Ocean Highway Commercial Building

George says,“The tenant in this medical office building is a physician, who purchased the practice from our borrower. The lease expires in 2022, but the tenant may not want to move for a few more years, when the practice transfer is more seasoned. No guarantees. Our borrowers are weak, but their net worth is ten times our loan amount.”

Blackburne & Sons is pleased to present this new first mortgage secured by a 1,960SF commercial building, on a 1.00 acre parcel, located in Pawleys Island, Georgetown County, South Carolina.

Georgetown County has a population of 65,071 and consists of the Georgetown, SC Micropolitan Statistical Area, which is also included in the Myrtle Beach-Conway, SC-NC Combined Statistical Area. The county features an average household income of $68,514 and a median household income of $44,310. The area includes a total of 28,922 employees and has a 4.6% unemployment rate. The top three industries within the county are Health Care/Social Assistance, Accommodation/Food Services and Manufacturing, which represent a combined total of 38% of the population. According to the Myrtle Beach Chamber of Commerce, the Myrtle Beach area received more than 17 million tourists in 2014.

The subject property is located in the Town of Pawleys Island. The neighborhood area, however, is generally considered to include a network of adjacent coastal planned developments and low medium density resorts that lie within Debordieu (south) and Litchfield Beach (North), stretching to the Murrells Inlet, at the southern edge of the City of Myrtle Beach. Pawleys Island's population was 103 at the 2010 census, down from 138 in 2000. Pawleys Island is known as one of the oldest summer resorts on the East Coast. Pawleys continues to be known for its shoeless, carefree, laid-back life style, which includes crabbing in the adjacent creeks, fishing, the stories of ghosts, the rope hammocks and the unspoiled, unsophisticated, casual, delightful stretch of wide beach and sand dunes.

Land uses within the subject neighborhood consist primarily of residential uses, with a mixture of low-rise, neighborhood serving commercial and residential development along the main road(s), as well as some anchored retail and institutional/medical development. The immediate area surrounding the subject is primarily developed as a series of planned retirement and coastal resort-style residential subdivisions. Development effectively ceases just 1-2 miles south, where the land is held in several large plantations, including Hobcaw Barony, a large-scale land tract granted and preserved as a biological research station.

Built in 1986, the subject property consists of a 1,960SF single-story, wood-frame building on a 1.00 acre parcel. The interior office areas are considered a typical building standard office finish. The space has a functional layout for medical uses, with a reception and waiting room, and five partitioned exam rooms, one lab space and 1-2 office spaces. The property features eight marked parking spaces in a gravel lot area. There is also substantial auxiliary/overflow space on-site that could accommodate additional parking. It is important to note that per the appraisal, the highest and best use of this property is redevelopment. In addition, the current rent for the subject property is higher than market. This is due to an agreement between our borrower (landlord) and the tenant. Our borrower sold her practice to the tenant, and part of that sale was the higher than market rental income that runs until 2022.

Our borrower is a retired doctor who will be holding title to the property via her business entity, i.e. LLC, with her personally guaranteeing this loan. The LLC currently manages two properties which are both collateral for a large bank loan. The borrower has secured bank financing for the other property, and the subject property will be security for this loan; these two loans combined will pay in full the blanket loan currently securing both. Upon payment in full of the blanket loan, this property will be released and title will be transferred to the borrowing entity (LLC) which the borrower created in 2003. The borrower has a reported net worth of $3,852,545; and a mid-credit score of 577. Per the letter of explanation, the borrower became divorced in 2014 and suffered a stroke in 2015, which prevented her from working. In 2016, her loan on the subject property was put into default, but in 2017 she was able to secure a bridge loan, which settled the debt with her mortgage lender, paid off her ex-spouse, and cleaned up any remaining liens. Taxable income for the borrower was ($54,571) in 2017, and ($125,979) in 2016. While looking at the 2017 taxes, a $123,079 net operating loss was carried over from the prior year, and when added back, her income appears to be $68,508. When we originally started this loan, 2018 taxes were not due, however as this loan has gone past the tax deadline, we have requested the 2018 returns. At the time of this bulletin they have not been filed.

We engaged a local MAI appraiser who valued this property (AS-IS) at $455,000. A local broker was also engaged to do a drive-by the property, take photos and provide an opinion of value. The broker valued this property at $425,000.

At a 9.0% yield and 65.7% LTV (Appraised Value) this appears to be a very reasonable investment. Investing in any first mortgage 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 property almost always needs to be renovated before it 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.

Blackburne & Sons Realty Capital Corporation--For more information, contact George Blackburne, IV
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.
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