Aberdeen MS Retail Purchase

George says: “We’ve had good luck on cannabis deals; but be careful. Past performance is no guarantee of future results. This is a very small loan, so I like it a lot. Lastly, this seems like a whole lot of building (10,220SF) for a modest (dare I say lousy?) $260,000."

Blackburne & Sons is pleased to present this purchase money First Trust Deed secured by a 10,220SF retail building on a 2.5-acre parcel, located in Aberdeen, Monroe County, Mississippi.

The purpose of this loan is to purchase the subject property. The purchase price is $260,000. Due to the delay in purchasing the subject property because of the seller and his wife going to jail right before closing, the guarantors have already done all of the rehab work themselves using their own funds. We have copies of the receipts and paid invoices in the due diligence package for review. The borrower’s spent approximately $63,467 on renovations, and came in under budget from their previous budget of $83,000. Because the renovations are complete, we are no longer requiring a construction holdback and the funds will now go towards the purchase. The dispensary opened for business on January 18, 2024.

The appraisal that was ordered by Blackburne & Sons in November 2023 gave us an AS-IS value ($275,000) and an After-Repair Value ($360,000). The appraiser gave the ARV value based on the $83k rehab budget that was provided to them. Since the date of the appraisal, several issues arose that affected the acquisition of this property. The seller went to jail, forcing the property to go into foreclosure. Then the property went to auction, at which time no one bid. The lienholder has now agreed to sell the property to our borrower at the original sales price of $260,000. During this lag time, the borrower decided not to wait and decided to do the rehab work out of pocket. This was done in the amount of $63,000. In our experience, property values appreciate at about 20% after rehab work is performed. Knowing this and that the $63,000 rehab performed falls short of the original budgeted $83,000 that was provided to the appraiser, we estimate the current value today of the property today to be closer to $330,000 (as opposed to the $360,000 As-Complete value from the appraisal). The borrower will be coming to closing with approximately $69,915.90 including closing costs.

COUNTY INFORMATION

Monroe County is located on the northeast border of Mississippi, next to Alabama. Its county seat is Aberdeen and, as of the 2020 census, the population was 34,180. The county has a total area of 772 square miles, of which 765 square miles is land and 7.0 square miles (0.9%) is water.

Major highways include U.S. Highway 45, U.S. Highway 278 and Mississippi Highway 6. Adjacent counties include Lowndes County (south), Chickasaw County (west), Itawamba County (north) and Lamar County, Alabama (east). As of 1922, both the largest creamery and the largest hog-feeding plant "in the South" were located in this county. As of 2021, US Silica operates a bentonite mine located several miles south of Aberdeen, near the community of Darracott, where bentonite is extracted before being refined into petrochemicals and animal feed.

CITY INFORMATION

Aberdeen is the county seat of Monroe County, Mississippi and, as of the 2020 census, the population was 4,961. Located on the banks of the Tombigbee River, Aberdeen was one of the busiest Mississippi ports of the 19th century. Cotton was heavily traded in town, and for a time Aberdeen was Mississippi's second largest city. Aberdeen retains many historic structures from this period, with over 200 buildings on the National Register of Historic Places. In the spring of each year, Aberdeen hosts pilgrimages to its historic antebellum homes. The most prominent of these antebellum homes is The Magnolias, which was built in 1850. Located just outside the city, Aberdeen Lock and Dam forms Aberdeen Lake, a popular recreational area. Aberdeen Lock and Dam is part of the Tennessee-Tombigbee waterway system.

In 2021, the median property value in Aberdeen was $86,000, with a home ownership rate of 58.3%, and the median household income was $46,290. The economy of Aberdeen employs 1.93k people. The largest industries in Aberdeen, MS are Manufacturing (776 people), Health Care & Social Assistance (375 people), and Retail Trade (146 people), and the highest paying industries are Educational Services ($87,604), Transportation & Warehousing, & Utilities ($55,521), and Transportation & Warehousing ($53,750).

SUBJECT PROPERTY DETAILS

The subject property is a 10,220SF retail building that has previously been used as an automobile dealership, retail services/showroom, and a church on a 2.5-acre parcel. It was originally built in 1994, with a 2,550SF expansion completed in 2005. The subject is in the city of Aberdeen and is considered a suburban location. The parcel is irregular in shape and generally level in topography. It is equipped with the following utilities: Water, Sewer, Natural Gas, Electricity and Telephone. The property is equipped with an open asphalt parking lot.

The site is improved with a single story S-class construction frames, roofs and walls of incombustible metal. The foundation is reinforced concrete and the building has steel framing and a Standing-seam metal roof. The property has a retail showroom as well as a warehouse area.

The borrowers have already put roughly $63,467 into the property. Renovations included in the original $83K budget included an Interior Build out - $30,000, Architect $700, Lighting $5,500, Estimate Cost Security Doors $5,000, Bathroom (Toilet/sink/floor) Build out $4,000, Window Graphics $11,000, A/C & Heat Units/Labor + Mini-Split $13,000, Electric Completion $13,000 and Estimate Glass for Checkout Window $1,000 for a grand total of $83,200. Again, it should be noted, however, that these renovations are now complete and were done with roughly $63,467.

BORROWER SUMMARY

Our borrowers are a married woman and a single woman (aunt & niece) who will hold title to the property through a newly formed LLC. They will also be personally guaranteeing this loan. The niece owns a bakery, and her bakery LLC will also be providing a Corporate Guarantee.

The LLC that will be holding title is a real estate holding company and is a newly formed LLC. The operating entity will be a separate LLC and is also newly formed. The real estate holding LLC will be leasing the subject property to the operating entity for $4,500 per month. The operating entity is licensed as a MEDICAL cannabis dispensary.

The married woman (Niece) is an owner of a bakery. Her bakery business reported $34,514 in net income for 2022 and a loss of $81,558 in 2021. Per the borrower, the loss in 2021 is because they moved to a larger location and paid moving expenses, build out and new equipment. A 2023 profit & loss statement was provided which reports $113,068 in net income as of December 7, 2023. Her personal tax returns show a loss of $10,004 in 2022 and a gross adjusted income of $22,671 in 2021. She self-reported a net worth of $394,209 and has a mid-credit score of 547.

Per the borrower, the reason for the poor credit scores is “ Once receiving my Dispensary license, one of my competition complained about a city issue. I had to Bring suit against DOR and attorney fee ran over $80,000. Towards the end of the suit I used my charge cards to pay attorney fees. By doing this, my credit dropped from 687 to 550. The usage ratio was too high. Although my payments are always made on time on my credit still lowered”. The reason her husband will not be on our loan or personally guaranteeing is due to his top-security clearance as a contractor with the US Air Force.

The single woman (Aunt) is currently retired and reported adjusted gross income of $163,800 in 2022 and $90,361 in 2021. Being retired, most of her income comes from IRA distributions and social security benefits, according to her tax returns. She self-reported a net worth of $1,401,086 and has a mid-credit score of 764.

The guarantor’s have already been leasing the property since July 2023 for $750 per month. The original seller of this property was foreclosed upon due to the fact that he and his wife went to jail. The property went up for auction in late January 2024 and there were no bidders at the sale. Title was then given back to the note holder. Our guarantor’s are now able to purchase the subject property from the note holder and they have agreed on the same purchase price as before of $260,000. We have a new purchase contract between the parties and a new preliminary title report to provide for review.

They plan to convert the front portion of the property to a dispensary and they will also add edibles to their business using the bakery experience.

VALUATION SUMMARY

We hired a local MAI appraiser who valued this property at $275,000 AS-IS and $360,000 ARV. A local broker was also engaged who performed a drive-by opinion of value (BPO) who suggested a list price of $175,000 AS-IS.

At a 11.0% yield to the investors and a 64.8% LTV based on Blackburne’s Estimate of 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 Tom Blackburne
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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