Stratford Avenue Funeral Home

Angela says, “Is this our favorite property type? Probably not. But, when reviewing this offering note that the subject property is reported to be in good condition, with recent renovations, as well an independent appraisal and local broker feedback supports this 55% LTV first mortgage. Another strength to consider when reviewing this offering is that the borrower has been operating this business that occupies the subject property for many years, and his ownership is/was part of a succession plan with the previous owner-operators. Finally, the borrower has income from another source for additional means to service this loan.”

Blackburne & Sons is pleased to present this new first mortgage secured by an 8,163SF, funeral home and adjacent vacant lot on a 0.56 acre parcel, located in Bridgeport, Connecticut.

The proceeds of this $250,000 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.

COUNTY and CITY INFORMATION

Fairfield County has a classic waterfront core-city orientation on the Southeast side, and central to the county is the City of Bridgeport. Bridgeport was originally settled in the late 1600’s, and was that time that Bridgeport became established as an important port to the area. It was initially established as a trading post, thence evolved to a seafaring/industrial center and ultimately began to incorporate important industrial and residential components. It was a deep water port, which offered an efficient alternative to English settlers at the time.

The port town grew into a city and continued to grow at an exponential pace. The advent of the Industrial Revolution, and the growth of industries in core cities, allowed the city’s growth to explode. This influence expanded into the neighboring community of Stratford and, to a limited extent, into Fairfield. Although the neighboring suburbs remained predominantly farmland by the turn of the 20th Century, this area was one of the most important industrial centers in the Northeastern United States.

As of 2017, the population of City of Bridgeport was reported by City-Data.com to be 8,931. The immediate area of where the subject property resides is noted to slowly improving, with some properties being remodeled and/or modified.

SUBJECT PROPERTY DETAILS

The borrower purchased the subject property in January 2002 for $195,177. This purchase was determined not to be an arm’s length transaction. The appraiser notes that the purchase was reportedly for a portion of the property which the borrower did not already own from the estate of the Isaac family, for whom he had been training with in the business. Currently, the occupant/tenant of the subject property is the Baker-Isaac Funeral Home.

The property that will secure this loan consists of two separate contiguous sites identified as 985 and 997 Stratford Avenue; funeral home and vacant land used for parking for the funeral home. The building overall is designed as a standard residential funeral home, and provides a gross floor area of 8,163SF and a net finished area of 4,576SF. The first floor contains 2,396SF and provides multiple rooms including viewing areas and family rooms. The upper floor is 1,721SF and is utilized as an office and quasi-residential capacity. The remaining 459SF pertains to the basement for body preparation. Overall, per the appraiser, the layout and design is modern, efficient and highly marketable, and the general quality of the property is modern and good.
The land attributable to the property consists of two contiguous sites totaling 0.56 acres or 24,394SF. 985 Stratford Avenue (0.29 acres) is the location of the funeral home and some parking, while 997 Stratford Avenue (0.27 acres) is utilized entirely for parking purposes.

This property is currently secured by a blanket loan that will be paid in full with proceeds from this loan AND from proceeds from another loan being offered by Blackburne & Sons, secured by another funeral home owned and operated by the same principal.

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, our borrower 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 subject property at $450,000 AS-IS. ($390,000 for the building and $60,000 for the adjacent parking lot/excess land). We also engaged a local commercial broker who drove by the subject property and performed an AS-IS opinion of value of $400,000-$420,000.

At a 9.0% yield to the investors, a 56.0% 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 George Blackburne IV
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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