Milwaukee Asian Market Purchase

George Says: "This is a very attractive high-yield loan. I usually worry about high-yield deals because the large monthly payments can often grind the borrower into the dust. Here we have $16 million net worth borrowers who own a number of properties free-and-clear. They are arguably under-leveraged compared to many big-time real estate investors. The Net-Worth-to-Loan-Size Ratio on this deal is therefore a whopping 16:1. Sweet."

"The husband and wife pay taxes on over $800,000 per year in income. By hard money standards, they also have good credit."

“The borrowers have told us that they intend to put another $400,000 - $600,000 into the property to convert it into an Asian market. This is an Asian neighborhood. Please note that we are NOT controlling these proceeds. Our borrowers could in theory go on a coke-filled escapade and spend all of the expected renovation funds. It could happen. But the bottom line is that our borrowers are putting down over $1 million, and they are only asking to borrow $900,000. At some point reasonable people need to use some common sense. I worry about every loan that we make, but I will worry about this particular high-yield deal far less than most."

Blackburne & Sons is pleased to present this purchase money first mortgage secured by two buildings consisting of a 70,200 SF light industrial building and a 15,560 SF retail building, both on a 3.014-acre parcel, located in Milwaukee, Milwaukee County, Wisconsin.

The purpose of this loan is to purchase the subject properties for $2,050,000. The borrower will be bringing roughly $1,150,000 cash to closing, plus closing costs.

Milwaukee County is a county in the U.S. state of Wisconsin. The population was 939,489 at the 2020 census. It is both the most populous and most densely populated county in Wisconsin, containing about 15% of the state's population; it is also the 62nd-most populous county nationwide. The county seat is Milwaukee, the most populous city in Wisconsin. Named after the Milwaukee River, the county was created in 1834 as part of Michigan Territory and organized the following year. Milwaukee County is the most populous county of the Milwaukee metropolitan area, as well as of the Milwaukee–Racine–Waukesha combined statistical area.

Uniquely among Wisconsin counties, Milwaukee County is completely incorporated (i.e., no part of the county has the unincorporated "town" jurisdiction). There are 19 municipalities in Milwaukee County; 10 incorporated as cities and 9 incorporated as villages. After the city of Milwaukee, the most populous in 2020 were West Allis (60,325), Wauwatosa (48,387), Greenfield (37,803), Oak Creek (36,497), and Franklin (36,816). The county is home to two major-league professional sports teams, the Milwaukee Bucks and Milwaukee Brewers, and the world's largest music festival, Summerfest.

Milwaukee is the most populous city in the U.S. state of Wisconsin. Located on the western shore of Lake Michigan, it is the 31st-most populous city in the United States and fifth-most populous city in the Midwest with a population of 577,222 at the 2020 census, while the Milwaukee metropolitan area with over 1.57 million residents is the 40th-largest metropolitan area in the nation. It is the county seat of Milwaukee County.

According to the United States Census Bureau, the city has a total area of 96.80 square miles, of which, 96.12 square miles is land and 0.68 square miles is water. Milwaukee lies along the shores and bluffs of Lake Michigan at the confluence of three rivers: the Menomonee, the Kinnickinnic, and the Milwaukee. Smaller rivers, such as the Root River and Lincoln Creek, also flow through the city.

In 2023, the median property value in Milwaukee, WI was $172,000, with a home ownership rate of 41.5%, and the median household income was $51,888. The economy of Milwaukee, WI employs 264,000 people. In 2023, the largest industries in Milwaukee, WI were Health Care & Social Assistance (45,778 people), Manufacturing (40,069 people), and Retail Trade (28,410 people), and the highest paying industries were Management of Companies & Enterprises ($124,018), Professional, Scientific, & Technical Services ($63,392), and Public Administration ($60,847). The largest universities in Milwaukee, WI are University of Wisconsin-Milwaukee (6,063 degrees awarded in 2023), Marquette University (3,745 degrees), and Milwaukee Area Technical College (3,090 degrees).

The subject site consists of a 3.014-acre parcel that is rectangular in shape and level in topography. The neighborhood is primarily influenced by commercial and service uses along major thoroughfares such as 76th Street and Graceland Avenue. The neighborhood is an urban area with approximately 6,000 residents per square mile. Housing is primarily comprised of single-family homes, town homes, small apartment buildings and apartment complexes.

The site is improved with two buildings that were reportedly constructed in 1957. Building 1 is a 70,200 SF, two-story, masonry-constructed light industrial building presently utilized for multi tenant retail and office purposes. This building is also equipped with a two-stop passenger elevator.

Building 2 is a 15,560 SF, part one and part two-story, masonry-constructed retail building presently utilized for multi-tenant retail and office purposes. Both buildings are equipped with a concrete foundation and a flat composite roof. This building currently has 12 tenants and monthly gross rental income of $11,576.

The property is approximately 40.00% occupied by several tenants on month-to-month leases, the number of which changes frequently as tenants come and go. Parking is located between the buildings and at the rear. There are a total of 73 paved parking spaces. It should be noted that the subject was not listed on the market and is an off-market sale.

The subject property will be undergoing substantial renovations which will include restoring power and heating ducts to Building 1 (primarily on the upper floor) as well as renovations as needed to the remainder of the building including electrical repairs, ceiling repairs, flooring, heating and cooling upgrades, plumbing upgrades and installation of ventilation hoods to accommodate future restaurant tenants. The second floor will be built out for use as office, salon, medical office and a coffee shop, comprised of 26 small rental units. Once completed, the building will have the capacity for up to 80 tenants between both floors of the building. Building 2 will not be altered. It should be noted that we will not be financing the rehab.

Our borrower will hold title to the subject property through a newly formed Limited Liability Company (LLC), of which our guarantors are each 50/50 members. Because this LLC was just formed in July of this year, there is no financial information to report.

The borrowers own and operate a successful home health care business (LLC), which will provide a corporate guarantee on our loan. This company was formed in January of 2008. In 2024, this business reported net business income of $467,021, and in 2023 its net business income was $817,610.

Our borrowers are husband and wife and will both be providing a personal guarantee on this loan. They both work in managerial roles for their home health care business. They self-report a net worth of $16,459,808 and have mid-credit scores of 655 and 681. In 2024, their personal tax returns reported adjusted gross income of $803,126 and in 2023 reported adjusted gross income of $1,197,464.

The guarantors also own and manage multiple real estate properties. They currently own 13 income producing properties and 8 non-income producing properties. Out of the 21 total properties, most are free and clear, and only have mortgages on 2 of them. They just refinanced those 2 properties in order to pull out cash for this purchase transaction. The borrower will be using their own cash for renovations. We will not be holding back any funds for renovations or be involved in that process.

Our borrowers plan to use our loan to purchase the subject property and turn it into an Asian Market. Once the property is acquired, they plan to renovate the industrial building into 80 rentable commercial units.

Per the borrower’s business plan, "The Asia Market is 4.5 Acre and located in the heart of Milwaukee Northwest side of the Milwaukee County. It is in the multi cultures area and a lot of Asians and many people with diverse background resides in the area. It’s also in an ideal location with bus transportations, good surrounding businesses and neighborhood area."

"I have a great vision and plans for Asian Market. I have a long waiting list of potential vendors who call me every day as they are anxiously waiting to start their business in Asian Market. As soon as the loan is approved and I close on the sale of the building, I will start immediately and do as following:"

Building #1: Fully occupied by vendors, business offices, financial services, a fresh food store, quick-service restaurants, and other vendors. No major updates are required.

Building #2: A newer, larger two-story building featuring a spacious party hall. This facility will provide additional space for new vendors and community events.

"The total cost of the repairs are estimated around $400,000-450,000. This estimate should cover all costs needed to repair the buildings so that they can be up and running for business within 2-3 months’ time frame. Asian Market Place’s purpose is to serve the community as a one stop shop for all types of businesses for all individuals in the community. It’s goal is to also attract people who come visit Milwaukee Area and they will want to come see the Asian Market Place. This is will be a good place and good business."

The entire business plan will be provided in the due diligence package for review.

We hired an MAI appraiser who valued this property at $1,905,000 (AS-IS). We also engaged a local broker to perform a Broker’s Price Opinion (BPO). They valued the property at $5,786,340.

At an 12.0% yield to investors and a 47.2% LTV (AS-IS) appraised value and 43.9% LTV Purchase Price 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.

ACCREDITATION STANDARDS

Please note this offering is a SEC Regulation D filing and will be done through a Private Placement Memorandum. In order to invest, you must be an accredited investor. Generally speaking, an accredited investor is an individual:

(a) whose individual income exceeds $200,000 in each of the past two years, with reasonable expectation of reaching the same going forward OR
(b) whose joint income with spouse exceeds $300,000 in each of the past two years OR
(c) your NET WORTH exceeds $1,000,000 (exclusive of your primary residence) OR

If you plan on investing through an entity, the entity can qualify if ANY of the following are met:

(a) all equity owners must be accredited OR
(b) any trust with more than $5,000,000 in assets OR
(c) ERISA with either $5,000,000 in assets OR a bank, insurance company, or registered investment advisor as it's trustee OR
(d) any self directed ERISA with an accredited investor(s) making the business decisions OR
(e) an IRA owned by an accredited investor

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 of hitting bottom, values reached new highs. During the Dot-Com Meltdown, commercial real estate fell by 45%. Within three years of hitting bottom, values reached new highs. During the Great Recession, commercial real estate fell by 45%. Within three years of hitting bottom, 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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