Jerome Road Daycare

Angela says, “Today we present to investors a 60.0% LTV (based on appraised value), purchase money first security deed to a 700+ credit borrower, that has a consistent income outside of what may be generated from the subject property in rent. This is small commercial loan, on a small commercial property that has been managed by Blackburne & Sons since 2014. A new roof and recent updates/repairs have been completed, with no known deferred maintenance. This loan amount is based on the appraised value ($275,000), not the purchase price ($290,000), even though the property appraised for less. On purchase money deals, valuations can be supported by the free market, which is the case here and the borrower is coming to the table with $125,000 cash (plus closing costs) to close. At a 9% yield, this may be an appropriate deal to add a piece to your private-money lending portfolio”.

Blackburne & Sons is pleased to present this purchase money, first Security Deed, secured by a 2,447SF commercial property located on a 0.69-acre parcel in Atlanta/College Park, GA.

The proceeds of this $165,000 loan will go towards the purchase of the subject property at the agreed purchase price of $290,000. The borrower will be coming to closing with $125,000 cash down, plus closing costs.

COUNTY and CITY INFORMATION

The City of Atlanta/College Park is located in two counties, Fulton County and Clayton County. Fulton County lies in north-central Georgia in the foothills of the Appalachian Mountains. The warm, southern climate produces plentiful hardwood and pine forests, making the area a beautiful place to live. Of Georgia's 159 counties, Fulton County was the 144th to be created. Fulton County encompasses 528.7 square miles and stretches over 70 miles from one end to the other. North Fulton includes the cities of Sandy Springs, Alpharetta, Roswell and Mountain Park. South Fulton includes the suburban cities of College Park, East Point, Fairburn, Hapeville, Palmetto, City of South Fulton and Union City. The City of Atlanta lies between them. The Chattahoochee River, the source of drinking water for most of Fulton County, is one of the smallest water sources in the country relative to the size of the population it supports. This river runs out of the north Georgia mountains, bringing with it plentiful trout.

Located minutes away from the Hartsfield-Jackson Atlanta International Airport, the City of College Park provides access to all of Atlanta’s amenities while maintaining the charm of a friendly, metropolitan neighborhood. The Hartsfield-Jackson Atlanta International Airport is the economic jewel of Georgia, generating a $34.8 billion economic impact for metro Atlanta and providing more than 63,000 jobs on-site, making it the state’s largest employer. By combining business and entertainment throughout the city, College Park offers an atmosphere where residents and visitors are able to work and play. The City of College Park is home to roughly 14,360 residents and has a median property value of $154,700, with a homeownership rate of 26.6%. The economy of College Park employs 6,180 people, with the largest industries in College Park being accommodation and food services, transportation and warehousing, and retail trade. In addition to these, the highest paying industries educational services and professional, scientific and technical services.

SUBJECT PROPERTY DETAILS

The subject is in the City of South Fulton and is considered a suburban location. The area is one of the less active areas of southern metro Atlanta and other than large industrial warehouses, there has been almost no new development for several years. Residential development in the area consists largely of suburban residential tract houses developed from the 1960s to the present.

Constructed in 1955, this 2,447SF building has good visibility, is well-adjusted to its surrounding area and has a remaining economic life of 20 years. The 0.60-acre parcel is rectangular in shape and generally level in topography. According to the appraiser, there are no known easements or encroachments impacting the site that are considered to affect the marketability, or highest and best use.

The property is equipped with a concrete foundation, new composite shingle roof, wood framing, brick veneer external walls and newly constructed perimeter fencing. The interior walls and ceilings are textured / painted drywall and the flooring is tile/carpet. The property has a gravel parking lot and all common areas of the property appear to have handicap accessibility. Surrounding the property are various land uses, including office use to the North, industrial uses to the South, a police department to the East and single-family residences to the West of the subject property.

Occupancy of the subject property was been a daycare for almost 20 years. Blackburne & Sons originated a loan in 2003 to a different borrower who owned and operated her own daycare out of the property, which ended in a default and subsequent foreclosure in 2014. The owner (under the management of Blackburne & Sons) has retained ownership and leased the property in 2015 to the current tenant. Existing tenant has a consistent lease payment history, but the lease was modified/renewed June 2020 given the COVID-19 pandemic and tenant’s inability/revised operating procedures. Current lease terms are $1,500 per month, with a lease expiration of December 31, 2020. There is a 60-day lease termination cancellation clause. If/when the tenant vacates the subject property, the borrower/guarantor will occupy and operate her own daycare business in the property. More on that in the next section.

The negotiated purchase price is $290,000, and we are providing financing to the new buyer.

BORROWER SUMMARY

Our borrower is an individual who will hold title through a newly formed limited liability company (LLC), and will be providing a personal guarantee. This borrower/guarantor operates an existing daycare business in Pennsylvania since 2000.

Currently residing in Pennsylvania, our borrower plans to move to Georgia upon the purchase of this property to be with her daughter and open her 2nd daycare in the subject property. Her staff will continue operating the Pennsylvania daycare business after her move to Georgia. She will collect rental income from the current tenant (see lease terms discussed above) until either tenant or landlord (borrower) terminates the lease or lease expires, whichever comes first.

Working as a Daycare Operator, our borrower reported personal net income of $58,046 in 2019 and $58,183 in 2018. The borrower has a mid-credit score of 775 and a reported combined (personal and business) net worth of $979,394. Guarantor’s daycare business reported net income of $69,846 in 2019 and $31,368 in 2018. Even though gross income for the daycare in 2019 was less than in 2018 due to a reduction in operating hours, net income increased due to the reduction expenses/overhead directly associated with the choice to reduce hours of operation.

VALUATION SUMMARY

A local, MAI appraiser was engaged who valued the subject property at $275,000.00 AS-IS. We also engaged a local commercial broker who drove by the subject property and performed an AS-IS opinion of value (BPO), concluding a value of $367,906. Purchase price of the subject property is $290,000.

At a 9.0% yield to the investors, a 60.0% LTV (appraised value) and 56.9% LTV (purchase price), this appears to be a reasonable investment. Investing in any first security 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 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.
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