A bank is never going to finance a gentlemen's club, which is just a fancy term for a nudie bar. Nor would a bank finance an adult bookstore or a lingerie and marital aid store. Can you just visualize the headlines? First Neighborhood Bank Forecloses on the Pink Feather Lounge! Bank Vice President seen collecting the cover charge at the door. This is NOT gonna happen. Ha-ha!
The owners of such establishments, along with the owners of medicinal marijuana facilities, will usually be forced to borrow from private money (hard money) lending companies.
For those of you who think that I am some depraved sinner, it is important you appreciate that over the past 35 years, we have financed six churches. Every one of these loans defaulted, and we took a huge loss on each one. Actually that's incorrect. We once made a $1.5 million loan on a free and clear church in a nice area of Texas. When this loan defaulted as well, it turned out that the pastor had stolen the money to originally buy the church from his former church in Detroit. Our private investors were in litigation for three years, but they eventually came out whole. Needless to say, we are not a big fan of church loans.
At Blackburne & Sons, we actually prefer loans secured by gentlemen's clubs, adult bookstores, and other politically incorrect properties. We have made twenty such loans over the years, and we have never taken a loss on one of them. Usually they are cash cows.
We are actively looking for new loans on politically-incorrect properties right now. We just put a $1.1 million loan on a gentlemen's club in Detroit (scary area) out for sale to our private investors, and the entire loan sold out in a day and a half. Our private investors understood the concept that boys will probably always enjoy looking at pretty girls. They absolutely ate this loan up.
Now if you were reading carefully, you probably noticed something. Blackburne & Sons does NOT use a mortgage fund to fund its deals. Instead, we syndicate every loan. On a $1.1 million loan, we might have as many as 30 different private investors, and the group of private investors in each deal will be different.
"But George, if you have to syndicate every loan, doesn't that mean you will take longer to fund a new loan than a competing hard money lender?"
Yes, it does. It might take us a week longer to fund our loans because each participating private investor has to send in his check. It can be a pain in the tail sometimes.
Blackburne & Sons actually has its own mortgage fund, but I absolutely hate the concept. Huh? Why? Every ten to fifteen years commercial real estate is hit by a depression, where commercial real estate falls by 45%. When commercial real estate values are crashing, every hard money mortgage fund in the country is absolutely swamped with withdrawals. They are forced to stop making new loans because they have no liquidity. Every penny of liquidity is spent returning money to panicky investors. They are completely out of the market.
Sons, please remember this. During commercial real estate depressions, real estate falls by almost exactly 45%. Certainly it has every time in my lifetime. (Confused? I write this blog to teach my two sons everything I have learned in my 35 years in the business. I have a bad heart, and I was in the cardiac intensive care unit of the hospital twice in the past two weeks. These wonderful blog training articles cannot continue forever. I'm just sayin'...)
Everyone, here is why this matters to you. Here is why you want to be the best friend of my two sons. Blackburne & Sons was the ONLY commercial hard money lender to be in the market to make new commercial loans every day of every year of the Great Recession.
We can always find first mortgage money from our filthy rich private investors - even when blood is running in the streets. It's just a matter or price. And if you can find commercial mortgage money during a horrible depression, you can charge a huge loan brokerage fee.
So if you are a surviving veteran of the commercial mortgage brokerage industry, you definitely want to develop a relationship with Alicia Gandy (our biggest producer who is affectionately known as the Loan Goddess), my son George IV, or my son Tom.
Why are relationships so important? The most important lesson about commercial real estate finance that I ever taught my sons was that commercial lenders make loans for their friends.