Paterson NJ Mixed-Use Purchase PPM

George says: "This looks like a fine hard money loan. It is a small loan, and small loans have small payments. Secondly, there are a bunch of different units. This is far less risky than a deal where a single tenant takes the whole building. Third, many of these units are residential. People always need a place to live. Lastly, this is a purchase money deal. As a result, the value of the property has been established in the open market. The buyer is also putting down cold, hard cash. There is a lot to like with this deal."

Blackburne & Sons is pleased to present this purchase money first mortgage secured by a 5,257SF mixed-use property, with 5 units, on a .06-acre parcel, located in Paterson, Passaic County, NJ.

The purpose of this $422,500 loan is to purchase the subject property in the amount of $650,000. The borrower will be coming to closing with $227,500, not including closing costs.

COUNTY INFORMATION

Passaic County is a county in the U.S. state of New Jersey that is part of the New York metropolitan area. As of the 2020 United States census, the county was the state's eighth-most-populous county, with a population of 524,118, This is its highest decennial count ever, and an increase of 22,892 (+4.6%) from the 2010 census count of 501,226, which in turn reflected an increase of 12,177 (+2.5%) from the 489,049 counted in the 2000 census. The landscape of Passaic County, near the north edge of New Jersey, spans some hilly areas and has dozens of lakes. The county covers a region about 30 × 20 miles wide. The region is split by major roads, including portions of Interstate 287 and Interstate 80, near Paterson. The Garden State Parkway cuts across the southern end, near Clifton. The Passaic River winds northeast past Totowa into Paterson, where the river then turns south to Passaic, on the way to Newark, further south.

Passaic County has a number of NJ Transit stations, including Montclair State University, Little Falls, Wayne/Route 23, and Mountain View on the Montclair-Boonton Line. The “Main Line” corridor also runs through the county and includes the following stations: Hawthorne, Paterson, Clifton, Passaic, and Delawanna. Passaic County has numerous important roads that travel within its borders. Major county roads that pass through include: CR 502 (only in Wayne), CR 504, CR 509 CR 511 and CR 513. Route 19 runs entirely through the county, connecting the Garden State Parkway with Interstate 80 and Paterson. Both Route 20 and Route 21 run along the eastern border alongside the Passaic River. Route 23 runs through the western section of the county, while both Route 3 and Route 161 go through Clifton. Route 62 also runs passes through entirely in Totowa. U.S. Route 202 runs roughly north-south only in Wayne Township while U.S. Route 46 traverses east-west. Interstate 80 (Bergen-Passaic Expressway) runs east-west through the county, while Interstate 287 passes through the mountainous sections of Passaic. The Garden State Parkway also runs through the county solely in Clifton.

CITY INFORMATION

Paterson is the largest city in and the county seat of Passaic County, in the U.S. state of New Jersey. As of the 2020 United States census, Paterson was the state's third-most-populous municipality, with a population of 159,732. This is an increase of 13,533 (+9.3%) from the 2010 census count of 146,199, which in turn reflected a decline of 3,023 (-2.0%) from the 149,222 counted in the 2000 census. The Census Bureau's Population Estimates Program calculated a population of 156,452 for 2023, making it the 168th-most populous municipality in the nation. A prominent mill town within the New York area, Paterson has been known as the Silk City for its once-dominant role in silk production during the latter half of the 19th century.[1] It has since evolved into a major destination for Hispanic immigrants as well as for immigrants from Turkey, the Arab world, and South Asia. Paterson has the nation's second-largest per capita Muslim population.

In 2022, the median property value in Paterson, NJ was $314,100, with a home ownership rate of 26.3%, and the median household income was $52,092. The economy of Paterson, NJ employs 67.5k people. The largest industries in Paterson, NJ are Manufacturing (11,106 people), Health Care & Social Assistance (11,033 people), and Retail Trade (8,546 people), and the highest paying industries are Utilities ($80,344), Public Administration ($63,750), and Information ($61,413). The largest universities in Paterson, NJ are Passaic County Community College (839 degrees awarded in 2022) and Hohokus School of Trade and Technical Sciences (230 degrees).

SUBJECT PROPERTY DETAILS

The subject property consists of one parcel with a total site area of 2,500SF (0.06 AC) and was originally built in 1939. The subject topography is level at street grade and is rectangular in shape. The site is improved with a 5-unit mixed-use building with three stories. The building has a concrete basement foundation and a flat roof with a built-up covering. Exterior walls are brick on a wood framing and are equipped with double hung windows. Interior flooring is primarily ceramic tiling with some carpet and laminate. The units are separately metered for electricity and gas (heat and cooking fuel) and the ownership is responsible for common electric, water, sewer and hot water.

The first floor of the property is the commercial unit which totals 2,000SF in size. This unit’s historical use has been a gentlemen’s club and the seller’s business will rent this unit from our borrower. The use will continue to be a gentlemen's club. The seller has signed a 15-year term lease and will be paying $4,600 per month. The monthly rent will increase by $75 per year.

The second and third floors consists of the 4 residential units. Each residential unit is 697SF and is equipped with a combination kitchen and dining room, living room, two bedrooms and one full bathroom. All units are currently leased. One of units is currently being rented for $1,200 per month, and the other three are rented for between $938 and $992.

It should be noted that this transaction might not be considered an "arm's length" transaction, as the buyer and seller have known each other for many years prior to the purchase/sale. Per the appraiser: "Retail and mixed-use is permitted in the zone. The recent use of the retail component as a cabaret/go-go bar is not permitted and is legally non-conforming; though it can continue under such use as it has not been abandoned."

It should also be noted that the appraiser used a Hypothetical condition that the retail unit is occupied with a general commercial use.

BORROWER SUMMARY

Our borrower is a single man who plans on holding title to the property via a newly formed Limited Liability Company. The borrowing entity is owned 100% by the guarantor.

The guarantor works as an Engineer for a telecom company. He self-reported a net worth of $1,594,011 and has a mid-credit score of 802. His tax returns show an adjusted gross income of $153,771 for 2023 and $147,758 in 2022. It should be noted that the borrower is not a US citizen, but he is a permanent resident and a copy of green card will be provided in the due diligence.

VALUATION SUMMARY

We accepted an appraisal done by a local MAI appraiser who valued this property with an AS-IS value of $660,000.

A local broker was also engaged who performed a drive-by opinion of value (BPO) and valued this property at $822,000.

At an 11.0% yield to the investors and a 64.02% LTV (Appraised Value) and 65.0% 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.

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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