Wheat Ridge Commercial

George says, “With several more states legalizing medical and even recreational marijuana, the risks of a sudden Federal crackdown is materially fading. You folks know that I am not a big fan of trust deeds with a double-digit net yield; but here the marijuana business is probably profitable enough for the borrowers to afford the payments.”

Blackburne & Sons is pleased to present this new first security deed loan secured by a 4,890SF single-tenant flex industrial building on 0.57 acres, located in Wheat Ridge, Jefferson County, Colorado.

Jefferson County is included in the Denver-Aurora-Lakewood, CO Metropolitan Statistical Area. Located along the Front Range of the Rocky Mountains, Jefferson County is adjacent to the state capital of Denver. As of the 2010 census, the population was 534,543, making it the fourth-most populous county in Colorado.

Wheat Ridge is a western suburb of Denver, approximately 5 miles west-northwest of the Colorado State Capitol. Wheat Ridge grew from a popular rest stop for travelers during the Gold Rush of the late 1850s, to the agricultural and suburban community now known as the “Carnation City”. Between 2000 and 2010, the city’s population decreased from 32,913 to 30,166, a decrease of 8.3%. However, according the United States Census Bureau, the estimated population as of 2016 is approximately 31,372, a 4.0% increase from 2010.

The Denver MSA has a gross metropolitan product of $157.6 billion in 2010, making it the 18th largest metro economy in the United States. In 2015, Denver ranked No. 1 on Forbes' list of the Best Places for Business and Careers. The largest private employer is UCHealth, with 16,989 employees.

The subject property consists of a 4,890SF single-tenant flex industrial building situated on 0.57 acres. Built in 1964, the subject property operates as a cannabis cultivation facility. The interior is fully built-out as office/cannabis cultivation space. In October of 2015, the borrowers purchased the property for $600,000. In 2015 to 2018, $683,000 in renovations were performed. This included interior paint, tile flooring, HVAC, upgraded electrical system, fencing, and converting the garage to cultivation space.

The purpose of this loan is to refinance the property in order to pay past due taxes, business debts, and remodeling costs. Currently, $350,000 is to be paid to the IRS, $247,617 to an existing private lien, and the remainder to various business debts.

Our borrowers will be holding title through their LLC, which is the real estate holding company. Three men and one woman will personally guarantee this loan. Their operating entity is a corporation called Beddor Claude LLC, which was incorporated in late 2013, and produce and process recreational cannabis. Beddor Claude LLC reported a total taxable net income of $2,010,020 for 2017 and a total taxable net income of $1,554,256 for 2016.

It is to our office’s understanding that the cannabis industry has a unique way of reporting income for tax purposes. Section 280(e) of the Internal Revenue Code disallows deductions on federal income tax returns associated with the trafficking of Schedule 1 drugs, such as cannabis, so many expenses that other businesses in the country can write off (marketing expenses, for example) cannot be deducted to reduce taxable income. Functionally, this means that taxable income is closer to gross income, than to net income. It is important to note that Blackburne & Sons is not a qualified tax preparer, or an expert in this field. Therefore, please contact a trusted advisor to confirm the above.

The above information is relevant to this offering given when comparing tax returns to the 2018 year-to-date profit and loss, the net income between the two are drastically different. The 2018 net income as of September 30th is reported to be $510,117, vs the taxable income in 2017 of $2,010,020.

Guarantor #1 is the Chief Financial Officer of the operating entity. She reports a $4,325,992 net worth and has a mid-credit score of 688. Her 2017 personal taxable income was $592,468, and reports 2016 personal taxable income of $524,940.

Guarantor #2 is the Chief Operating Officer of the operating entity. He reports a net worth of $156,000 and has a mid-credit score of 765. His 2017 personal taxable income was $518,414, and reports 2016 personal taxable income of $461,341.

Guarantor #3 is the Chief Compliance Officer of the operating entity. He reports a net worth of $418,680 and has a mid-credit score of 670. His 2017 personal taxable income was $485,929, and reports 2016 personal income taxable of $426,408

Guarantor #4 is the Chief Executive Officer of the operating entity. He reports a net worth of $103,000 and has a mid-credit score of 658. His 2017 personal taxable income was $507,826, and reports 2016 personal taxable income of $449,688.

We engaged a local MAI appraiser who valued this property at $1,100,000. We also engaged two local brokers who performed an opinion of value. They each valued this property at $846,631 and $850,000. In speaking with the brokers, their opinion of value does not include any consideration of income.

As always, please be sure to read all due diligence reports provided. In this case, we bring to your attention that while the subject property is clean with no environmental concerns per the environmental report was obtained with this loan, there is an open matter on an adjacent property. EScreen Environmental has recommended no further action or research after their review of the information but be sure to read this report for details on this matter.

At a 66.0% LTV and a 11.0% yield, this appears to be a reasonable investment. Investing in any First Security Deeds involves substantial risk. A large and prolonged decline in real estate values is possible. Be sure to read the Risk Factors section of the Offering Circular carefully before investing. Foreclosed commercial properties almost always need to be renovated before they can be leased or sold, so be sure to maintain some liquidity.

THE LOAN OFFERED HEREBY IS A CANNABIS LOAN THAT WILL BE SECURED BY A PROPERTY UTILIZED TO GROW, MANUFACTURE, PROCESS, DISTRIBUTE OR DISPENSE CANNABIS OR CANNABIS RELATED PRODUCTS. THIS LOAN INVOLVES SIGNIFICANT ADDITIONAL RISKS NOT ATTRIBUTABLE TO LOANS UNRELATED TO THE CANNABIS INDUSTRY AND SUCH LOANS ARE NOT SUITABLE FOR ALL INVESTORS. POTENTIAL PURCHASERS OF FRACTIONAL INTERESTS IN THIS LOAN MUST REVIEW AND UNDERSTAND THE INFORMATION SET FORTH IN THE OFFERING CIRCULAR ENTITLED "ADDITIONAL RISKS AND CONSIDERATIONS OF CANNABIS RELATED LOANS" PRIOR TO INVESTING. PURCHASERS OF INTERESTS IN THIS LOAN SHOULD ALSO CONSULT THEIR OWN LEGAL COUNSEL AND INVESTMENT ADVISORS WITH RESPECT TO THESE RISKS TO DETERMINE IF AN INVESTMENT IN THIS LOAN IS APPROPRIATE FOR THEIR PARTICULAR RISK TOLERANCE PROFILE AND FINANCIAL SITUATION.

You should spread your trust deed 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.

Blackburne & Sons Realty Capital Corporation--For more information, contact Angela Vannucci
4811 Chippendale Drive, Suite 101, Sacramento, CA 95841
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Bureau of Real Estate -- License Number 829677 -- NMLS Number 103430
Publicly advertised to California residents only under California Department of Business Oversight business plan permit.
Return to C-Loans Home Page | Return to Blackburne & Sons Home Page
Copyright © 2018 Blackburne & Sons Realty Capital Corporation. All rights reserved. (800) 606-3232