Sacramento Free-Standing Retail Buildings

George says: "This could be one of the best hard money loans we have offered in several years. The property is fully leased. The leases are long-term. Our borrowers run a business right next-door. The property is close to our office. The borrowers have an excellent outside income. They have very good credit. They have a ton of their own money in the deal. Like I said, this could be one of the best hard money loans we have offered in several years."

Blackburne & Sons is pleased to present this First Trust Deed secured by a two fully leased retail buildings totaling 6,384SF on 3.68-acres of land, located in Sacramento, California.

The purpose of this loan is to pay off a maturing loan of $1,050,000 and cover closing costs.

COUNTY INFORMATION

Sacramento County is a county located in the U.S. state of California. As of the 2020 census, the population was 1,585,055. Its county seat is Sacramento, which has been the state capital of California since 1854. Sacramento County is the central county of the Greater Sacramento metropolitan area.

CITY INFORMATION

Sacramento County is the central county of the Greater Sacramento metropolitan area. The county covers about 994 square miles in the northern portion of the Central Valley, on into Gold Country. Sacramento County extends from the low delta lands between the Sacramento River and San Joaquin River, including Suisun Bay, north to about ten miles beyond the State Capitol and east into the foothills of the Sierra Nevada Mountains. The southernmost portion of Sacramento County has direct access to San Francisco Bay. Since 2010, statewide droughts in California have further strained Sacramento County's water security.
Sacramento County was one of the original counties of California, which were created in 1850 at the time of statehood. The county was named after the Sacramento River, which forms its western border. The river was named by Spanish cavalry officer Gabriel Moraga for the Santisimo Sacramento (Most Holy Sacrament), referring to the Catholic Eucharist.

Alexander Hamilton Willard, a member of the Lewis and Clark Expedition, is buried in the old Franklin Cemetery. The Sacramento Kings are an American professional basketball team based in Sacramento, California. The Kings compete in the National Basketball Association as a member of the Pacific Division of the Western Conference.

NEIGHBORHOOD DETAILS

The neighborhood is located within the City of Sacramento and in the unincorporated area of Sacramento County, in a community known as South Sacramento. The neighborhood is considered a suburban location. The neighborhood is about seven miles southeast of the Sacramento Central Business District. Land uses within the subject neighborhood consist of a mixture of commercial and residential development.

The immediate area surrounding the subject is an older area of development consisting primarily of commercial developments along Stockton Boulevard, Mack Road, and Florin Road, and single and multifamily residential uses along feeder streets. Most of the surrounding development was built during the 1970s and 1980s. Retail and commercial uses can be found along the major corridors including Florin Road, Mack Road, Franklin Boulevard, and Stockton Boulevard.

The largest retail use in the neighborhood is the Florin Towne Center, located along Florin Road just east of Highway 99, less than two miles north of the subject. The development is anchored by a Wal-Mart Super Center, PetSmart, 24-Hour Fitness, and Sears.

The former Florin Mall was demolished with the exception of the Sears anchor department store. This newer retail development serves the local community and opened in late 2008. Office and industrial uses are otherwise sparse within the subject’s neighborhood. Industrial uses are primarily found just northeast of the subject’s neighborhood in the adjacent Power Inn area. The subject location is surrounded by commercial and residential development with most retail and service commercial located along major thoroughfares.

SUBJECT PROPERTY DETAILS

The subject is comprised of two retail buildings, totaling 6,384SF, on two contiguous parcels located at 7431 and 7439 Stockton Boulevard in Sacramento, California. The property is only a 15 minute drive from our office.

The improvements were constructed in 1945 and have been renovated over the years, with the most recent renovations in 2023 prior to the existing tenants moving into the spaces. The two parcels have a total gross site area of 160,300SF or 3.68-acres.

The property at 7431 Stockton Boulevard is comprised of a 4,560SF retail building, currently leased to a feed supply store. The lease expires on December 31, 2033. The lease indicates the leased site area is 27,000SF of the total 91,040SF site area. This tenant pays $5,000 per month, which started in February 2024.

The property at 7439 Stockton Boulevard is comprised of a 1,824SF service commercial building, leased to a tire shop. This lease expires on July 15, 2033. The lease indicates the leased site area is 9,500SF of the total 69,260SF site area. This tenant pays $4,613 per month, which started July 2023. The rent increases every year.

Given that the total leased site area of 36,500SF is less than the total gross site area of 160,300SF, there is excess land in the amount of 123,800SF or 2.84-acres. The borrower just signed a new lease with a truck driving school that that will utilize this excess land. The lease is from October 1, 2024 through August 30, 2027. This tenant will pay $2,400 per month, with yearly increases.

Our borrower purchased the subject property on September 27, 2022 for $1,075,000 or $168.39 PSF. At the time of sale, only 7431 Stockton Boulevard was occupied by an owner/user, who according to the current owner, needed to move his business closer to the Redding area and approached the current owner about buying the properties.

Per the borrower, the property sat vacant for 2 years prior to his purchase. He had to clean up of both properties, renovate them and prepare for tenants. Since the sale, current ownership has invested approximately $400,000 into renovating both buildings and signed new 10-year leases with tenants for each building.

The renovations that were done to the building located at 7431 Stockton Blvd were: Exterior $26,000, Interior $29,000, Roof $11,000, AC/Heat $8,000, for a total of $76,000. The renovations that were done to the building located at 7439 Stockton Blvd were: Exterior $23,000, Interior $25,000, Roof $6,000, AC/Heat $7,000 for a total of $61,000. The renovations done to the Parking Lot and Common Area consist of: Fence/Gate - New and Repairs $12,500, Parking Lights - Replace and Repairs $6,500, Parking Gravel/Asphalt Paving $50,000, for a total of $69,000. Removal of broken and non-operative equipment and cleanup of both properties -$155,000, demolition of previous structures/buildings without permits- $45,000.

BORROWER SUMMARY

Our borrowers are husband and wife and hold title to the property as joint tenants.They own and operate a drug testing lab for truck drivers, in the neighboring property. Their net income for the lab business was $281,829 in 2023 and net income for 2022 was $565,235.

They self-report a net worth of $4,836,178 and have mid-credit scores of 793 and 789. The subject property’s income and expenses are reported on the personal tax returns through a Schedule E. Only one tenant was in the property in 2023 (July), so the income was light. Per their personal tax returns, the adjusted gross income for 2023 was $18,071 and was $383,885 in 2022. The borrower’s explanation for the drop in income for 2023 is “These numbers reflect adjusted gross income. In 2023 we had higher depreciation expenses and other write offs (refer 1040 Schedule E).” The borrower reported over $106,000 in depreciation for the year 2023.

VALUATION SUMMARY

We accepted an appraisal with an AS-IS value of $2,380,000. It is important to note that the borrower ordered this MAI appraisal. After our review, we attempted to have this report re-certified and put into Blackburne & Sons' name. Unfortunately, the appraiser was not willing to re-certify the appraisal in our name. As a result, Blackburne & Sons is NOT the client of the appraiser, therefore limiting any and all recourse to the appraiser for their work. For this reason, we have ordered two Broker Price Opinion's (BPO) from two, local independent brokers.

BPO #1 came in with a value of $1,595,000. BPO #2 came in with a value of $2,700,000.

At a 10.0% yield to the investors and a 46.5% LTV (Appraised Value), 69.4% LTV (BPO #1), and 41.0% LTV (BPO #2), 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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