engaged who performed a drive-by opinion of value (BPO) who suggested a list price of $525,000.

At a 11.0% yield to the investors and a 37.9% 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.

ACCREDITATION STANDARDS

Please note this offering is a SEC Regulation D filing and will be done through a Private Placement Memorandum. In order to invest, you must be an accredited investor. Generally speaking, an accredited investor is an individual:

(a) whose individual income exceeds $200,000 in each of the past two years, with reasonable expectation of reaching the same going forward OR
(b) whose joint income with spouse exceeds $300,000 in each of the past two years OR
(c) your NET WORTH exceeds $1,000,000 (exclusive of your primary residence) OR

If you plan on investing through an entity, the entity can qualify if ANY of the following are met:

(a) all equity owners must be accredited OR
(b) any trust with more than $5,000,000 in assets OR
(c) ERISA with either $5,000,000 in assets OR a bank, insurance company, or registered investment advisor as it's trustee OR
(d) any self directed ERISA with an accredited investor(s) making the business decisions OR
(e) an IRA owned by an accredited investor

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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