South Western Commercial

Blackburne & Sons is pleased to present this purchase money first mortgage secured by two retail units (2,598SF) on a 0.07 acre parcel, located in Chicago, Cook County, Illinois.

The borrower is purchasing the subject property for $225,000, and will be putting down $78,750 plus closing costs. The buyer will be using one unit to open a 2nd location for his BBQ restaurant.

COUNTY INFORMATION

Cook County is the most populous county in Illinois, and is the second-most-populous county in the US after Los Angeles County. More than 40% of all residents of Illinois live in Cook County. As of 2019, the population was 5,150,233. Its county seat is Chicago, the most populous city in Illinois and the third-most-populous city in the United States. The county was incorporated in 1831 and named for Daniel Pope Cook, an early Illinois statesman. It achieved its present boundaries in 1839. During the first half of the 20th century, it had the absolute majority of Illinois's population.

There are more than 800 local governmental units and nearly 130 municipalities located partially or wholly within Cook County, the largest of which is Chicago, home to approximately 54% of the county's population. The part of the county outside of the Chicago and Evanston city limits is divided into 29 townships; these often divide or share governmental services with local municipalities. Townships within Chicago were abolished in 1902, but are retained for real estate assessment purposes.
Cook County is mostly urban and is very densely populated. It has a higher population than 28 individual U.S. states, and the combined populations of the seven smallest states. Per the census website, the median income (2019) was $64,660 and has a 13.0% poverty rate. The top 5 largest employers in Cook County are the US government, Chicago Public Schools, City of Chicago, Advocate Aurora Health and Cook County itself.

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CITY INFORMATION

Chicago itself is the third largest city in the country, only surpassed by New York and Los Angeles. It has a population of 2.69 million and is one of the most diverse cities in the country. It has a gross metropolitan product of just over $770.7 billion in 2020, which is more economic output than Switzerland. Chicago's economy is highly diversified and is consistently rated one of the more balanced economies in the US. In addition to the aforementioned employers, Chicago also has one of the largest science and engineering work forces in the nation.

The city of Chicago is an international hub for finance, culture, commerce, industry, education, technology, telecommunications, and transportation. It is the site of the creation of the first standardized futures contracts, issued by the Chicago Board of Trade, which today is part of the largest and most diverse derivatives market in the world, generating 20% of all volume in commodities and financial futures alone. O'Hare International Airport is routinely ranked among the world's top six busiest airports according to tracked data by the Airports Council International. The city is also home to several Fortune 500 companies, including Allstate, Boeing, Caterpillar, Exelon, Kraft Heinz, McDonald's, Mondelez International, Sears, United Airlines Holdings, US Foods, and Walgreens.

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ZONING

The subject property is zoned B3-1, Community Shopping District by the city of Chicago. The primary purpose of the B3, Community Shopping district is to accommodate a very broad range of retail and service uses, often in the physical form of shopping centers or larger buildings than found in the B1 and B2 districts. In addition to accommodating development with a different physical form than found in B1 and B2 districts, the B3 district is also intended to accommodate some types of uses that are not allowed in B1 and B2 districts. Allowable uses include retail, commercial and office uses. There is no minimum lot size requirement. The parking requirement is none for the first 4,000 sq. ft. Then 1.66 spaces per 1,000 sq. ft. The subject represents a legal, conforming use.

SUBJECT PROPERTY DETAILS

The subject property is located in the Chicago Lawn neighborhood on the southwest side of Chicago, which sits approximately eight miles southwest of the downtown Chicago business district. The population as of 2015 was reported at 55,551 (this is the most recent data available) and the neighborhood supports the continued economic viability of the subject property. The subject’s neighborhood area is comprised primarily of residential, industrial, office, retail and commercial developments. The property also appears to be in an opportunity zone (Zone number 17031835000). We are not aware of any tax incentives for investors, but should the property be foreclosed on, there may be tax incentives for potential buyers.

Built in 1988, the subject property consists of an interior parcel of land containing 5,500 SF. The site is improved with a one story, concrete block, two-unit retail building totaling 2,598 SF. Both units are currently vacant. Unit 6110 has a modest finish that can be used for general retail or office use and is 1,232 SF. Unit 6114 is a fully built-out restaurant and is 1,366 SF. There are four onsite parking spaces in the rear as well as available street parking. Per appraiser, the building is in overall average condition with no major repairs noted. Each unit has an individual forced warm air and central air conditioning unit, which are located on the rooftop. Each unit has one restroom.

Public water is provided by the City of Chicago, Wastewater is discharged via public sewer. Public companies provide telephone, gas, and electric services at prevailing rates.

BORROWER SUMMARY

The borrower will hold title to the property through a corporation, and will be personally guarantying this loan. The borrower currently owns a restaurant called South Shore BBQ & Jerk that opened in November of 2019 and he will be opening a second location in the subject property, unit 6114. The borrower claims to have a tenant lined up to lease the second space (Unit 6110) for $2,600 per month. To date, we have not seen any documentation to support this.

The borrower reports a net worth of $1,959,230 and has a mid-credit score of 699. He reports the income and expenses from his restaurant on the Schedule C of his personal tax returns. His 2020 personal tax return reports $88,270 in adjusted gross income and in 2019 reported $58,154 in adjusted gross income.

VALUATION SUMMARY

We hired a local MAI appraiser who valued this property (AS-IS) appraised value of $230,000 and $260,000 (AS-STABILIZED). A local broker was also engaged who performed a drive-by opinion of value (BPO) and values this property at $230,000-$240,000 (AS-IS).

At a 9.0% yield to the investors and a 63.6% LTV (AS-IS) Appraised Value and 65.0% LTV Purchase Price this appears to be a reasonable investment. Investing in any first trust 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 George Blackburne, IV
555 University Ave., Suite 150, Sacramento, CA 95825
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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