Agora Gentlemen's Club

Blackburne & Sons is pleased to present this first mortgage secured by a 5,437SF retail property (Gentlemen’s Club) on a 2.383-acre parcel, located in Erie Township, Monroe County, Michigan.

The purpose of our loan is pay off a land contract , and promissory note, for a total of $163,000, that mature on February 18, 2022. In addition, part of our loan will be used to pay the delinquent 2020 taxes of $7,599.53 and the due, but not yet delinquent 2021 taxes of $7,416.10. The remaining funds will be used to cover closing costs.

COUNTY INFORMATION

As of the 2020 Census, Monroe County has a population of 154,809 and its largest city and county seat is Monroe. The county was established as the second county (after Wayne County) in the Michigan Territory in 1817 and was named for then-President James Monroe. Monroe County contains nine public school districts. There are approximately 23,000 students in public schools in Monroe County. Public school district boundaries are not conterminous with the county boundary or any municipality boundaries within the county. Monroe County is a "district of choice" county, and students have the option to attend any district in the county, even if they do not live within a particular district.

In 1974, the Monroe Power Plant, currently the fourth largest coal firing plant in North America, opened. At 805 feet (245 m) tall, the dual smokestacks are visible from over 25 miles away and are among the tallest structures in the state. In 1929, Newton Steel opened a manufacturing plant on Lake Erie in Monroe, and this plant would later be purchased by Alcoa in 1942, Kelsey-Hayes in 1947, the Ford Motor Company in 1949 and subsequently under their Visteon division in 2000 and later as the Automotive Components Holdings in 2005. The top five major employers of the MSA are ProMedica (1,738 employees), DTE Energy (1,251 employees), Johnson Controls Inc. (1,060 employees), The Mall of Monroe (909 employees) and Yanfeng Automotive Interiors (815 employees).

CITY INFORMATION

Erie Township is a civil township of Monroe County who’s population was 4,517 at the 2010 census. Sharing a southern border with the city of Toledo about 35 miles south of the city of Detroit, the township is one of the southernmost areas included in the Detroit–Warren–Ann Arbor Combined Statistical Area (Metro Detroit).

The median income for a household in the township was $52,442, and the median income for a family was $59,089. As of the census of 2000, there were 1,789 households and 1,343 families residing in the township. The population density was 201.1 per square mile. There were 1,917 housing units at an average density of 79.5 per square mile. Per the appraiser, population in this area is projected to have a stable slight increase. This has a stabilizing effect on retail and services related real estate demand. This trend is projected to continue into the foreseeable future. The subject property is a free-standing, owner-user retail building (bar/restaurant) and appears to conform well with surrounding neighborhood infrastructure and support services. The market is adequate to support the use of the subject, and no influx of population or increase in median incomes is expected in the near term.

PROPERTY INFORMATION

The subject property is an owner-occupied 5,437SF retail property (gentlemen’s club) known as Agora Gentlemen's Club. The neighborhood is a suburban area that is commercial in nature along primary thoroughfares and residential along secondary streets, which appears to be stabilized in nature with forecast minimal changes in both population and households. The 3-mile radius around the subject is trailing the overall market in terms of median income. Overall, the neighborhood should continue to have a similar operating environment over the next five years.

The building is in good condition, of average quality and tenant appeal, was built in 1955 and was most recently renovated in 2021. The property features a covered outdoor bar/seating area and external cooler, not included in the gross building area calculation. The site consists of a 2.383-acre (103,803SF) parcel. The current owner purchased the subject via land contract in January 2019 for $230,000 or $42.30 PSF. At the time of purchase, the borrower put $90,000 down. In addition, he purchased the business for $60,000, with a $10,000 deposit. Since then, ownership has invested $253,600 in renovations which include: renovated bathrooms, locker room and dance room, creation of an outdoor bar/seating area, new HVAC systems, and installation of an electronic sign.

The subject is currently built out as a bar/gentlemen’s club, per the approval, but could easily be converted to a restaurant and or sports bar. The build out of the subject as a gentlemen’s club (VIP room, booths, no windows, etc.) could be considered to adversely impact the marketability of the improvements for an alternate use, which is addressed in the appraisal valuation sections. Overall, the quality, condition, and functional utility of the improvements are rated as above average for their age and location.

BORROWER SUMMARY

The borrower is a single man and will hold title through his LLC, which is a real estate holding company. The borrower owns another LLC which runs the business. He leases from one LLC to the other for $5,500 per month. In 2020, the LLC reported a loss of ($13,770), however, after adding back rent and mortgage payments, the borrower had a net income of $85,470. In 2019, the LLC reported net income of $9,506. After adding back rent and mortgage payments, the LLC had net income of $69,506.

We pulled a tri-merge credit report on this borrower and all three scores came up as N/A, however the broker pulled an Experian report which shows a credit score of 648. Copies of both reports will be provided in the due diligence package. The borrower reported a net worth of $4,079,000. In 2020, he reported $37,951 in adjusted gross personal income, and in 2019 reported $62,476 in adjusted gross personal income.

VALUATION SUMMARY

We hired a local General Certified appraiser who valued this property with an (AS-IS) market value of $450,000.
We also hired a local realtor to perform a BPO (Broker Opinion of Value) who gave us an (AS-IS) value of $799,900 - $849,900.

At an 8.0% yield to the investors and a 50.0% LTV (AS-IS) Appraised Value, 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.
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