Rose's OYO Hotel

Blackburne & Sons is pleased to present this first trust deed secured by a flagged, OYO brand, 20-room, 7,533SF hotel on a 2.60-acre parcel, located in Willcox, Cochise County, Arizona.

The proceeds of this $250,000 loan will go towards paying off the matured first trust deed of $127,400, with the remaining cash out to be used for rehab. This rehab includes, room upgrades, new outdoor patio, equipment, parking lot maintenance and reimbursement for principal pay down. The borrower just paid a $40,000 principal pay down to the current lender at the end of December 2021 in order to extend their current loan and allow them time to refinance.

COUNTY INFORMATION

Cochise County is a county located in the southeastern corner of the U.S. state of Arizona. It is named after the Native American chief Cochise. The population was 131,346 at the 2010 census. The county seat is Bisbee, while the most populous city is Sierra Vista. Cochise County borders southwestern New Mexico and the northeastern Mexican state of Sonora. It is also home to the Douglas Port of Entry, the second busiest commercial port of entry in Arizona.

CITY INFORMATION

Willcox is a city in Cochise County, Arizona, United States. The city is located in the Sulphur Springs Valley, a flat and sparsely populated drainage basin dotted with seasonal lakes. The city is surrounded by Arizona's most prominent mountain ranges, including the Pinaleño Mountains and the Chiricahua Mountains. Willcox is located on the traditional, unceded homeland of the Chiricahua Apache people. Willcox celebrates its visiting fowl – the cranes and other species migrate to the area each winter – with an annual festival, Wings Over Willcox, that draws human visitors from around the world.

With a 2020 population of 3,551, it is the 70th largest city in Arizona and the 5740th largest city in the United States . Willcox is currently growing at a rate of 0.25% annually but its population has decreased by -5.48% since the most recent census, which recorded a population of 3,757 in 2010. Spanning over 6 miles, Willcox has a population density of 578 people per square mile.

The average household income in Willcox is $48,398 with a poverty rate of 24.08%. The median rental costs in recent years comes to $576 per month, and the median house value is $75,800.

Primary access to the area is provided by I-10, a major Interstate freeway. Access to the subject from I-10 is about two minutes. Overall, vehicular access is good. The Cochise County Airport is located about 3.0 miles southwest of the property; travel time is about five minutes. Major employers that generate demand for the residential communities surrounding the subject include Fort Huachuca, Cochise County, the local school district and agriculture. Wilcox has a growing wine industry and more than 75% of the state's grapes are grown in the city. The daytime population of the area within three miles of the property is estimated by Environics to be 4,892.

Built in 1948, the subject is an existing hotel property containing 20 rooms and has a gross square footage of 7,533. The site area is 2.60 acres, or 113,110SF. There are (6) six single rooms, (8) eight double rooms, (6) six king rooms, and a 2,556SF manager’s living space, office and storage. The guarantor’s do live on-site, so they can closely manage the property.
All guest rooms offer minimal amenities, including bed(s), dresser, arm chair, one TV, bedside tables and lamps. Rooms additionally feature a mini refrigerator, microwave, alarm clock and a hair dryer. Per appraiser, the improvements are of average quality construction and are in average condition. The quality of the subject is considered to be consistent with that of competing properties, and maintenance appears to have been consistent with that of competing properties. Overall, the market appeal of the subject is consistent with that of competing properties, considering lack of amenities. The borrower purchased the subject property in September 2018 for $279,400.

What is OYO? OYO Hotels & Homes is a full-fledged hotel chain that leases and franchises assets. The company invests in capex, hires general managers to oversee operations and customer experience, and generates around a million job opportunities in India and South Asia alone. See a copy of the franchise agreement in the due diligence package.
According to the most recent mid-year forecast from Marcus & Millichap, the U.S. hotel industry has been making a comeback from the lows of April 2020 when average occupancy was 24.5% to over 60% occupancy as of June 2021. The increase has had a positive impact on ADR’s pushing them to within 20% of 2019 averages. The annual U.S. occupancy rate is expected to rise and average 56.2% in 2021, with ADR and REVPAR expected to achieve rates of $110.83 and $61.29 respectively.

BORROWER SUMMARY

Our borrower is a corporation, that currently holds title to the property, and has one member (wife). In 2020, the Corporation reported $30,596 in net income. This number rises to $60,104 after adding back depreciation and interest. In 2019 the Corporation reported $559 in net income, but rises to $22,741 after adding back depreciation and interest.

Our guarantor’s are a husband and wife, and both will provide a personal guarantee. They report a net worth of $740,566 and have mid-credit scores of 740 and 761. He works as a machinest for Simflo Pumps, while she manages and operates the hotel. In 2020, they reported $59,281 in personal adjusted gross income, and in 2019 reported $15,355 in personal adjusted gross income.

VALUATION SUMMARY

We hired a local MAI appraiser who valued this property with an AS-IS appraised value of $520,000 (AS-IS).
We also hired a local realtor to perform a BPO (Broker Opinion of Value) who gave us an AS-IS value of $443,938.

At a 7.0% yield to the investors and a 48.1% LTV (AS-IS) 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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