Elk Grove Village IL Office Purchase

George says: I absolutely love this loan! We are financing the purchase of an REO. Such loans have historically proven to be excellent ones. Secondly, our lead borrower has very good credit and is very-experienced. His financial situation is just too messy (too many properties) for a bank. This explains why we got the deal. Please note that his silent investor-partners will not be signing the loan documents. This is very understandable. After all, if you had invested just $25,000, would you want to personally guarantee a $715,000 loan? Please don’t let this be a turn-off. Lastly, the property looks far nicer than our usual junky properties. No guarantees, folks, but if I was rating a movie, I would be the little cartoon guy standing on his seat clapping wildly."

Blackburne & Sons is pleased to present this First Mortgage secured by a 40,180SF, 48-unit office building on a 32,800SF parcel, located in Elk Grove Village, Cook County, Illinois.

The purpose of this loan is to purchase the subject property in the amount of $1,100,000. Our borrower will be coming to closing with roughly $385,000 cash down, plus roughly $45,000 in closing costs.

COUNTY INFORMATION

Cook County is the most populous county in the state of Illinois and the second-most-populous county in the United States, after Los Angeles County, California. More than 40 percent of all residents of Illinois live within Cook County. As of 2020, the population was 5,275,541. The county seat is Chicago, the most populous city in Illinois and the third most populous city in the United States. The county is at the center of the Chicago metropolitan area.

Geographically, the county is the sixth-largest in Illinois by land area and the largest by total area. It shares the state's Lake Michigan shoreline with Lake County. Including its lake area, Cook County has a total area of 1,635 square miles, the largest county in Illinois, of which 945 square miles is land and 690 square miles (42.16%) is water. Land-use in Cook County is mostly urban and densely populated. Within Cook County, the state of Illinois took advantage of its Lake Michigan access and the Chicago Portage, beginning with the construction of the Illinois and Michigan Canal in 1848. This helped make the region a central transit hub for the nation. Chicago, with its location on the Great Lakes and via the St. Lawrence Seaway, is a global port city, giving Cook County an international shipping port.

CITY INFORMATION

Elk Grove Village is a village in Cook and DuPage counties in the U.S. state of Illinois. Per the 2020 census, the population was 32,812. Located 20 miles northwest of Chicago along the Golden Corridor, the Village of Elk Grove Village was incorporated on July 17, 1956. It is directly adjacent to O'Hare International Airport and is economically important to the Chicago metropolitan area due to its large industrial park, located on the eastern border of the village. The community is served by several Interstate highways including I-90, I-290/I-355/Route 53, and IL-390. Elk Grove is also expected to be served by the I-490 Western O'Hare Bypass upon completion of the project.

In 2021, the median property value in Elk Grove Village, IL was $293,100, with a home ownership rate was 74.4%, and the median household income was $89,187. The economy of Elk Grove Village, IL employs 17k people. The largest industries in Elk Grove Village, IL are Manufacturing (2,265 people), Health Care & Social Assistance (2,089 people), and Transportation & Warehousing (1,835 people), and the highest paying industries are Utilities ($116,077), Information ($101,089), and Agriculture, Forestry, Fishing & Hunting, & Mining ($88,920).

SUBJECT PROPERTY DETAILS

The subject consists of a 32,800SF parcel located along Nicholas Blvd. It lies within the Chicago Metropolitan Statistical area (MSA), which is centrally located in the Midwestern United States, and is zoned I-1 for restricted industrial district. This corner lot is irregular in shape and relatively flat in topography.

The building is equipped with all utilities. Public water is provided by the City of Elk Grove Village. Wastewater is discharged via public sewer. Public companies provide telephone, gas, and electric services at prevailing rates.

The subject appears to have limited parking for an office building of this size. However, the lots immediately south of the subject building (Parcel 08-26-103-010) and a portion of the lot immediately southwest of the subject building (Parcel 08-26-103-008) are non-build able sites (gas lines for O’Hare Airport are buried below these sites that are not a part of Elk Grove Village and run for miles underground) can be used for additional parking. The current lease in place is for $14,000 per year and the owner of the property has to maintain the parking lots surface, striping and snow removal. The property contact stated there many years remaining on the current lease and the lease gets extended as there is no alternate use of the land area given the gas line that runs underneath the parking lot land. A copy of this parking lease will be included in the due diligence file for review.

The subject property is zoned I-1, Restricted Industrial District. Allowable uses within this district include light manufacturing, offices and warehousing uses. The maximum building height is 60 feet or three stories, minimum lot area 15,000 feet. There is a lot minimum width of 60 feet. The rear yard requirement is 15 feet. The parking requirement for office uses is 1 space for each 200 square feet of floor area. The subject lacks the appropriate parking requirement based on the property pre-dating the zoning code and represents a legal, non-conforming use. There is no effect on marketability as this is common within the area based on age of existing properties. The subject could be rebuilt if damaged.

The site is improved with a four-story 40,180SF multi-tenant office building and contains 48 office spaces ranging from 90SF to 5,620SF. The building is equipped with a concrete slab foundation, wood and metal framing and a flat rubber roof. It has 10-foot ceilings, two common areas and restrooms per floor, one loading dock, one passenger elevator and stairs. It has 4 floors in total that are 10,000SF each on average. The leases currently on the property range from $175 to $2,300 per month. Per the most current rent roll, this property brings in roughly $24,532 in gross rents per month. The vacant space is being offered for lease for $17 to $18 PSF, modified gross.

There is a lease in place with a management company that oversees this property currently. However, the new buyer will be hiring a different management company, V3 Property Advisors, post closing.

The subject was constructed in 1972 and renovated in 2016. As of the date of the inspection the subject was 64% occupied. The purchase price is $1,100,000 and is a short sale. The current owner is in foreclosure with his bank. We were told by the buyer’s counsel that the seller purchased this property for roughly $3,000,000 in 2019. The seller is also currently behind on property taxes in the amount of $130,000, which will be brought current with our loan.

This loan was supposed to close by April 8th, but that was not enough time for our due diligence so the seller’s bank has granted a 30 day extension to get this loan closed.

BORROWER SUMMARY

Our guarantor is a married man who will hold title to the property via a newly formed Delaware Limited Liability Company. His wife will not be a part of the LLC or our loan. There are; however, 6 members of this LLC. Our guarantor owns 30% and is the Managing Member. Each other member owns 14%. These other members are silent investors and will not be a part of our loan. Our borrower will be the only one signing loan documents and providing a personal guarantee. These members are all close family who have worked with our borrower on other successful Chicagoland acquisitions and providing equity.

Our guarantor is the owner of a real estate management business as well as many other businesses and self-reports a net worth of $44,060,672.His mid-credit score is 724, and is not showing any late payments on his credit report. His personal tax return shows an adjusted gross income of $59,640 in 2022 and $369,113 in 2021. He has not yet filed 2023 taxes.

We were also provided 6 sets of business tax returns, of which the borrower is involved in, and numerous 2022 K1’s for other businesses. Copies of these outside tax returns are available upon request.

Per our guarantor’s bio, he is a highly successful entrepreneur with more than 20 years of experience in real estate. He is the Founder, President, and CEO of a real estate management company, which is a nationally recognized real estate management company that specializes in stabilizing distressed properties. The guarantor has led the company to become known for its integrity, diligence, and professionalism, and it is the go-to company for lenders and private and institutional investors seeking to retain and maximize the values of their assets. This company has managed over 6,000 properties across the country, and its portfolio continues to grow.

As an experienced real estate manager and operator, he also owns and manages just over 2,600 multifamily units and approximately 2.4 million SF of industrial space in the Midwest and mid-Atlantic regions. Besides real estate, our guarantor is a successful healthcare investor with a profitable healthcare portfolio. This portfolio includes assisted living facilities in the mid-Atlantic region, skilled nursing facilities in the Midwest, and rehabilitation and wellness centers in the New York, Carolinas, and Florida regions.

VALUATION SUMMARY

We hired an MAI appraiser who valued this property at (AS-IS) Appraised Value of $1,210,000 and $1,275,000 (AS STABILIZED). Purchase price is $1,100,000. Please note: We were provided with an appraisal report that was done in March 2022, ordered by the seller’s bank. A copy of this report will be included in the due diligence package for review.

We also engaged a broker who is local to the area to provide a Broker’s Price Opinion (BPO) who gave a value of $1,408,816 (AS-IS).

At an 11.0% yield to the investors and a 65.0% LTV (PURCHASE PRICE), 59.0% LTV (AS-IS APPRAISED VALUE), and 56.0% (AS-STABILIZED) 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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