Fair Oaks Court Commercial

Blackburne & Sons is pleased to present this first security deed secured by an 8,391 SF general office building being renovated into a daycare facility on a 1.49 acre parcel, located in Jonesboro, Clayton County, Georgia.

The borrowers acquired this property in August 2021 for $825,000. At the time of purchase, the borrowers put $486,000 cash down and financed $350,000. The purpose of our loan is to provide $250,000 in renovations to the subject property and to pay off the $350,000 matured note. Blackburne & Sons will hold back all $250,000 in rehab funds.

COUNTY & MSA INFORMATION

Clayton County is located in the north central portion of the U.S. state of Georgia. As of the 2010 census, the population was 259,424. The county seat is Jonesboro. Clayton County is included in the Atlanta metropolitan area, and is the sixth most-populous county in the state. The county is home to the world's busiest airport (based on passenger traffic), Hartsfield-Jackson Atlanta International Airport. This airport employs 63,000 people.

Clayton County is part of the Atlanta MSA, which is the ninth largest MSA in the nation and the most populated MSA in the southeast with over 6,013,364 residents. In recent years, the Atlanta MSA has experienced a steady decline in the unemployment rate; from 10.6% in 2009 to 2.9% in 2019. The largest employers in the MSA include The Home Depot, United Parcel Service (UPS), Delta Airlines & Coca-Cola Company. While the COVID-19 pandemic did increase the MSA's unemployment rate in 2020, the rate is already declining back to pre-pandemic levels. In addition, the Atlanta MSA is experiencing economic growth as several major companies including Mercedes Benz, State Farm and General Electric are either moving to, or opening new offices, in the area. Per the appraisal, the Atlanta region's population is expected to increase by 2.5 million by 2040.

CITY INFORMATION

Jonesboro is an unincorporated city in and the county seat of Clayton County, Georgia. The population was 4,724 as of the 2010 census. The city's name was originally spelled Jonesborough. During the Civil War, the final skirmish in the Atlanta Campaign was fought here south of Atlanta, cutting off the city and forcing the mayor of Atlanta to surrender at Marietta in early September 1864. The final fall of Atlanta in the Battle of Jonesborough ended up being a decisive point in the nation's history, propelling Abraham Lincoln to re-election two months later, and continuing the war until the Confederacy finally surrendered the following year.

NEIGHBORHOOD INFORMATION

The subject is located at 8024 Fair Oaks Court in Jonesboro (unincorporated), Clayton County, Georgia. The neighborhood is a mix of commercial and residential. Commercial uses are situated along Fair Oaks Court, which include a church, an auto repair establishment, and a storage facility. To the north of the property is a residential subdivision, to the west is a vacant land parcel, to the east is a religious facility/day care and to the south is another religious facility.

Per the appraiser, the subject property appears to have a suitable location at the corner of a primary and tertiary roadway in Jonesboro. This area has experienced adequate growth; however, income levels are below average. Interstate access is good. The local market does not appear to have been negatively impacted as a result of the Covid-19 pandemic Overall, the neighborhood appears to support the continued economic viability of the subject. Based on these considerations, the subject neighborhood is regarded as a viable location for select types of real estate projects.

SUBJECT PROPERTY DETAILS

Built in 1995, the property consists of 8,391 square foot general office building being renovated for use as a daycare facility. The parcel is 1.49 acres. The ground level contains approximately 7,143 SF, while the upper level contains approximately 1,248 SF. The ground level is configured into a lobby/reception area, private offices, conference rooms, library, breakroom/kitchen, bathrooms, and storage areas. The upper level is configured into two separated offices. The larger upper-level office (960 SF) is accessed via an interior stairwell, while the smaller office (288 SF) is accessed via an interior spiral staircase. Additional access to this smaller space is also via the larger upper space through the attic of the building. A restroom is also situated in the smaller office space. The upper level spaces feature no windows or exterior exposure. The site includes approximately 50 parking spaces.

The borrowers acquired this property in August 2021 for $825,000. They put $486,000 cash down and financed $350,000. The borrower runs a daycare business 4 miles from the subject property and has outgrown the space there. She currently rents that space, and does not own it. Her current occupancy is 82 children.

She will renovate the new building in order to run her daycare business at the new location. Rehab will take approximately 3 months. Once rehab is done, she can expand to 200 students and will begin to offer night care as well. She has the opportunity to make much more money once she's able to house more students. Also, there is major construction going on out front of the current location she is renting, which will cause issues with drop off and pick- ups. She wants to move into the new property as soon as possible.

Proposed renovations include reconfiguring the private offices and conference rooms into child care classrooms with restrooms. Renovations also include the replacement/repair of the interior doors, drywall, flooring, plumbing, electrical, painting, and HVAC maintenance. A sprinkler/fire protection system will be installed. A playground surface will be configured on the site, which will be surrounded by a chain link fence. The budget includes line items for demolition and clean-up along with a 5% contractor's profit. No contingency allowance was estimated in the cost budget. The total renovation cost is estimated at $251,055 ($29.92/SF).

BORROWER SUMMARY

The borrower is a Corporation of which is 100% owned by one individual (wife). The guarantors are a married couple, and both will provide their personal guarantee. In 2020, the Corporation reported a loss of ($6,052). When adding back depreciation and rents paid on their previous location, they show a profit of $57,927. It should also be noted that income in 2020 was lighter than usual due to Covid shutdowns. In 2019, The Corporation reported a loss of ($64,203). When adding back depreciation of $102,138 and paid to their previous landlord of $27,854, they showed a profit of $65,789. We were provided a 2021 profit & loss statement through October 2021 that shows net income of $43,220.

They report a net worth of $1,086,126 and have mid-credit scores of 763/689. Husband and wife file taxes separately. The wife’s 2020 personal tax return reported $24,427 in total income and $24,177 in 2019. The husband’s 2020 personal tax return reports $30,678 adjusted gross income and in 2019 reported $31,214 adjusted gross income.

VALUATION SUMMARY

We hired a local General Certified appraiser who valued this property with an AS-IS appraised value of $830,000 and an ARV (After Repair Value) of $1,100,000.

We also hired a local realtor to perform a BPO (Broker Opinion of Value) who gave us an AS-IS value of $959,166 and an ARV of $1,130,298.

At an 8.0% yield to the investors and a 78.31% LTV (AS-IS) Appraised Value and a 58.56% LTV (ARV) 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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