Baltimore MD Commercial Refinance

George says: "Please note that this little property has been extensively remodeled. This is the type of small, common-sense loan that should be the backbone of your portfolio. Take a little bit of every loan like this that you see from us. Heavens, I love small deals. If they ever get in trouble, the payments are sometimes small enough for the borrowers to pay from savings or from other hidden pockets. This is a very worthy loan."

Blackburne & Sons is pleased to present this First Mortgage secured by a 1,320SF two-story commercial building containing 2 units on a 0.18-acre parcel, located in Baltimore, Baltimore County, Maryland.

The purpose of this loan is for working capital for the guarantor’s construction business and some of the funds will be used to open up his carry-out Mexican restaurant on the 2nd floor of the property. This property is currently free and clear of any liens.

COUNTY INFORMATION

Baltimore County is the third-most populous county in the U.S. state of Maryland. It is part of the Baltimore metropolitan area. Baltimore County partly surrounds but does not include the independent city of Baltimore. It is part of the Northeast megalopolis, which stretches from Northern Virginia in the south to Boston in the north and includes major American population centers, including New York City and Philadelphia. Major economic sectors in the county include education, government, and health care. As of the 2020 census, the population was 854,535. The county is home to several universities, including Goucher College, Stevenson University, Towson University, and University of Maryland, Baltimore County.

According to the U.S. census bureau, the county covers 682 square miles, 598 square miles of which is land and 83 square miles (12%) of which is water. It is the third-largest county in Maryland by land area. The larger portion of the terrain consists of hills often rising to a height of 800 feet above tide water. The highest elevation is approximately 960 feet above sea level at Maryland's state border with Pennsylvania near Steltz. The lowest elevation is sea level along the shoreline of Chesapeake Bay. Much of the county is suburban, straddling the border between the Piedmont plateau to the northwest and in the southern and southeastern regions of the county bordering the Patapsco River and the Chesapeake Bay, the Atlantic coastal plain. Northern Baltimore County is primarily rural, with a landscape of rolling hills and deciduous forests characteristic of the Southeastern mixed forests and shares the geography with its neighbors to the east and west, Carroll County and Harford County, and going north across the historic Mason–Dixon line into Adams County and York County in south central Pennsylvania.

CITY INFORMATION

Baltimore is the most populous city in the U.S. state of Maryland. With a population of 585,708 at the 2020 census, it is the 30th-most populous city in the United States. Baltimore was designated an independent city by the Constitution of Maryland in 1851, and is currently the most populous independent city in the nation. As of the 2020 census, the population of the Baltimore metropolitan area was 2,838,327, the 20th-largest metropolitan area in the country. When combined with the larger Washington metropolitan area, the Washington–Baltimore combined statistical area (CSA) has a 2020 U.S. census population of 9,973,383, the third-largest in the country. The land that is present-day Baltimore was used as hunting ground by Paleo-Indians. In the early 1600s, the Susquehannock began to hunt there. People from the Province of Maryland established the Port of Baltimore in 1706 to support the tobacco trade with Europe, and established the Town of Baltimore in 1729.

In 2021, the median property value Baltimore, MD was $175,300, with a homeownership rate was 47.9%, and the median household income was $54,124. The economy of Baltimore, MD employs 277k people. The largest industries in Baltimore, MD are Health Care & Social Assistance (51,575 people), Educational Services (36,299 people), and Retail Trade (24,171 people), and the highest paying industries are Utilities ($77,330), Professional, Scientific, & Technical Services ($73,011), and Management of Companies & Enterprises ($72,386).The largest universities in Baltimore, MD are Johns Hopkins University (10,486 degrees awarded in 2021), University of Maryland, Baltimore (2,534 degrees), and Loyola University Maryland (1,614 degrees).

SUBJECT PROPERTY DETAILS

The subject property consists of a parcel that contains 0.02-acres, or 810SF, located at 701 South Curley Street, Baltimore, MD 21224. The property is identified on the Baltimore City Tax Maps as 01-12-1843B-188. The parcel is rectangular in shape and level in topography. According to flood map 2400870019F, dated April 2, 2014, the property is located within zone X, an area not at risk for flooding.

The property is improved with a two-story building, constructed in 1915. The subject contains gross building area of 1,320SF. At the time of the appraisal inspection, the commercial retail-use building had been owner occupied. The building is Class-C construction and has a concrete foundation, masonry framing, brick exterior walls and a flat, built-up rubber roof.

The property layout consists of a first floor with an open floor plan and is utilized as a Bar. The second floor also has an open floor plan and the borrowers utilize this floor as a carry-out Mexican restaurant. This unit is currently pending a health inspection and should be up and running in June. It is leased for $2,000 per month. The interior flooring consists of carpet, ceramic tile and wood and is equipped with stairwells for vertical access. The building has men’s and women’s restrooms, and is equipped with two beverage coolers.

The borrower purchased the subject property in January 2020 for $275,000 and it is currently free and clear of any liens. The property is leased from the borrowing entity (real estate holding company) to another entity owned by the guarantors which operates the downstairs bar, and pays $1,000 per month in rent. The bar has been open since December of 2021. Since the purchase of the property in January of 2020, the owner has spent approximately $308,882 in property improvements. The list is included in the addendum of the appraisal and much of the list appears to be items like new built in cooler in the basement, equipment, etc.

The borrower completed all renovations using his own funds. Some of the recent renovations include: Demolition of various parts of both the first and second floor, as well as the basement. New construction consisted of: installing new walls for men’s and women’s restrooms ($4,800), new plumbing and electrical ($16,800), installing a new bar counter and shelves ($18,300), installing new ceramic tile on the entire floor ($8,250), installing new 5/8” drywall on walls & ceiling , finishing and paint ($15,000), installing new soundproofing tiles on the VIP walls and new benches ($26,500), new carpet on top of the ceramic tile only on the main hallway ($1,800), installing new TV’s, karaoke system & sound system ($9,700), installing new mini splits system ($8,200), installing new window & new back door ($4,600), installing new fridges ($3,600), installing new awning ($5,250). A full list of the improvements that the borrower made will be included in the due diligence packages. It should be noted that this property has been grandfathered into a legal, non-conforming use, due to its lack of parking.

BORROWER SUMMARY

Our guarantors are a married couple who hold title to the property through a Limited Liability Company (real estate holding company). They both will be providing personal guarantees on our loan. The borrower also owns a construction company that will be providing a corporate guarantee on our loan.

The real estate holding company that holds title to the property files its own separate tax return. In 2022, there was no income so the tax return is reporting a loss of $11,061, which is mostly because of a depreciation write off. In 2023, this entity reported a loss of $106. This includes a depreciation write off of $9,512.

Our guarantors self-report a net worth of $1,359,980 and have mid-credit scores of 705 and 662. On their 2022 personal tax returns, they reported adjusted gross income of $95,278 and $108,384 in 2021. Their 2023 tax returns show an adjusted gross income of $148,092.

The construction company’s tax returns show a net business income of $125,169 in 2022 and $158,833 in 2023.

VALUATION SUMMARY

We hired an MAI appraiser who gave this property an (AS-IS) Appraised Value of $290,000. We also engaged a broker to provide a Broker’s Price Opinion (BPO) who gave a value of $550,000 (AS-IS).

At a 11.0% yield to the investors and a 65.0% 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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