Morganford Road Commercial

Blackburne & Sons is pleased to present this first trust deed secured by a 6,000SF mixed-use property, on a 5,565SF parcel located in St. Louis, St. Louis County, Missouri.

The purpose of our loan will be to pay off a high-rate mortgage of $225,000 that is maturing May 1st, 2022 and to cover closing costs.

COUNTY INFORMATION

St. Louis County is located in the eastern-central portion of Missouri. It is bounded by the City of St. Louis and the Mississippi River to the east, the Missouri River to the north, and the Meramec River to the south. As of the 2019 Census Bureau population estimate, the population was 994,205, making it the most populous county in Missouri. Its county seat is Clayton and it is included in the St. Louis, MO–IL metropolitan statistical area.

As of 2009, the largest employment sectors in St. Louis County are education and health (25.2%), trade and transportation (19.6%), and professional business services (12.7%). The county also has the highest per capita income in Missouri ($49,727), and nearly one-fourth of the state workforce is employed in St. Louis County. It is home to the eighth-strongest market for technology hiring, and the world's largest concentration of plant science Ph.D.'s. Among the largest employers in the county are Boeing (16,000 employees), Washington University in St. Louis (13,200 employees), and SSM Healthcare (12,400 employees). As of 2013, Express Scripts has approximately 4,500 employees, with a planned expansion of 1,500 jobs to be added over the five years from 2013 to 2018.

CITY INFORMATION

St. Louis is the second-largest city in Missouri. It sits near the confluence of the Mississippi and the Missouri Rivers. As of 2020, the city proper had a population of 301,578, while the bi-state metropolitan area, which extends into Illinois, had an estimated population of over 2.8 million, making it the largest metropolitan area in Missouri, the second-largest in Illinois, and the 20th-largest in the United States.

The largest universities in St. Louis, MO by number of degrees awarded are Saint Louis University (3,520), Ranken Technical College (705), and Barnes-Jewish College Goldfarb School of Nursing (457).

In 2019, the median property value in St. Louis, MO was $150,700, and the home ownership rate was 44.1%. Median household income in St. Louis, MO is $47,176. The economy of St. Louis, MO employs 156k people. The largest industries in St. Louis, MO are Health Care & Social Assistance (30,676 people), Educational Services (17,162 people), and Retail Trade (13,016 people), and the highest paying industries are Utilities ($66,622), Professional, Scientific, & Technical Services ($60,146), and Information ($60,004).

PROPERTY INFORMATION

The subject property is a historical, mixed-use property originally built circa 1924 by Anheuser Busch. It is located in the “Bevo Mill” neighborhood of St. Louis City. The property is more specifically located on Morganford Road at Gravois Blvd across from the Bevo Mill. It is divided into a main level event space unit, a rear loft apartment unit, and an upper area that has not been remodeled and is suitable for storage only “as is”. The current owners will operate the event space and will utilize the rear apartment as an AirBnb. The property is zoned “F” Neighborhood Commercial. Per the appraiser, it is their understanding that the current mixed-use is a legal, conforming use of the site. Some commercial uses may require conditional permits.

The borrowers purchased this property in February 2021 for $115,000 and have spent approximately $280,000 in renovations. They did a complete renovation and all systems are new including HVAC, roof, sewer, repaired water damage, all electrical, new ceilings, new structure repair, new paint, and new light fixtures.

The commercial unit totals 3,500SF of rentable square feet and has two separate entrances. It could be leased or used as two units. The space contains open event space with historical features, bar area with adjacent seating, game room, four restrooms, and storage areas. The 1,175SF rear apartment unit was converted from a warehouse structure. The unit is “loft” in style with a semi-enclosed bedroom, open kitchen/dining/living area concept, and a high end full bathroom. This unit will be used as an AirBnb, and is to be used in conjunction with the event space. They are estimating around $35,000 in potential income per year from this AirBnb unit. The upper level contains 1,300SF, was previously used as an apartment and has a separate entrance from Morganford. This unit has not yet been remodeled and is considered to be in un-rentable condition as an apartment and useful for storage only.

The property will be open for business on March 12, 2022, and they have already pre-booked quite a few events for 2022. They will use the subject property for weddings, parties, corporate meetings, etc. Also, per the borrower the event center across the street wants to book as many events as possible into the subject facility, as they are sold out for the next 2 years. They are going to pay the borrower roughly $900 per event and supply everything. The borrower’s insurance company is requiring the borrower to have a $950,000 insurance policy on this property, due to the historical nature of the building, and construction/replacement costs.

Blackburne & Sons ordered an environmental report that came back with a moderate rating. This is due to a property roughly 2,580 feet away from the subject property that was a dry cleaner in 1965. The regulatory database report identifies this nearby site as an active Hazardous Waste Cleanup Program (HWCP) site. The site is a former dry-cleaner facility in a strip mall. Dry cleaning operations date back to at least 1965. Chlorinated solvents have been identified in soil and groundwater at concentrations that exceed risk-based target levels. The site has applied to the Missouri Department of Natural Resources’ Brownfields/Voluntary Cleanup Program (BVCP) to address these issues. Halogenated dry-cleaning solvents are highly mobile and can persist in the environment for many years. Due to the open nature of the remediation phase of this case, as well as groundwater flow possibly flowing towards the subject property, the EP considers this site a moderate risk to the subject property at this time.

BORROWER SUMMARY

The borrowers hold title through an LLC. The members of this LLC are husband and wife, and their son. Husband and wife who own 90% live in Arizona, but their son who owns 10% lives in Saint Louis and manages the property. The son will not be part of our loan, as he is only a 10% owner of the LLC.

The husband works for Hilton Hotels Vacations as a timeshare salesman, and he has a mid-credit score of 623. His wife owns and operates a marketing company and has a mid-credit score of 657. They report a net worth of $2,925,000. Their adjusted gross income for 2020 was $126,038, and in 2019 it was $164,574. They have not filed their 2021 tax return as of yet.

VALUATION SUMMARY

We hired a local General Certified appraiser who valued this property with an (AS-IS) market value of $500,000. We also hired a local realtor to perform a BPO (Broker Opinion of Value) who gave us an (AS-IS) value of $570,000-$625,000.

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.
Return to C-Loans Home Page | Return to Blackburne & Sons Home Page
Copyright © 2021 Blackburne & Sons Realty Capital Corporation. All rights reserved. (800) 606-3232