El Paso CO Hemp Farm

Blackburne & Sons is pleased to present this first trust deed secured by a 480-acre hemp farm in Calhan, CO. The purpose of our loan will be to pay off $443,000 in business debt (to be paid from escrow), pay off a $240,000 HELOC on a rental property that is not secured by our loan, and the balance will be for closing costs and cash out.

El Paso County is one of 64 counties in the US State of Colorado. The Census Bureau’s 2020 result indicates it is the most populous county in Colorado, surpassing the city and the County of Denver. The county seat is Colorado Springs, the second most populous city in Colorado, with 730,000 residents. El Paso County is included in the Colorado Springs, Colorado, Metropolitan Statistical Area and is located in Colorado’s 5^th-congressional district.

According to the U.S. Bureau, the county has a total area of 2,130 sq mi, of which 2,127 sq mi, are land and 2.7 sq mi are covered by water.

Per Data USA, in 2019, El Paso County had a population of 720k people with a median age of 34.5 and median household income of $72,830. Between 2018 and 2019 the population of El Paso County grew from 713,856 to 720,403, a 0.917% increase and its median household income grew from $68,119 to $72,830, a 6.92% increase.

The largest universities in El Paso County, CO are Colorado Technical University-Colorado Springs (6,508 degrees awarded in 2020), Pikes Peak Community College (3,879 degrees), and University of Colorado – Colorado Springs (2,639 degrees).

The economy of El Paso County, CO employs 341k people. The largest industries in El Paso County are Health Care & Social Assistance (48,729 people), Retail Trade (34,593 people), and Professional, Scientific, & Technical Services (34,491 people), and the highest paying industries are Mining, Quarrying, and Oil & Gas Extraction ($76,692), Professional, Scientific, & Technical Services ($75,135), and Utilities ($75,135).

The city of Calhan is a Statutory Town located in El Paso County, Colorado, United States. Statutory cities have an elected mayor and city council composed of the mayor and four to six additional members elected at large. In 2019, Calhan, CO had a population of 704 people with a median age of 42.3 and a median household income of $53,500. Between 2018 and 2019 the population of Calhan, CO declined from 817 to 704, a -13.8% decrease and its median household income grew from $51,935 to $53,500, a 3.01% increase.

Calhan is part of the Colorado Springs, CO Metropolitan Statistical Area and the Front Range Urban Corridor. The town sits at an elevation of 6,535ft (1,992 meters) above sea level, Calhan is the highest non-mountain town in the United States. Calhan was established in 1888 as a water station for the non-defunct Chicago, Rock Island and Pacific Railroad, with the first steam locomotive arriving on November 5, 1888. The town was named by and for Michael Calhan, who had the contract to lay railroads tracks from the Colorado/Kansas border to Colorado Springs.

The town is home of the Calhan Paint Mines Archeological District, which is a popular natural attraction. The economy of Calhan, Co employs 323 people. The largest industries in Calhan, CO are Health Care & Social Assistance (55 people), Educational Services (43 people), and Construction (42 people). The highest paying industries are Manufacturing ($70,417), Public Administration ($70,208) and Real Estate, Rental & Leasing ($54,167).

PROPERTY INFORMATION

The subject neighborhood is located within El Paso County in the city of Calhan. The subject property consists of 480 acres of land and 31,640SF of buildings, being utilized for hemp cultivation and CBD production. The subject consists of six parcels of land, of which there are four, 40-acre parcels and two 160-acre parcels. The northwest 40-acre parcel is the only parcel improved with buildings, including a 25,000SF warehouse/greenhouse/nursery built in 2022, a 5,040SF arch-rib metal grow warehouse built in 2022, and a 1,600SF modular residence built in 2019. The remaining 440 acres is raw, agricultural grassland.

Per the appraiser, the subject is zoned agricultural purposes with a minimum lot area of 35 acres. An Industrial Hemp Registration issued by the Colorado Department of Agricultural specifies 60 acres of land and 25,000SF of the buildings are registered for Commercial Industrial Hemp Production on the subject property. It is important to note, there is no guarantee this designation would remain should we foreclose on the property.

The El Paso County Planning and Community Development Department issued a statement that hemp is considered agricultural use on an agricultural land parcel of 35 or more acres, and that a separate exemption is not required to grow and process the hemp production on the subject land.

Hemp has a variety of uses. Along with bamboo, hemp is one of the fastest growing plants on earth. It was also one of the first plants to ever be spun into usable fiber over 50,000 years ago. It can be refined into a wide range of products including paper, rope, textiles, biodegradable plastics, biofuel and even building material. Fun fact, our first President, George Washington, grew hemp on Martha's Vineyard back in 1760's!

During our due diligence, we ordered a BPO (broker's professional opinion), who provided us a value of $436,000 based on the modular home only. This was in stark contrast to the $3.4M appraised value determined by the appraiser. As a result, we ordered a second, more thorough BPO, which valued property at $1.6M. This BPO only contained the 40 acre parcel that housed the buildings, and does not appear to include any off the additional 440 acres. Given the dramatic differences in valuation, please use the more conservative value when determining the valuation risk.

Our borrower is a limited liability company that is acting as a real estate holding entity. The property is currently leased for $11,500 per month, and the lease runs in to 2032. The purpose of our loan will be to pay off $443,000 in business debt (to be paid from escrow), pay off a $240,000 HELOC on a rental property that is not secured by our loan and the balance will be for closing costs and cash out. This should free up just over $13,000/month in cash flow for the borrower (not accounting for the new mortgage payment).

The sole member of the LLC is a married man. He and his wife have mid-credit scores of 631 and 727 and report a net worth of $1,269,599. They reported gross income of $174,627 in 2021 and $173,414 in 2020. It should be noted that the borrowing entity's income is reported under the borrowers' personal tax returns. Both the husband and wife will be personally guaranteeing the loan.

We engaged a local general certified appraiser who valued this property at $3,400,000.00 (AS-IS) Appraised Value.

We also engaged two local brokers who drove by the property and took photos and performed an opinion of value (BPO). They valued this property at $436,000 and $1,600,000.

At a 55.00% LTV (BPO Value of $1.6M) and 25.88% LTV (Appraisal Value) with an 10.0% yield, this appears to be a reasonable investment. Investing in any First Trust Deeds involves substantial risk. A large and prolonged decline in real estate values is possible. Be sure to read the Risk Factors Section of the Offering Circular carefully before investing. 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 Justine Smith
555 University Ave., Suite 150, Sacramento, CA 95825
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Department 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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