Commercial Loans Blog

Blackburne Family Christmas Letter (Kinda Funny)

Posted by George Blackburne on Mon, Dec 25, 2017

Zombies-1.jpgThe following annual Christmas letter went out to all of our 1,300 wealthy private investors this week.  I hope you get a kick out of it too...  

Fortunately, the walkers were held back by a police barricade, but this did not stop them from snarling, gnashing their Zombie-like teeth, and reaching out for our delicate flesh with their angry, outstretched arms.  Was this the Zombie Apocalypse?  No.  These were the Inauguration Day J20 protesters, who so terrified my wife and my 64-year-old cousin, Patti. 

Black Horse Troop.jpgThe three of us were walking towards the stands along Pennsylvania Avenue in order to watch my daughter, Jordan, ride her horse, along with the famous Culver Black Horse Troop (100 all black horses) and the Culver Equestriennes (20 lovely young ladies), in review past President Trump and Indiana’s own Vice President Mike Pence in the 2017 Inaugural Parade.  (I rode in President Nixon's Parade in 1971.  George IV rode in W's first parade, and Tom rode in in W's second parade.  A lot of legacy, huh?) 

Equestriennes.jpgThere was a reason why the stands were so empty.  Police barricades were required to keep back the Zombies.  No, that’s unfair to the Zombies.  Even Zombies don’t behave this badly.  One of the protesters, a skinhead, targeted his rage at poor Cisca and Patti, shouting obscenities in their faces for absolutely no reason.  For all he knew, these two grandmothers might have voted for Hillary.  

zombies-2.jpgWith a daughter scheduled to ride in the parade, we were not to be dissuaded.  We eventually had to walk several miles to circle around the Zombie barriers, but finally we got to the stands.  We learned afterwards that most of the other Culver parents gave up trying to reach the stands.  Later, the press made great hay over the fact that the stands were so empty.  Helloooo? Would you want to be eaten by Zombies?  Plucking off your little toes.  Eating them like French fries.  Ketchup? 

Ivanka-4.jpgIn the stands, we were within 30 feet of the President as he walked down the parade route.  Melania Trump was stunning, of course, but I was most impressed by the lovely Ivanka Trump, wearing a tasteful, but close-fitting, cream dress and very high heels.  When one of her little boys, around four years in age, started acting like a little boy-onster (half boy, half monster), she scooped him up, threw him on her hip, and continued walking and waving without missing a step.  Talk about the modern woman.  Wow. There is a special place in the corner for any little boy-onster who acts up during his grandfather’s big parade.

As the Culver horses rode past the reviewing box, Jordi was on the left side, closest to the President.  One television news network (CNN?) zoomed right in on Jordi, who rocked 20 million Americans with her radiant smile.  I paid a lot of orthodontist bills for that smile, but it was worth it!  If you are ever suffering from insomnia, be sure to ask Cisca to show you pictures, including her 4-second video clip of Jordi dazzling the world.  Very nice, Cisca… zzzz... head bounce...   

J20.jpgThe J20 Zombies are on trial right now for smashing windows, trashing cars, and eating human flesh on Inauguration Day.  According to the legal arguments being advanced by the Federal prosecutor, if you are part of a Zombie horde, and even one Zombie rips off a human arm and begins munching, you are guilty of mayhem, even if you are a vegan Zombie.  Hmmm.  That’s a pretty dangerous argument for the future of free speech and non-violent protests.  I mean, c’mon, how are you going to keep every single Zombie from grabbing a quick snack.  Even I have to admit that my Cisca’s lovely ear lobes are irresistibly delicious.  Oh, my gosh, am I a Zombie?


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Wrong Car.jpg

This is Christmas time, and I should be spouting sweet nothings and warm wishes of love… but I simply must say that 2017 was a pretty lousy year for America.  The Zombies and the Nazis can no longer talk to each other.  A Republican friend of mine admitted that he has no more liberal friends.  I was part of an email string that contained a pretty funny, but politically insensitive, joke.  A liberal mortgage broker in the string of 20 brokers objected to the insensitivity of the joke, and my buddy wrote to him, “You are no longer my friend.”  Huh?  That broker had brought business to my lender-friend for 10 years!  What?  That’s it?  In the words of the great Rodney King, that world-renown humanitarian, “Can’t we all just get along?” 

Burn Bra.jpgAnd before any Zombies jump all over my Nazi friend, I must say, in all candor, that many Zombies no longer allow Nazis to even speak.  Apparently believing in free markets and self-help makes all Republicans to be fascists, nationalists, white supremacists, misogynists, or some other form of “ist”.  In the 1960’s, bras were first burned and the Vietnam War was famously protested at the University of California at Berkeley.  Berkeley was the epicenter of free speech… but apparently Ann Coulter, the conservative commentator, is not allowed to speak there.  Apparently she’s a misogynist.  No, that’s not it.  Must be some other form of –ist.  Security concerns?  Hmmm. 

Rum.jpgAnd if you think I am over-blowing this whole speech thingee, just watch any “news” show today.  Apparently both the Zombies and the Nazis have forgotten all about common courtesy.  They constantly interrupt each other while the other is speaking.  Let’s play a game.  Turn on Fox News or CNN and set your timer for one minute.  I’ll bet that the speaker will be interrupted at least three times in a minute.  My dear mother would have smacked me upside the head.  [Smack!] 

Okay, so my daughter, Jordi, had graduated from Culver Girls Academy. Culver was incredibly expensive - far more expensive than most colleges. I’m not bragging… okay, I’m bragging… but Jordi won First Team, All State, starting goalie for high school lacrosse in Indiana.  Fortunately for my wallet, she had been recruited to play lacrosse for Earlham College, an hour east of Indy, and she had received an “academic” scholarship.  Phew!  My personal future was now clear.  I had done my duty.  Now it was finally golf time with my 300 buddies at Pretty Lake Golf Club.

But then I got the call.  “Dad, your only granddaughter, Reagan, hardly knows you.  You have to move to Indy.”  So we loaded up the truck and moved to Beverly… er, Indianapolis.  We found a pretty little brick house in a gorgeous subdivision, just two houses away from the prestigious Geist Reservoir.  All I want for Christmas, Santa, is to squeeze my little house between two of those 8,000 square foot “cottages” ($$$) on the lake.  

Cisca and I love it here.  Indianapolis has two pro sports teams, Uber, and even food delivery.  Have you tried Uber Eats?  Works great.  We get to babysit Reagan three or four nights per month, and she even has her own bedroom.  I used to chase her up the stairs, pretending to pinch her little bottom.  “Make your run, Reagan.”  And she would squeal in delight.  But then she turned on me.  “Make your run, Gramp,” and she pinched my fat fanny all of the way up the stairs.  Smarty pants.  Actually she is.  She scored in the 99th percentile in math and 98 percentile in reading. 

Cisca is thriving here in Indy.  She found a Zumba Gold dancing class, and she is making lots of friends.  Then she got adopted by our homeowner’s association
representative, a warm, charming, and effervescent lady who lives just six houses down the street.  There are close to 1,800 homes in our homeowner’s association!  This wonderful lady actually came to greet us when we moved in, and she has convinced Cisca to volunteer on the home quality committee.  Cisca came home laughing one day.  One of the homeowners had painted, without permission, their gorgeous brick home “Pepto Bismal pink”.  The Gestapo whisked them away in the night, never to be seen again. 

George IV is absolutely killing it at work.  He will close $1.4 million in hard money loans this month.  Because I am George III and he is George IV, I get numerous calls for him by accident.  These brokers keep telling me what a great guy he is.  Makes a papa proud.  Sadly George IV recently broke up with his long-time love, but fortunately he has already met someone new.  Both of them are joining us for Christmas too, which makes me do dog-flips.  One big dog pile of love. 

Every workday, our second son, Tom (aka “M”, the neglected Middle child), comes over to my house, just nine minutes away, and we work together out of my walk-out basement.  (I have owned Blackburne & Sons now for 37 years.  Our big office with all of the bodies and machines is in Sacramento, California; but Cisca and I were financially blessed and able to move to Indiana to send our children to the fabulous Culver Academies 18 years ago.)  I now get to see my son every day.  Is this a great country or what?  Tom is working very hard these days.  He sounds great selling, and he is finally starting to produce some loans.  The renovation of his starter home is almost done.  Tom and his lovely girlfriend, Alex, take care of Reagan, our granddaughter, exactly half the time - one week on and one week off.  And then there is Bernie, their 70-pound, lovable, goofy, energetic, bouncing, flopping, playful, and absolutely adorable golden retriever puppy. 


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Cat Trump.jpg

Jordi is enjoying Earlham College, and because I am so close, I get to go to every game.  In soccer she started at center forward, as a freshman, until she severely twisted her ankle.  She still scored a lot of goals, including a last-minute game-winner (4-3) in the final game of the season.  I stood there quietly on the sidelines and barely cracked a smile.  Not!  I went crazy… crazy for loving you

As for me, I have a heart rhythm problem, where my heart doesn’t beat fast enough to pump out all of the fluids; but I am scheduled for another jump start right after Christmas.  I’ll still probably die at age 95, when Cisca catches me again not putting the dirty dishes in the dishwasher.  [Smack!]

What did I learn this year?  Frighteningly, I got a brief glance of just how easy it would be for this country to turn into a fascist state.  The Zombies played an important role in exposing the danger, but can’t we all just learn to fight a little nicer?  Just sayin’.  Merry Christmas, everyone!


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Zombie Walking.jpg



Topics: Christmas Letter

Commercial Loans and Trust Companies

Posted by George Blackburne on Tue, Dec 19, 2017

Bank of America.jpgTom Goodfather was worried about his kids.  His beloved wife, Susan, had died last year of breast cancer, leaving Tom as the sole guardian of their three children, ages 9 and 7 (the last two were twins).  Ten days ago Tom's doctor delivered even more bad news.  Tom's thyroid cancer, which had been in remission for six years, was back.  The doctor had tried to be optimistic, but Tom understood his underlying message.  "Make your final arrangements."


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The only good news is that Susan had died with $1 million in insurance, and Tom had not needed to touch any of it.  Another positive was the fact that Tom's burgeoning real estate empire of 147 apartment units was performing well.  The lack of new construction had left apartment rents climbing.

So Tom make an appointment with a trust officer at Bank of America and arrived there today to set up a trust for his three kids.  Have you ever noticed the NTSA at the end of Bank of America's name - Bank of America NTSA?  NTSA stands for National Trust and Savings Association.  This tell you that Bank of America has a trust department, as do many commercial banks.


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Investopedia defines a trust company as follows:  A trust company is a legal entity that acts as a fiduciary, agent or trustee on behalf of a person or business entity for the purpose of administration, management and the eventual transfer of assets to a beneficial party.

Huh? What?  Sorry, I nodded off.  How about a definition in English, George?  A trust company is a company that is super-honest and reliable.  It is also a company that follows written instructions to the letter.  A rich person, known as the trustor or settlor, hands over cash, stocks, bonds, real estate and other assets to the trusteeeeee (trustee) who receeeeeeives (receives) the assets.  The trustee then follows the written instructions in the trust agreement for the benefit of the beneficiary, in this case the kids.  The total of all of the cash, stocks, bonds, and real estate handed over to the trust is called the corpus (body) of a trust.


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 On Sum Street.jpg


Tom instructs the trustee, Bank of America's trust department, upon his death, to deliver to Tom's sister-in-law, Mary, $4,000 per month to pay for the three kid's care and welfare.  Tom also instructs the trust company to invest $2 million in S&P-listed stocks and investment grade bonds in order to pay for their college.  Finally, upon the last child reaching the age of 25, the trust is to dissolve and divide the assets between the three kids.

Pop quiz:  What is an investment grade bond?  An investment grade bond is one that is rated BBB or better by Standard & Poors or Moody's.  Investment quality bonds are usually from large, old, and established companies.


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The reason this whole subject came up this week is because we recently added a new bank to C-Loans that does not even have the word "Bank" in their name - U.S. Trust.  Remember, folks, the majority of all banks have trust departments, so you will see banks names such as First Bank & Trust and Guaranty Bank & Trust.  Now you know what the word, "Trust", means.


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Fix and Flip Loans and Buy To Rent Loans

Posted by George Blackburne on Mon, Dec 11, 2017

Rental House.jpgThere is another hot term sweeping through the secondary market for hard money loans - "buy-to- rent".  Buy-to-rent loans are loans made to real estate investors who buy up single family homes and just rent them out for the long term.

This all started around 2009, when the Blackstone Group, the huge private equity firm, realized that it could buy up REO's, fix them up slightly, rent them out, and earn cash-on-cash yields in the range of 6% to 9%.  Initially this financial sector was known as the REO-to-rental industry.


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Cash-on-cash yields of 6% to 9% were huge, considering that CD's were paying less than 1% and ten-year Treasuries, curiously known as the long bond, were paying less than 2.75%.  We have all heard of stories of New York investment bankers, flying out to the suburbs of football team cities, driving around for five hours, and then buying 30 to 50 homes in a single day.  These were the Blackstone guys, and this brilliant move by the Blackstone Group marked the bottom of the Great Recession.

Want to know just how brilliant?  Many of these rental homes went on to appreciate 25% or more, on top of the 6% to 9% cash-on-cash returns. This is capitalism in its most admirable form.  "Greedy capitalists" played a major and very beneficial role in ending of the Great Recession.  They created a floor on housing prices, when housing prices were in a free fall.  They replaced fear with greed.


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By the way, REO stands for Real Estate Owned.  It is a term used by banks to record on their books properties upon which they have foreclosed.  There is a huge accounting penalty imposed upon commercial banks for maintaining REO's on the books.  This is why commercial banks are desperate to dump their REO's as soon as possible, even though it means the bank has to take a painful haircut (a painful loss of part of its initial investment). 


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A cash-on-cash return is your cash return on your downpayment or on your purchase price, if you pay all cash.  The Blackstone boys paid all cash; hence their very handsome cash-on-cash returns.


Herb Black buys a rental home for $100,000, putting down $40,000 in cash and obtaining a $60,000 first mortgage from a bank.  He rents the house out for $1,100 per month.  His real estate taxes, insurance, repairs, and other expenses amount to $300 per month.  His mortgage payments are $400 per month.  He therefore has a positive cash flow of $400 per month or $4,800 per year.  His cash-on-cash return is therefore 12% ($4,800 divided by $40,000 times 100%).


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Today the number of bank foreclosures is way-way down.  Gone are the days when millions of homes were in foreclosure, and houses could be purchased for a fraction of their replacement cost.  The REO-to-rental industry to winding down to just a memory.

However, bond yields remain at very low levels.  Certificates of deposit are still paying less than 1%, and the long bond is still yielding less than 2.75%.  It therefore still makes sense for an investor in search of yield to buy homes and rent them out.  An investor can still earn a handsome 5% to 7% return on his money.


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Just as fix and flip loans are all the rage right now, Wall Street is gearing up to buy billions of dollars in buy-to-rent loans.  Wall Street is becoming the secondary market for private money loans.  A secondary is where mortgage loans that have already been originated are bought and sold. Be sure to grasp the concept that the loans have already been made.  Title has closed.  The borrower and the seller already have their dough.  Only then are these loans bought and sold in the secondary market.


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The secondary market for buy-to-rent loans is starting to blossom.  Wall Street is salivating, so you will now hear the term, buy-to-rent loans, everywhere.  I urge you to get ahead of this tidal wave.  Blackburne & Sons is looking to make buy-to-rent loans almost nationwide.


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Topics: buy-to-rent loans

Commercial Loans and Adaptive Re-Use

Posted by George Blackburne on Sun, Dec 10, 2017

adaptive re-use.jpgTo succeed in commercial real estate sales and/or commercial real estate finance (CREF), you need to know the lingo.  Here's a new one for you - adaptive re-use.  Here's what Wikipedia has to say on the subject:

Adaptive reuse refers to the process of reusing an old site or building for a purpose other than which it was built or designed for.  Here's another definition that I stole from a fine article on the subject:  


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Aunt Carol.jpg


Adaptive reuse, or adaptive re-use architecture, is the process of re-purposing buildings — old buildings that have outlived their original purposes — for different uses or functions while at the same time retaining their historic features... A closed school may be converted into condominiums. An old factory may become a museum...  A rundown church finds new life as a restaurant — or a restaurant may become a church.


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Adaptive Reuse is a way to save a neglected building that might otherwise be demolished. The practice can also benefit the environment by conserving natural resources and minimizing the need for new materials.


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A buddy of mine owns a mortgage REIT and proudly announced recently the closing of a $4.6 million bridge loan to convert a former K-Mart building to a self-storage facility in Indianapolis.  This is a good example of an adaptive re-use.  

I sent my buddy an email congratulating him on the closing and his use of the interesting term, adaptive re-use.  "Hey Bill, helluva term, adaptive re-use!"  He replied, "Yeah. Buy a vacant K-Mart for $40 per square foot. Fill it with self storage racks. Sell it for $100 per foot."


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By the way, a magazine advertisement or big email blast boasting of a nice commercial loan closing is called a tombstone.  Tombstones are an unusually effective manner to advertise for new commercial loans.  Seriously guys, you should blast out a tombstone every time you close a commercial loan.  They really produce results.


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You should always pay attention when other commercial lenders blast out tombstones too.  Tombstones reveal the areas of comfort and preference for the lender.  Commercial lenders tend to carve out niches.  For example, my hard money shop, Blackburne & Sons, is getting more and more comfortable making commercial loans on cannabis facilities.  We're doing four cannabis deals this month.


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My wife and I just got back from a short cruise to Cuba.  What a poorly-run country!  Under the communists, the average citizen makes just $50 per month.  Fifty dollars!  Havana was filled with beautiful, French colonial homes... that haven't seen a penny of repair since 1959.  The masonry walls were literally crumbling.  The Cuban people, though, were pretty warm and friendly towards Americans, and we as tourists felt very safe.

Trump and the Republican Party want the Cuban votes in South Florida, so President Trump just reversed many of President Obama's executive orders designed to improve relations and to open trade with Cuba.  The Cubans of South Florida want their country back, so they want to keep the pressure on the communists.  Its hard to argue with the proposition that the communists have grossly mismanaged the country.


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Topics: adaptive re-use