Atlanta GA Medical Office Condo Refinance

George says: "I love commercial condo’s because the roof and the grounds are maintained by the condo association. This is a very attractive property. The loan is also small. Everyone should take a small piece."

Blackburne & Sons is pleased to present this First Security Deed secured by a 1,234SF medical office condo, located in Atlanta, Fulton County, Georgia.

The purpose of this loan is to pay off the current first security deed on the property in the amount of $149,000. The rest of the funds will go towards bringing current a defaulted SBA loan that encumbers their personal residence, the subject property and a commercial property that our borrowers own. The balance owed on this SBA loan is $1,387,900 and is past due by $145,000. Cash out from our loan will be bring it current. The SBA lender has agreed to stay subordinate and will remain in 2nd position once our loan is made. A letter of explanation will be provided in the due diligence package for review.

The borrower will come to closing with approximately $14,000 cash to bridge the difference in loan amount VS the payoffs.

COUNTY INFORMATION

Fulton County is a county in the north-central portion of the U.S. state of Georgia. As of the 2020 United States census, the population was 1,066,710, making it the state's most populous county and its only one with over one million inhabitants. Its county seat and most populous city is Atlanta, the state capital. About 90% of the City of Atlanta is within Fulton County; the remaining portion is in DeKalb County. Fulton County is part of the Atlanta–Sandy Springs–Roswell, GA Metropolitan Statistical Area.

Going from north to south, the northernmost portion of Fulton County, encompassing Milton and northern Alpharetta, is located in the Etowah River sub-basin of the ACT River Basin (Alabama-Coosa-Tallapoosa River Basin). The rest of north and central Fulton, to downtown Atlanta, is located in the Upper Chattahoochee River sub-basin of the ACF River Basin (Apalachicola-Chattahoochee-Flint River Basin). The bulk of south Fulton County, from Atlanta to Palmetto, is located in the Middle Chattahoochee River-Lake Harding sub-basin of the larger ACF River Basin, with just the eastern edges of south Fulton, from Palmetto northeast through Union Hill to Hapeville, in the Upper Flint River sub-basin of the same larger ACF River Basin.

CITY INFORMATION

Atlanta is the capital and most populous city in the U.S. state of Georgia. It is the seat of Fulton County, and a portion of the city extends into neighboring DeKalb County. With a population of 498,715 living within the city limits, Atlanta is the eighth most populous city in the Southeast and 38th most populous city in the United States according to the 2020 U.S. census. It is the core of the much larger Atlanta metropolitan area, which is home to more than 6.3 million people (2023 estimate), making it the sixth-largest U.S. metropolitan area. Situated among the foothills of the Appalachian Mountains at an elevation of just over 1,000 feet (300 m) above sea level, Atlanta features unique topography that includes rolling hills, lush greenery, and the densest urban tree coverage of any major city in the United States.

In 2021, the median property value in Atlanta GA was $346,600, with a home ownership rate was 45.2%, and the median household income was $69,164. The economy of Atlanta, GA employs 258k people. The largest industries in Atlanta, GA are Professional, Scientific, & Technical Services (46,686 people), Educational Services (27,795 people), and Health Care & Social Assistance (24,198 people), and the highest paying industries are Management of Companies & Enterprises ($99,919), Finance & Insurance ($91,176), and Finance & Insurance, & Real Estate & Rental & Leasing ($84,035). The largest universities in Atlanta, GA are Georgia Institute of Technology-Main Campus (9,219 degrees awarded in 2021), Georgia State University (8,155 degrees), and Emory University (5,056 degrees).

NEIGHBORHOOD INFORMATION

The subject property is a medical office condominium unit in “The Palisades at West Paces” in Atlanta, Georgia. The Palisades at West Paces is a 2.3-acre complex featuring a six-story medical office building. The subject is located six miles northwest of downtown Atlanta in Fulton County and is directly off the interchange between Northside Pkwy NW and Interstate-75. It is four miles southeast of Interstate-285.

The subject property is primarily in a residential neighborhood in the northwest Atlanta area. The area is dominated by medical uses, schools, retail, and strong residential in-fill. Schools in the immediate area include Westminster, Atlanta Girls’ School, Atlanta Speech School, Pace Academy, North Atlanta High School, and The Lovett School, amongst others. Primary access to the subject neighborhood is provided by several interstate highways and arterials. Access from the north and south is provided by Interstate-75, which traverses the Atlanta metro region in a north-south direction. Interstate-75 is just one-half mile north of the subject. Interstate-285, the Atlanta outer loop, is approximately four miles northwest of the property and is about a five-minute drive.

SUBJECT PROPERTY DETAILS .

The subject building is a class A, investment grade medical office facility and features good interior construction quality. Common amenities include a parking deck, interior elevators, a two-story lobby, food and concierge service, and professional landscaping. The concrete and steel frame building was constructed in 1991 and was most recently renovated in 2014. The property is equipped with a 684-space parking deck and is zoned OI for Office Institutional. The property is in a Flood Zone X, for minimal flooding risk. It has a remaining economic life of 30 years.

The subject is a 1,234SF unit on the first floor that is currently being used as a dental office and is occupied by a tenant. The unit floor plan includes a reception desk, lobby, examination/teeth cleaning rooms, x-ray area, private office, break room, and restroom. Floor covering consists of hardwood and ceramic tiles.

The suite features a single-occupant restroom that includes a toilet, wall mounted sink and mirror. Flooring is marble tile along with marble wainscot. The restroom is handicapped accessible. Lighting is predominantly florescent track lights in the drop ceiling. All lighting appears to be designed with sufficient luminosity. The ten-foot ceiling consists of fiberglass acoustical tiles (or the functional equivalent) set in a suspended metal drop frame. Exterior doors are glass.

The condo unit is currently leased to a tenant who has occupied the space since 2017. The lease agreement was originally for five years. The tenant renewed for another five years in 2022. Updated Lease Information: Per the borrower, the tenant is currently paying $3,551.97 plus $946.24 (HOA fees) per month.

According to the borrower, this dentist is selling his practice and there may be a new tenant coming in soon. This new tenant will be buying the practice and is currently in negotiations to pay $5,200 per month plus HOA dues. However, there is no signed lease as of yet. This property is part of an HOA which cares for the maintenance and upkeep of the property. The HOA dues are roughly $12,000 per year.

BORROWER SUMMARY

Our guarantor is a married couple who hold title to the property via a Limited Liability Company. The husband and wife are each 50% owners of the entity and both will be providing a personal guarantee on this loan. The husband is a Medical Doctor and his wife is a Retired Dentist who is currently managing the subject property. Both of them work and live in San Francisco, California.

The subject property LLC reports its income through the borrower’s personal tax returns through a Schedule E. In 2022, this property had a net income of $3,648. You may consider adding back mortgage interest and/or depreciation when you are doing your own debt service calculations. We were provided a 2023 profit and loss statement showing net income of $23,815 in 2023.

Our guarantors self-reported a net worth of $3,489,058 and have mid-credit scores of 548 and 601. Per the borrower, the reason for the low credit scores are because his small private practice had undergone some significant transitions which caused some decrease in revenues that have impacted his recent liabilities, along with the SBA loan that is in arrears. Our due diligence package includes a full letter of explanation on this matter.

In 2022, our guarantors reported an adjusted gross income of $257,525 and $383,955 in 2021, per their personal tax returns. They have filed an extension on their 2023 returns.

VALUATION SUMMARY

We hired an MAI appraiser who gave this property an (AS-IS) Appraised Value of $580,000.

We also engaged a local real estate broker who provided a BPO with an AS-IS Value of $240,050. Given the low value, we asked the MAI appraiser to give his thoughts on the comps used in the BPO. Here are his thoughts:

"I researched the three alternative sales and have the following observations:

Sale Comp 1 – appears to be a non-arm’s length transaction with Michael Sebastian as the seller and Michael Sebastian, Llc as the buyer, as per deed book 66786, page 615. There is no associated sale price ($0).

Sale Comp 2 – the age of this office complex (built in 1966) and construction quality of the units (class B/C, wood frame) are significantly inferior to the subject, which is in a premium class A medical office building with high quality amenities and finishes and located across the street from a major regional hospital.

Sale Comp 3 – There’s not enough information to identify the sale to which the underwriter refers. I did some research and found that there were three office condo sales in this development in 2023. The prices ranged from $270 to $302 PSF. The subject was valued around $450 PSF. Similar to sale comp 2, this is an inferior office condo development in comparison to the subject. The buildings were constructed in 1985-86 and are wood frame structures. There are no community amenities. I’ve appraised a few of these units over the years. The interior build outs are average to good. Most of the units host professional practices and are not oriented towards medical uses. Parking in the development is tight. There is no synergy with a nearby regional hospital."

At a 11.0% yield to the investors and a 55.0% 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 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
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