TABLE OF CONTENTS
OVERVIEW
Blackburne & Brown Mortgage Company, Incorporated (“the Company”) is a licensed California real estate brokerage company involved primarily in the hard money commercial mortgage business.
Our traditional niche is making long term, permanent loans to borrowers who cannot qualify for a bank loan. Normally their credit is too blemished, perhaps from a divorce, or their company is not making enough money on paper to qualify at the bank. It is a good market because our borrowers have significant equity in their commercial properties, and these buildings are already standing and completed. All of our loans are first mortgages.
The company can also make bridge loans, loans to renovate existing commercial buildings, or new construction loans. Nothing in our licensing prohibits the company from making home loans in the future.
We get our lending funds from accredited and near-accredited private investors residing in California. These loans are almost always fractionalized, meaning that we will usually place 10 to 30 different private investors per loan. By raising money is smaller denominations – typically $10,000 to $50,000 each – our cost of funds is lower. The private investors in our loans own their interests as tenants-in-common with each other. The company does not guarantee these investments in any way.
Our largest single investor is Blackburne & Brown Mortgage Fund I (“the Fund”), a $26 million blind mortgage pool operated as a limited partnership. The Fund has been in existence for over 12 years and has a perfect record of no principal losses. The Fund currently pays its investors 6.375%. The Company serves as the General Partner of the Fund. The Fund can easily be increased in size if a sufficient number of good loans can be found.
The Company earns its money through two methods – loans fees of typically 2.5 points per loan and from loan servicing fee. The Company earns on average a whopping 190 basis points on a portfolio of around $45 million. Therefore the company enjoys a passive loan servicing revenue of $800,000 or so per year, plus management fees on any REO’s and a management fee of one-half percent on the Fund.
TERMS OF THE SALE
The purchase price for Blackburne & Brown Mortgage Company, Incorporated (“the Company”), including the servicing rights, the investor lists, management of the Fund, all securities, and all real and personal property, including equipment and leaseholds, is –
$5.5 million.
The seller also requires a seller consulting contract of $150,000 per year (maximum of 8 hours per week) for five years or until the covenant not to compete expires.
WHY I AM SELLING
Four years ago I suffered a heart attack and had a quadruple by-pass, at the age of just 50. Both my cardiologist and my wife now insist that I sell the Company.
In addition, my other company, C-Loans, Inc., has been making excellent profits. I intend to devote myself full-time to the running of C-Loans. C-Loans is an online venture that is much less stressful on my heart because it is largely automated.
Finally, the hard money business has migrated from making permanent loans to land lending and construction lending. Unfortunately I know very little about either, so we have stubbornly tried to keep making permanent loans. In the meantime friends of mine with competing hard money shops have leap-frogged us and are now five times larger because they made construction loans. Blackburne & Brown needs new ownership.
ASSETS INCLUDED
- Servicing Rights
- List of Private Mortgage Investors
- Ability to Raise Money
- Management of a $26 Million Mortgage Fund
- Permit to Fractionalize Loans
- Preferred Placement on C-Loans
- Phone Number - One Million Advertising Pieces
- Reputation
- All Personal Property in California
- Crown Jewel – Permit to Syndicate Real Estate
LOAN SERVICING RIGHTS
The Company is currently servicing 116 first mortgage loans totaling almost $44 million. Our total scheduled loan servicing income is $69,000 per month. The vast majority of these loans were written with a 15 year term. These servicing rights – the current portion plus the long term portion – are carried on the books with a value of approximately $1,443,000.
The loans are serviced by just our Controller and her accountant assistant using the Mortgage Office software (cost: $35,000), the premiere software package for hard money lenders who fractionalize their loans.
The Company also earns property management fees from servicing REO’s. Last year we earned $70,000 in property management fees.
LIST OF PRIVATE MORTGAGE INVESTORS
Arguably the Company’s most important asset is our list of 1,000 current private investors who invested with us over our 27-year history. In addition, we have compiled a list of another 2,000 active trust deed investors who have invested with our hard money competitors. We have spoken with virtually all of them and verified that they are actively looking at deals.
We currently sell our first trust deed investments exclusively by e-mail.
ABILITY TO RAISE MONEY
Because of our 27-year history and our relationship with around 1,000 current investors, the Company can quickly and easily raise millions of dollars in just two or three days without making a single out-going phone call.
To sell a loan we merely prepare an Investment Bulletin and email it to several thousand active first trust deed investors. While we give our salesman a tiny incentive to field the incoming phone calls, we do not have to pay any significant commissions. As a result we have written a number of attractive, fifteen-year, hard money loans at par – no points.
$26 MILLION MORTGAGE FUND
Blackburne & Brown Mortgage Fund I (“the Fund”) is a $26 million blind mortgage pool operated as a limited partnership. The Company serves as the General Partner of the Fund.
The Fund is a public securities offering registered by the California Department of Corporations. All of the investors must be California residents and be almost accredited investors. The appetite of California investors for good investment opportunities is arguably voracious. A 
reputable sponsor wishing to raise lending capital in California will have little trouble raising enough capital. One competing mortgage fund has reached $300 million and has been closed to new depositors for the past seven years.
The Fund has been in existence for over 12 years and has a perfect record of no principal losses that were passed on to our investors. The Fund currently pays its investors 6.375%. The Fund can easily be increased in size if a sufficient number of good loans can be found.
While the Fund owns a small handful of loans in their entirety, the Fund is primarily invested in a fractional share of approximately 80 different commercial first mortgage loans.
The portfolio of the Fund is in good condition.
PERMIT TO FRACTIONALIZE LOANS
One of the most important assets of the Company is our permit to fractionalize loans. This permit is issued by the California Department of Corporations.
You can think of the Department of Corporations as the California version of the SEC. They regulate securities offerings within the State of California. Any time you fractionalize a mortgage loan and sell the pieces to more than one investor, the issuance becomes a public security.
The Company has a treasured business plan permit from the Department of Corporations that allows us to publicly advertise for private investors and to place an unlimited number of investors into a single mortgage loan. Each investor must be almost accredited and be a resident of the State of California.
Raising investors to fund good loans has not been a serious challenge for the last seven years.
PREFERRED PLACEMENT ON C-LOANS
C-Loans.com is the largest and most popular of the online commercial mortgage portals. If you go to Google and type in “commercial loans” or “commercial mortgage”, you will find C-Loans listed at the very top of page one. As a result, C-Loans receives approximately 100 commercial mortgage loan applications every business day.
One of the assets enjoyed by Blackburne & Brown is that the Company receives a copy of every commercial loan application submitted using C-Loans, even if the borrower did not specifically apply to Blackburne & Brown. Blackburne & Brown pays C-Loans 50 basis points if any of the loans close with Blackburne & Brown.
The buyer of Blackburne & Brown will continue to enjoy this same preference for five years, with the proviso that the Company will still owe C-Loans a fee of 50 basis points when it closes each deal.
This means that the buyer will enjoy virtually all of the loan demand and deal flow that the buyer will ever need.
PHONE NUMBER – ONE MILLION MARKETING PIECES
Another of the assets the buyer of the Company will enjoy is the phone number of Blackburne & Brown. The Company has been leasing the same office space and has used the same telephone number for twelve years. Over that 12-year period the Company has sent out over one million marketing pieces showing our phone number.
One only has to sit in our office and listen to the phone to appreciate the importance of this phone number. The phone rings constantly with borrowers and brokers calling with commercial mortgage deals.
PERSONAL PROPERTY
Included in the purchase price is all personal property located in our Sacramento, California office, including desks, copiers, fax machines, more than a dozen personal computers and servers, phone system (subject to any remaining lease payments), loan servicing software ($35,000), and a very favorable (dirt cheap) office lease.
REPUTATION
Although Blackburne & Brown is no larger than a medium-sized hard money mortgage company, our reputation as a fair, bona fide lender is widespread nationwide. The reason why is longevity.
You’ll find Blackburne & Brown listed in the Crittenden Directory and a huge percentage of commercial mortgage bankers have read and enjoyed our newsletters.
The Company is very well-known and respected.
CROWN JEWEL – PERMIT TO SYNDICATE REAL ESTATE
There is a hidden jewel that comes with the Company, an asset that could be worth far more than all of the rest of the company.
The Company has a public securities permit from the California Department of Corporations to syndicate the purchase of real estate. In the 1980’s there was a multi-billion dollar industry known as the syndication business.
Each of those offerings had to be a private offering. Each Offering Circulars had to be numbered, and they could not be sent to anyone not personally known to the sponsor. No public advertising was allowed.
The Company currently enjoys a business plan permit from the California Department of Corporations to publicly syndicate a series of LLC’s to purchase real estate. The key thing here is that we can publicly advertise for California investors, and we currently have a very, very successful ad running on LoopNet.com.
Although our permit allows us to invest in any kind of real property, the Company chose to use this permit to invest in leased corn farm land in the Midwest as play on ethanol and higher oil prices. We have already closed eight deals using the permit, and our investors are doing extremely well.
The buyer of the Company would be foolish not to take this permit and run like crazy with it. One only has to look at the meteoric growth of the TIC industry to see the potential for the Company using this permit.
Important note: While I will be giving the company a covenant not to compete as to making hard money loans, I will not be giving a similar covenant not to compete as to syndicating investors to purchase of real estate.
CONSULTING CONTRACT
In order to provide the Company with guidance during the transition and to provide me with a base income without touching my corpus, one of the conditions of the sale will be a consulting contract for five years at $150,000 per year. This is a part-time position in return for a maximum of eight hours per week.
Most of the consulting will be done by phone or internet from my home in Indiana, but I will come out to California, at the Company’s expense, a few times per year if needed.
As a practical matter, the buyer will probably want to call me several times a day to run ideas, challenges, and legal matters by me. There is no substitute for 27 years of experience. If requested, I will be happy to write advertising copy (newsletters) for the Company as well.
COVENANT NOT TO COMPETE
Part of the purchase price will be allocated to a covenant not to compete in the hard money business for three years.
This will not be a complete ban from the mortgage business. I will be allowed to continue to operate C-Loans.com and to allow competing hard money brokers to receive also leads from C-Loans. In addition, I will personally be allowed to broker hard money deals to existing hard money shops.
I will not, however, be allowed to put my own private investors into deals for three years.
Nothing in this agreement will prevent me from soliciting private investors to invest in equity deals; i.e, the purchase of real estate.
LICENSING REQUIREMENTS
In order to own any part of a California real estate brokerage company, one of your principals will need to obtain a California salesman’s license. Anthony’s Schools provides an excellent licensing training program that can be completed in about 45 days.
The Company will also need a licensed California real estate broker to serve as the broker for the company. Three of our current employees are licensed real estate brokers, and the buyer should be able to negotiate a deal with one of them to serve as the broker.
ASSETS NOT INCLUDED
Not included in the purchase price is the personal property located in our Indiana office, which will serve as the new headquarters for C-Loans, Inc. C-Loans will take over the lease on this building.
Not included in the purchase price are the various domains and software associated with our commercial mortgage portals, including, but not limited to, c-loans.com, blackburne.com, and commercialloans.com. The Company will retain blackburneandbrown.com.
Not included in the purchase price are my commercial mortgage related training programs and materials.
OPERATING RESULTS
The income and expenses of C-Loans, Inc. and Blackburne Publications (internal name for our training material sales) have historically been consolidated with those of Blackburne & Brown in the preparation of our audited financial statements. C-Loans brings in about $875,000 per year and Blackburne Publications brings in another $225,000 – but those entities
also have some major expenses.
In order for the buyer to understand the operating results of just Blackburne & Brown alone, we have prepared a spreadsheet where we have backed out both the income and the expenses of both entities.
In addition, the Company is a C-corporation. Therefore it makes little sense to leave any profits in the Company because I would only pay corporate income taxes on this money. (They didn’t have LLC’s in 1980.) Therefore on the same spreadsheet we have backed out my personal compensation, including salary, bonuses, pension plan contributions, telephone, and auto-related expenses.
AUDITED FINANCIAL STATEMENTS
Audited Financial Statements for the Past Two Years (PDF)
Consolidated Financial Statements (PDF)
Blackburne and Brown Income and Expenses Without C-Loans (XLS)
To set up an appointment to visit the Company, please call George Blackburne at 574-360-2486 or email him at george@blackburne.com.