Chicago IL Two-Unit Office Purchase

George says: "There is a time to reach for yield - say 12% or even higher - on your trust deed investments. Right after real estate has crashed by 45% is a good example. Historically, real estate values skyrocket after reaching their nadir (low-point) in the cycle. Boom. Straight up. Go ahead and reach for high yields at that point in the real estate cycle. Right now, however, it’s been 16 years since the last market crash. It's October. The world is at war. The dockworkers want a 60%+ raise. Yikes. Maybe this is not the time to reach for yield.”

“The following deal has a paltry 9% scheduled yield. That’s a big, screaming sign that we think the deal is FAR less risky than our typical hard money loan. The loan is small. The property is pretty nice. It’s a purchase money deal, so the value of the property has been established in the open market. The buyers are putting some serious cash down, and they spent a small fortune to dig up, test, and haul away an unground heating oil tank. They are clearly committed to the property. They have credit scores over 700. They also have good-sized salaries.”

"Most important of all, they have a net worth that is TWENTY-SEVEN times the loan amount. Banks insist on a net-worth-to-loan-size ratio of 1.0. Ours is 27.."

Blackburne & Sons is pleased to present this purchase money first trust deed secured by a 2,493SF two-unit office building located on a 7,142SF parcel, located in Chicago, Illinois.

The purpose of this loan is to purchase the subject property for $221,500. It is important to note that the original purchase price was $240,000, but upon our due diligence of the subject property, it was discovered that this property had an underground storage tank, and the status of that tank was unknown. The borrower paid $2,020 for two environmental reports before the tank was discovered. The buyer and seller decided to hire a local company to remove the underground storage tank and test the soil for contamination.

The cost for the tank removal and testing was $18,500, and was a lengthy process. The buyer and seller each paid for half of this cost. Due to the extra costs association with the environmental reports, the seller lowered the purchase price by that exact amount to help offset the costs that these buyers have incurred. The buyers paid a total of $17,270 just for third party reports on this property. They are committed to purchasing this property and are bringing roughly $95,000 cash to the closing table on this purchase.

We hired an environmental company that we use for all of our reports to review all of the reports and soil samples and this was their findings:
"While no further assessment or investigation are warranted at this time, CREtelligent recommends contacting the Illinois Environmental Protection Agency (IEPA) to obtain a status update on the No Further Remediation letter, as this has not been completed per IEPA Document Explorer. "

The borrower promises to deliver said letter from the IEPA to Blackburne & Sons within 6 months of close of escrow, as this process also takes time to receive, approximately 120 days.

CITY INFORMATION

Chicago is the most populous city in the U.S. state of Illinois and in the Midwestern United States. With a population of 2,746,388, as of the 2020 census, it is the third-most populous city in the United States after New York City and Los Angeles. Chicago is the center of the Chicago metropolitan area, often colloquially called "Chicagoland" and home to 9.6 million residents.

Located on the shore of Lake Michigan, Chicago was incorporated as a city in 1837 near a portage between the Great Lakes and the Mississippi River watershed. The City is an international hub for finance, culture, commerce, industry, education, technology, telecommunications, and transportation. It has the largest and most diverse finance derivatives market in the world, generating 20% of all volume in commodities and financial futures alone.

O'Hare International Airport is routinely ranked among the world's top six busiest airports by passenger traffic, and the region is also the nation's railroad hub. The Chicago area has one of the highest gross domestic products (GDP) of any urban region in the world, generating $689 billion in 2018. Chicago's economy is diverse, with no single industry employing more than 14% of the workforce.

Chicago is a major destination for tourism, including visitors to its cultural institutions, and Lake Michigan beaches. Chicago's culture has contributed much to the visual arts, literature, film, theater, comedy (especially improvisational comedy), food, dance, and music (particularly jazz, blues, soul, hip-hop, gospel, and electronic dance music, including house music). Chicago is home to the Chicago Symphony Orchestra and the Lyric Opera of Chicago, while the Art Institute of Chicago provides an influential visual arts museum and art school.

COUNTY INFORMATION

Cook County is the most populous county in the U.S. state of Illinois and the second-most-populous county in the United States, after Los Angeles County, California. More than 40 percent of all residents of Illinois live within Cook County. As of 2020, the population was 5,275,541. The county seat is Chicago, the most populous city in Illinois and the third most populous city in the United States. The county is at the center of the Chicago metropolitan area.

In 2022, the median property value in Cook County, IL was $293,700, with a homeownership rate of 57.5%, and the median household income was $78,304. The largest universities in Cook County, IL are Northwestern University (9,725 degrees awarded in 2022), University of Illinois Chicago (8,607 degrees), and University of Chicago (7,328 degrees). The economy of Cook County, IL employs 2.6M people. The largest industries in Cook County, IL are Health Care & Social Assistance (358,958 people), Professional, Scientific, & Technical Services (286,892 people), and Educational Services (247,912 people), and the highest paying industries are Mining, Quarrying, & Oil & Gas Extraction ($103,393), Utilities ($93,185), and Professional, Scientific, & Technical Services ($88,223).

NEIGHBORHOOD DETAILS

The subject is located in the Beverly market area of Chicago, Illinois. Beverly is located on the far south side of Chicago approximately 12 miles south of the Loop. The market area is 3.19 square miles in area. The area is surrounded by Morgan Park, Mount Greenwood and Washington Heights.

The area is comprised of retail, commercial, mixed-use and single and multi-unit uses. The subject is located along the east side of Western Avenue within an area of commercial and retail uses along the south of the subject and forest preserve and golf course use to the north and west. There are single-unit uses to the east. The subject has good access and visibility.

SUBJECT PROPERTY DETAILS

The subject site is an interior, rectangular shaped parcel containing 7,142SF. The site is improved with a single-story; masonry constructed commercial office building containing 2,493SF., of gross building area, and two parcels. The subject was constructed in 1956 and is in average/fair condition. As of the date of the appraisal inspection, the subject was vacant. The common address of the subject is 8941-43 S. Western Avenue, Chicago, IL 60620.

The property is zoned B1-2, Neighborhood Shopping District, and is comprised of a single-story; masonry constructed two-tenant office building. The spaces are comprised of office area with a restroom. A pipe burst and there is some damage to drywall and flooring and plumbing needed. Overall maintenance has been average/fair. The property includes six onsite parking spaces.

The B1, Neighborhood Shopping district is intended to accommodate a broad range of small-scale retail and service uses. Allowable uses include Mixed-use developments, community homes, colleges, daycares, restaurants, offices, liquor store uses, dry cleaners and numerous other small scale service uses. The lot size requirement is based on a dwelling unit when multi-units are part of the property. There is no lot size requirement for commercial property without dwelling units. There is no parking requirement for commercial properties containing less than 4,000SF. The property is a legal, conforming use.

As previously mentioned, a pipe burst and caused some damage to the floor and ceiling and the plumbing would need repair. It was estimated that $5,000 would be needed for the wall and flooring repairs based on the visual damage and $20,000 in pluming repairs for a total cost of $25,000. Blackburne & Sons will be holding back $25,000 at closing to be sure said repairs are made to the property.

The subject property is currently vacant, however once the renovations are made to the property, they are hoping the two previous tenants will come back. The buyers have prepared potential lease agreements with those tenants, and copies will be provided in our due diligence package. Potential Tenant #1 is a Dentist and will pay $3,500 per month. Potential Tenant #2 is a counseling and mental health business and will also pay $3,500 per month.

BORROWER SUMMARY

Our borrowers are husband and wife and will hold title to the property as individuals. Both have outside jobs and income. The husband is a scientist and registered professional engineer in Illinois specializing in electrical engineering and focusing on electric utilities. He earned his BS from Arizona State University and his MS and PhD from the University of Idaho. As the Founder of an engineering design company servicing the utilities sector, and an LLC, a real estate holding and management company, he has made significant contributions to his fields. He is committed to ethical research, mentoring young engineers, and actively participates in several scientific organizations and advisory boards.

The wife is a business executive, food marketing innovation expert, and philanthropist. She holds a BS and MS in Food Science and an MBA from the University of Illinois. She co-founded the LLC, a real estate holding and management company, with her husband. As the CEO of a separate LLC, she has driven innovation and growth, earning recognition as one of the most influential women in the Food and Spirits Industry. She is dedicated to philanthropy, supporting education, environmental sustainability, and women's empowerment. She is also an avid traveler who shares insights on leadership and personal development at various forums, inspiring aspiring leaders worldwide.

They self-report a net worth of $4,704,737 and have mid-credit scores of 708 and 719. They have filed an extension for their 2023 taxes, but have provided W2’s for 2023. In 2022, their adjusted gross income was $261,789 and in 2021 their adjusted gross income was $170,942.

VALUATION SUMMARY

We hired an MAI appraiser who valued this property with an AS-IS value of $240,000 and an ARV of $265,000.

A local broker was also engaged who performed a drive-by opinion of value (BPO) and valued this property at $265,000.

At a 10.0% yield to investors and a 77.8% LTV (Purchase Price), 71.8% LTV (AS-IS Appraised Value), and 65% LTV (After Repair 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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