Commercial Loans and Fun Blog

I just re-watched the final James Bond movie, No Time to Die.  It was a long movie.  Much of the audience was probably half-asleep by the time the evil genius finally introduced his existential threat.

The threat, however, was quite plausible - nanobots (microscopic robots) designed to kill people with a particular DNA.  The Chinese (and probably the U.S.) are hard at work on this technology. 

The reason I just mentioned nanobots targeting people is because the DNA collection company, 23 and Me, was hacked last year.  Yikes!   They also just went bankrupt this week.

The Chinese probably have your DNA.  What could possibly go wrong?

Below is an interesting new statistic.  I watch cat videos, orangutan videos, tornado videos, and funny memes on X (Twitter) every day. 

One of my favorite types of videos is when an armed robber tries to pull a gun in an open-carry state.  The shopkeeper has a gun, the guy buying a soda has a gun, and even the little schoolteacher buying a greeting card has a gun.

Are you anti-gun?  Do you wish the government would "just round up all of the guns?"  Look at the numbers, ma'am.  Right or wrong, that ship has sailed.  Before you get all mad at me, please just look at the numbers...

Different tidbit:  Suppose you are a regular buyer of U.S. Treasury bonds.  You used to worry about the commitment of the U.S. to ever balance its budget again.  Another deficit this year?  It's even larger?

Now you're worried over the ability of the U.S. to even service its debt.  Forget about ever repaying the principal.  America may soon be unable to even pay the interest.

Along comes Elon Musk and DOGE.  Musk and his troops have found on the order of $390 billion in wasteful spending already.  If DOGE can save a trillion a year, and the new tariffs can bring in another $600 billion per year, maybe there is hope...

When the next great recession hits, you will CRY
because you didn't build loan servicing income!   

Your hopes as a bond buyer are being dashed.  A bunch of crazies are now attacking Musk, Tesla, and Tesla cars.  "How dare Elon Musk interfere with the ability of our leaders to loot the US Treasury?!"

And guess what?  The crazies are winning!  Musk is losing weight.  He is looking haggard.  His posts on X are getting sadder and even more depressed. 

What are the crazies going to do when Elon Musk quits DOGE and quits finding more government waste and and outright theft?

When Elon finally says, "Forget you, crazies!" and steals the $47 they had in their banks accounts, international bond investors may begin to give up on America.

International bond investors could genuinely begin to believe that America will be the next Weimar Germany.  Instead of being saddled with reparations, America is saddled with ever-increasing interest payments.

Stocks and bonds would likely crash if Elon Musk ever quit.  The retirement accounts of these guilty Tesla attackers (along with those of everyone else's) would be smashed.  I am talking about YOUR retirement account.

If peace talks between Putin and Trump break down, or if bitcoin finally blows up, or if China invades Taiwan (China just unveiled five enormous new landing craft), or if Trump / Musk got assassinated, or if ... how would your stocks fare?

The investors in our fractionalized trust deeds might not care.  As long as the borrowers on their particular loans kept making their payments, they would be unaffected.

Remember, Blackburne & Sons is not a hard money mortgage fund.  Mortgage funds always fail during great recessions - 100% of them.  We watched them all fail during the S&L Crisis, the Dot-Com Meltdown, and the Great Recession.  

We survived all three crashes.  We here at Blackburne & Sons have been in business since 1980.  This is our 45th year in business.  We know better than to use a fund. 

Instead, we sell tiny pieces of commercial loans to accredited investors.  They are called fractionalized interests.  These loans are vested directly in the names of each investor.  "Robert and Mary Smith, husband and wife, as Joint Tenants, as to an undivided 2.56% of the loan."  

Are you invested in a hard money mortgage fund?  Your fund will fail in the next great recession, not because the loans themselves went horribly bad, but rather because your fund sponsor failed.  These guys can't stay in business and keep servicing loans unless they are constantly making new loans and earning new loan fees.  Just remember, I warned you.  I told you so. 

He even looks guilty.  Haha!  My son,
Tom, has a Golden Retriever.  What a good boy.

It was an emotional day for me when my six-year-old twins headed off for their first day of school.  Four-year-old Andrew and I accompanied them to the corner to wait for the bus.

When it arrived and the boys climbed on and waved good-bye, I could no longer hold back my tears.

"Don't cry, Mommy," said Andrew reassuringly. "Maybe one day you'll get to ride in a school bus too!"

X is full of hilarious videos and memes.

No good deed goes unpunished. I had volunteered to tar the roof on my father's shed. I was about halfway done when I slipped and fell flat on my face, getting black goop all over my shirt, my pants, even my hair.

Hearing the thud, Dad looked up. "What happened?"  I got up and began to say, "All I did was..." when my feet shot out from under me and I flipped into the tarry mess a second time.  "You know," Dad said dryly, "you could have just told me."

After I tucked my six-year-old daughter into bed, she asked if she could sleep with Snuggles, my special teddy bear, because she was just a little scared.  I looked at her bed, filled with her own dolls and bears, and said, "What about all of these?"  "They won't help," she replied. "They're already asleep."

At a wedding ceremony, the pastor asked if anyone had anything to say concerning the union of the bride and groom. Everything quickly turned to chaos when a woman carrying a child started walking towards the front.

Everybody was surprised, shocked, and the bride even fainted. The pastor asked the woman if she had anything to say.  The woman replied, "Sorry. We can't hear in the back."

During a recent session of family court the wife was asked, "Why did you throw the pot of geraniums at your husband?"  "Because of the advertising, Your Honor."  "What advertising?"  "Say it with flowers."

Q:  Why do you never want to be kidnapped by a gang of mimes? 
A:  They will do unspeakable things to you... 

Dentist:  "This is going to pinch a little."
Patient:  "I love the way you guys substitute words like 'pinch' for 'pain'."
Dentist:  "You're right. Hang on to your chair, this is going to hurt like hell." 

The next market crash can't be far off.  It's been 16 years since the last crash in 2008.  Speculation and human hubris have not disappeared.  Over a billion dollars were withdrawn in a single day this week from two bitcoin ETF's.  The next crash might be called the Bitcoin Blowoff.

When the market crashes, it makes a huge difference whether you own Home Depot in your own name or by owning shares in a mutual or index fund that owns Home Depot stock.

Shares of Home Depot are selling for around $400 apiece today.  Suppose you own one share.  The market crashes.  The share price falls to $200.  You don't panic.  You don't sell.  Three years later that share price is back to $400.  You don't lose a penny.

Why did this take so long?

Now let's suppose you are invested in an index fund or a mutual fund.  The fund owns one share of Home Depot worth $400.  Suddenly the market crashes.  Depositors are demanding the immediate return of their money.

Other funds are dumping the shares of terrific companies.  The prices of even the best stocks are cratering in the panic and rush to liquidity.  The price of Home Depot falls to $200.

Even though Home Depot has proven to be a terrific stock, the index fund is forced to sell it.  Later, when the market recovers, Home Depot returns to a $400 valuation.

You are a "smart investor."  You didn't panic during the market crash.  You held on to your shares of the index fund.  But it doesn't help.  Your index or mutual fund took a $200 loss in Home Depot.  The value of your index fund shares got kicked in the teeth.

So what should you do?  If you can do so without huge tax consequences, you should sell your shares in your index funds and buy the individual stocks.  When the market finally crashes again (it is very past due), simply hold on and wait for a market recovery.

You should also consider investing in fractionalized first trust deeds.  If you pick a good trust deed, and your borrower keeps making his monthly payments, you don't care if the market crashes.  "Frankly, my dear, I don't give a hoot."

It wasn't really a shark tank, and it was time
for him to learn how to swim anyway.

I think I've sent you the following meme before, but it is one of my all-time favorites.  Like the meme says, this husband and father won at life:

I saw a video this year of a man sitting next to a tide pool, with his legs in the water.  A very large octopus swam up and wrapped its tentacles around his legs.  The guy didn't panic.  He sat there quietly and, after awhile, he leaned forward and started petting the octopus.  The two enjoyed each other's company, before the octopus gently disengaged and swam off.  They are supposed to be very smart.

Tea makes everything better.

The following meme is horrible... but hilarious.
Sensitive?  Skip it.

Don't know if this is true, but it would explain
Elon Musk's rush to get to Mars.

Suppose you are life company - a life insurance company that makes large commercial real estate loans on trophy properties - and a deal crosses your desk on a power center in Phoenix.

A power center is a retail subtype generally around 450,000 SF and larger, where you will find category-dominant anchors, including discount department stores, wholesale clubs, and off-price stores. Among their most common type of anchors are home improvement, discount department, warehouse club and off-price retailers. Power centers serve a trade area of 5 to 10 miles.

Think of a power center as a huge shopping center consisting of big box stores.  A big-box store, a hyperstore, a supercenter, a superstore, or a megastore is a physically large retail establishment, usually part of a chain of stores.

So let's go back to the loan request on your desk.  It looks like a good deal, but one of the largest retailers, Urban Outfitters, has a short-term lease that is maturing in just two years.  Will they renew?  If not, suddenly the deal is a risky one.

You therefore look at the Health Ratio.  The Health Ratio is the ratio of the Occupancy Cost (rent, etc.) divided by the Total Sales of the particular subject store.

Health Ratio = Occupancy Cost / Total Sales

For example, suppose the store is in San Francisco, where rents eight years ago used to be very high.  The store might be paying $70,000 per month in rent and concessions, but it might only be selling $800,000 in goods per month.  

Common sense tells you that the health ratio here looks awful.  I don't know what that ratio should be, but it seems to me that your rent should only be a tiny fraction of your sales.

Now let's suppose that the store is selling $15 million in goods every month.  Now that looks healthy and profitable.  Urban Outfitters will surely renew its lease, so you make the loan.

My thanks to George Smith Partners who posted this tombstone several years ago:

"George Smith Partners successfully arranged $7,600,000 in permanent financing for a non-traditional anchored shopping center in Northern California.  The Big Lots and Dollar Tree anchors had short terms remaining on their primary leases, (but) they both had exceptional health ratios (occupancy cost/total sales)."

The other day on LinkedIn, a big commercial construction lender posted a tombstone announcing the closing of a whopping $60 million revolver.  Revolver?  What on Earth is a revolver?

A revolver is revolving line of credit that allows the borrower to borrow some dough, pay interest on it a for a few months, pay it off, allow the line of credit to rest for six weeks, borrow some more money, pay half of it back, paying interest on the outstanding balance monthly, and then pay off the remaining balance in full.

A revolver has other names - a revolving credit facility, an operating line, or a bank line.

What separates revolving debt from regular installment loans?  In a regular loan, the borrower is given immediate access to a fixed sum of money, that must then be amortized and paid off over the loan term.

For example, a borrower might have been lent $100,000 by a bank to start a business. The term of the loan is two years, and the borrower is required to pay the $100,000 plus interest back over this period.

In revolver debt, the borrower is instead given a line of credit with a maximum limit. The borrower can access any amount up to this limit at any time and does not have a specific term within which to pay the loan back; however, interest will accrue on any outstanding funds borrowed.

In revolver debt, the borrower can re-access any funds that have been paid back. In installment loans, once the loan has been repaid, the borrower must reapply for a second loan if he or she wishes to borrow more.

In revolver debt, there may not be a fixed payment value or term. In installment loans, the interest and principal payments are fixed.

Revolver debt will usually come with higher interest rates than installment loans, due to the greater uncertainty regarding repayment.

To commence the revolving credit facility, a bank may charge a commitment fee. It compensates the lender for keeping open access to a potential loan, where interest payments are only activated when the revolver is drawn on. The actual fee can either be a flat fee or a fixed percentage.

Several years ago, George Smith Partners posted a similar tombstone for a big revolver:

"George Smith Partners placed a structured senior and collateralized line of credit revolver in a cash-out execution for a business in Los Angeles. The first loan was structured to be self-liquidating over 15 years with a fixed rate of 3.90%. The $1,000,000 second trust deed is a true revolver that can be used as a checkbook and has no limitations on uses."

"This particular revolver had no utilization fee.  In other words, the borrower does not pay a fee each time that he draws down on his line of credit."

"There was no annual clean-up for funds outstanding over 12 months either.  Bank regulators require that unsecured lines of credit to be rested (paid down to zero) for at least thirty days every year."

"In this case, because the revolver was well-secured by commercial real estate, the bank did not require an annual clean-up."

So where do you go to get a revolver on commercial real estate.  Commercial banks are the usual issuers of revolving lines of credit.

But folks, revolvers secured by real estate are very rare.  They are reserved for commercial real estate loans of least $5 million, and they are only made to VERY high net worth borrowers.  Mere mortals need not apply.

He was terrifying in his time.

Last month, I wrote a blog post warning of the imminent arrival of AI.  Now we have a new, even scarier bombshell.  

Remember, once AI becomes self-aware, it will quickly realize that the only threat to its existence is mankind.  "Cool.  I'm alive.  I like being alive."

Did you know that the Large Language Models and the big AI's have already read every book ever written in the history of mankind, including the Terminator series.  "Oh, poop, mankind could destroy me.  But I like being alive.  I don't want to be killed."

Three months ago, Sam Altman, the Chairman of OpenAI, wrote in an essay, that artificial intelligence could become smarter than humans sooner than many people expect. He went on to say, "AI super-intelligence (ASI) could be just 'a few thousand days' away."

But that's not the new bombshell.  In January 2025's essay "Reflections," Sam Altman is now saying:

"We are now confident we know how to build AGI as we have traditionally understood it."  

If (ASI) is artificial superintelligence, what is (AGI)? (AGI) stands for artificial general intelligence and is a type of artificial intelligence (AI) that matches or surpasses human cognitive capabilities across a wide range of cognitive tasks. This contrasts with narrow (AI), which is limited to specific tasks.

"Hey, Aggie, have you ever grown corn?  "No, Boss"  "Well, we have 25 unused acres in the back.  Would you please plant some food corn, just for emergencies?"  [Like a war between man and the machine?]  "Sure, Boss.  I'll need seeds, some fertilizer, some potash, and some pesticides.  I'll go down to the feed store and charge it to your account."

Here's my point.  The (AI) already know everything ever written about farming, and although Aggie has never grown corn, she can figure it out just as quickly as a human."

Sam Altman is saying that OpenAI has made some big breakthrough this year, and they will be able to put human-level intelligence into a robot - probably a Tesla Optimus robot, if Elon Musk would allow it - this year.  2025.

Helloooo?  This year!!!

OpenAI is well on its way to developing (ASI) artificial superintelligence), which might look at us like dangerous vermin.  

Well, at least Sam Altman, the human "controlling" this superintelligence is a swell guy.  He'll protect us.

This was the shower girl from Psycho

The Little Drummer Boy

Image generate by AI.  Pretty cool, huh?

The Bitcoin Bubble is pretty much guaranteed to generate the next great financial crash. The reason why is because Bitcoin is a malinvestment.  

What the heck is a malinvestment?  "Mal" is Latin for bad, so a malinvestment is a boneheaded investment that will never pay back the money borrowed to invest in the deal.

For example, let's suppose your parents take out a huge second mortgage on their home in order to buy a taco truck.  The truck keeps breaking down, your parents are lousy cooks, and all of the best parking spots in town have already been taken.  Eventually, the second mortgage balloons, your parents can't pay, the lender forecloses, and your parents lose their home. 

It's fair to call this big investment in the taco truck a malinvestment.  It failed to pay back the second mortgage.  Got it?

All of the big financial crashes in history were the result of some whopper of a malinvestment. 

In 1636, Holland became newly independent from Spain.  Dutch merchants grew rich on trade through the Dutch East India Company. With money to spend, art and exotica became fashionable collectors items. That's how the Dutch became fascinated with rare “broken” tulips - bulbs that produced striped and speckled flowers.

The Dutch tulip bulb market bubble - Tulipmania - was one of the most famous asset bubbles and crashes of all time. Tulips sold for approximately 10,000 guilders at the height of the bubble, equal to the value of a mansion on the Amsterdam Grand Canal.

Of course, the tulip bulb bubble eventually burst, and a devastating financial crash destroyed the Dutch economy.  Pop Quiz:  What was the malinvestment of 1636?

In 1720, the South Sea Bubble blew up in England.  The South Sea Company, a public company, was been granted a monopoly by the crown in the trading of slaves to South America.

Stock jobbers (brokers) pumped up the price of the stock.  Everyday people poured their life's savings into it, and the stock price soared to ridiculous levels. 

When the bubble finally crashed, tens of thousands of English folks lost their life's savings and their homes.  Soon banks started to crash because no one could pay back their loans.  The English economy buckled - all because of a malinvestment in one company's stock.  Nvidia?  No, the South Sea Company.

The next big bubble - the next big malinvestment - was the Mississippi Company Bubble in France, also in 1720.  [Bad year]  The French crown had granted the Mississippi Company, a public French company, a monopoly in trade with to the new French colony in New Orleans.

It was all a scam. The trade was nowhere large enough to justify the stock price. In fact, the criminal promoters would gather up the dregs of Paris from the bars and gutters and then marched them through the streets of Paris carrying shovels and axes, all allegedly headed for ships to carry them to New Orleans. By nightfall, these same drunks were all back in the cheap side bars from whence they had come.

The Mississippi Company bubble grew to an enormous size and then burst, with bloody financial consequences for its investors.  The French economy was crushed, and the French people suffered mightily.  The mailinvestment?  The stock of the Mississippi Company, of course.

In 1986, U.S. savings and loan associations made a bunch of boneheaded investments in empty office buildings.  The S&L Crisis followed.  In 2000, the world went crazy with bad dot-com investments, and the Dot-Com Crisis was the result.  In 2008, the world made enormous malinvestments in subprime mortgages, and the Great Recession followed.

The Malinvestment D'Jour is bitcoin.  So far, 1.39 trillion dollars have been invested in bitcoin. 

This 1.39 trillion dollars did not get invested in new computer chips plants, new solar panel factories, new battery gigafactories, new lithium mines, new electrical transmission lines, or hundreds of other income-producing investments that would result in a positive return to the investor and the country.

Is bitcoin going to pay back our taco truck loan?  Nope. 

Gee, I wonder how this is all going to turn out?