Main Street Funeral Home

Angela says, “Today we present a 37.4% loan-to-value (LTV) first mortgage, secured by a recently renovated commercial property and in a location, location, location that is reportedly in area of active revitalization, funded by both the private and public sectors. In addition, the tenant of the subject property (which is affiliated to the borrower) has been occupying and operating at this location since the 90’s, which may be an indication of the tenant’s ability to survive economic cycles/recessions. If LTV and location may be something you consider when choosing a mortgage offering, please consider this 9% yield offering to add to your portfolio.”

Blackburne & Sons is pleased to present this new first mortgage secured by a 3,851SF funeral home on 0.17 acres located in Norwalk, Connecticut.

The net proceeds of this $360,000 loan will go towards payment in full of a matured $346,000 note that blankets three properties; the subject property, another funeral home and a single-family residence. This loan will be one of the two loans offered by Blackburne & Sons for this borrower.

The subject property is located in the southwest portion of the State of Connecticut within affluent southwest Fairfield County. The southwest Fairfield County market is bound to the east by Bridgeport and Trumbull on the banks of the Housatonic River, beyond which is the Connecticut Valley Region and the New Haven regional market. It is more specifically located in the southeasterly most portion of the regional core of Norwalk, within what is historically known as the evolving/desirable South Norwalk (“SoNo”) neighborhood. As of 2017, the population of City of Norwalk was reported by City-Data.com to be 32,243.

The region’s history can essentially be seen as dating back to the founding of Connecticut in the later 1600’s. The neighborhood saw the predominance of development occur in the latter 19th/early 20th centuries, but over the past decade, has seen nearly $500 million dollars in redevelopment, development, gentrification and other revitalization efforts, per the appraiser. The primary arteries, including its frontage road identified as South Main Street, but also neighboring Washington Street and Water Street, are improved in a mostly mixed-use capacity.

Per appraiser, this is a community which continues to demonstrate ever-improving, growing and expanding socio economic influences, which has a positive impact effect on the market as a whole and property values. This can be expected to continue in the near and foreseeable future. Overall quality levels for the most part, are good and improving.

SUBJECT PROPERTY DETAILS

The subject property is occupied by a funeral home business (Baker-Isaac Funeral Services), related to the borrowing entity. The history of the property theoretically dates to 1890 when the building was originally constructed as a single-family residence. The property was used as a single-family residence until abandoned in the early 1990’s. Subsequently, it was purchased in the mid 1990’s and remodeled into a funeral home it is today. Since, the property has gone through numerous periods of remodeling and modifications, and is zoned Neighborhood Business (NB) and, per the appraiser, the current use is legal, conforming.

With a gross area of 5,134SF and a net finished area of 3,851SF, this two-story structure (with basement) reportedly provides Class A+ quality standards. The first floor consists of the public funeral home, offices are on the second floor and then storage, office and body preparation areas are located in the basement. The interior provides poured concrete floors with ceramic tiling, carpet and other material covering, wood framed partitioning, finished sheet rock walls and finished sheet rock ceilings. Mechanical systems are fully modern, recently upgraded and wholly sufficient in the capacity it serves.

Overall, the subject property demonstrates no signs of deferred maintenance or the need for aesthetic attention. The quality of the building is stated to be very good, according to the appraiser.

BORROWER SUMMARY

Title to this property is held through a single-member LLC, a real estate holding company, and is occupied by the borrower’s funeral home business under an S Corporation. A lease between related entities is inked for $12,000 per year. The borrowing entity, i.e. LLC, does not file tax returns, given it is a single-asset, single member LLC. Given that, rental income for the subject property is reported on the principal’s Schedule E of his personal tax returns. More on that below.

Tax returns provided for operating entity, i.e. corporation, for 2018 report $96,334 in net income and $118,058 for 2017 in net income, after adding back depreciation for both tax years.

The principal of both entities, i.e. the LLC and corporation, will provide a personal guarantee. The guarantor for this loan serves as the Funeral Director and is a State Representative in the State of Connecticut. In 2003, he was elected to the Democratic Town Committee where he served for two years, in addition to serving as a Planning and Zoning Commissioner. In 2005, he was elected to the Common Council for the City of Bridgeport 139th East End District where he served for 8 years. He served on the Education and Social Services Committee, Public Safety and Transportation Committee and the Miscellaneous Matters Committee. In 2013, Representative Baker was elected to serve on the Bridgeport Board of Education, where he served on the board for two years before being elected to serve in the Connecticut General Assembly as State Representative to Connecticut’s 124th Assembly District. He was sworn into this first term in 2015 and continues to represent the 124th District, which incorporates the east end of Bridgeport.

In 2018, the guarantor reported a taxable income of $69,589, and for 2017, a taxable income of $112,791. He also states a net worth of $2,645,732 and has a mid-credit score of 549.

VALUATION SUMMARY

A local, MAI appraiser was engaged who valued the property at $735,000.00 AS-IS. We also engaged a local commercial broker who drove by the subject properties and performed an AS-IS opinion of value, concluding a value of $675,000 - $700,000.

At a 9.0% yield to the investors, a 37.4% LTV (based on appraised value), this appears to be a reasonable investment. Investing in any first mortgages 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 Angela Vannucci
4811 Chippendale Drive, Suite 101, Sacramento, CA 95841
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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