Hood River Land II

Angela says, “Today we present to investors an 11% yield, interest-only loan secured by land in Hood River, Oregon. The borrower is an experienced developer in the area that purchased the subject property in 2019 and has since positioned the property to develop 11 townhomes on the 0.55 acres. Development of the 11 townhomes has not yet commenced, as the borrower is currently developing another residential subdivision in the area, where a portion of the proceeds from this loan will be allocated. Any remaining proceeds from this loan will be allocated to the vertical construction at the subject site. In addition to the 11% yield, interest-only option that some investors are seeking, did I mention that the guarantor has a 700+ mid-credit score and this loan is underwritten at a 40% LTV (as-is, based on MAI appraisal)? One could make a strong argument this would be a reasonable option for your portfolio.”

Blackburne & Sons is pleased to present this $308,000 first trust deed secured by a 0.55 acres of land located in Hood River, Oregon.

This loan is a cash out refinance, where funds for the refinance will be allocated mainly to the development of another residential development project in Hood River, Oregon by the borrower. The remaining liquidity will be allocated to begin development of the 11 townhomes that are planned for the subject land. More on this below. Blackburne & Sons is currently working on funding for the other land deal, which will be known as Hood River I, but final due diligence reports are not yet complete.

Hood River is a small town in northern Oregon and is the county seat of Hood River County. Despite being hundreds of miles from the sea, Hood River is actually a port city on the Columbia River and is roughly an hour drive (62 miles) from Portland, the largest city in Oregon. Per the 2010 census, Hood River had a population of 7,167, which was a 25.9% increase in population since the 2000 census. Hood County, as of the 2010 census, reported a population of 22,346.

As more people move out of major cities and into suburbs, Hood River may be an option for new residents, thus enhances the attractiveness of the pending residential development in the area. Per the appraiser, future demand for the market area appears to be stable and economic viability appears to be above average. He goes onto say that “due to limited supply of land available for future development, the population of the neighborhood is projected to remain stable with growth driver by availability of additional housing product rather than economic conditions”.

The main economic drivers of Hood River are tourism, primarily wind surfing and kite boarding on the nearby Columbia River, and agriculture. In fact, Hood County is the world's leader in Anjou pear production. In recent years, there has been some growth in the aerospace sector as Institu and Hood Technologies (subsidiary of Boeing) moved into the area. These companies build components of military drones, such as stabilized camera turrets, and infrared sensors.

The subject property consists of a 0.55 acre, or 23,958SF, parcel that has approved plans to develop 11 townhomes, along with a private access road that leads to the back-side of the property. Each lot will be roughly 1,200SF and have 20 feet of frontage along Wasco Avenue. The townhomes will be roughly 1,500SF-1,800SF, with a mix of 4 bedroom / 2.5 bath and 3 bedroom / 2.5 bath units. After completion, the borrower anticipates selling each townhome between $459,000 and $489,000.

The property was purchased in 2019 for $400,000. Since purchase, the appraiser notes that $213,315 in soft costs for residential development has been spent. The plans for the 11 townhomes were received in June of 2020 and approved just this month. When asked why the borrower selected Hood River, OR for his next development, he cited the close proximity and ease of travel to Portland via I-84, and the high demand and low inventory of housing as the main factors.

In order to facilitate the borrower's plans of building one (or more) homes, selling them off individually, and then rolling the proceeds into the next property, the borrower has requested to include a partial release clause in the terms of this loan. This partial release will include the requirement for the borrower to pay down a portion of our loan, as individual lots are sold.

Title to this property is held through an Oregon limited liability company and the principal of this entity will personally guarantee this loan (“Guarantor”). The LLC reports income under the Guarantor's personal tax returns on his Schedule C, as this LLC is a single-member entity.

The Guarantor is a married man, whose primary business is land / property development. In 2019, the Guarantor reported a net income of $197,696 and $101,140 in 2018. He has a reported net worth of $4,631,628 (exclusive of businesses owned) and a 735 mid credit-score. The Guarantor has been developing properties since he was 18, and started his own company at 22. Per the bio he provided, he has worked on homes ranging in price from $250,000 to over $2,000,000. Note that his new wife (just married in 2019) will not be guaranteeing this loan and they do not file tax returns together.

A local MAI appraiser was engaged, who valued the subject property at $770,000 (AS-IS). Additionally, we engaged a local commercial broker who completed a drive-by inspection of the subject property to conclude an AS-IS opinion of value range of $800,000 - $850,000.

At a 11.0% yield to the investors, a 40.0% LTV (AS-IS) this appears to be a reasonable investment. Investing in any first security deeds 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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