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Exhibit A – Specifics of the Property Purchase
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California Residents Only
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Class: 2007-2 |
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PROPERTY |
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Project: Plymouth-LaPorte Trail 75 Acres |
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Plymouth-LaPorte Trail 75 Acres
We believe this purchase is an exceptional value. We are buying these 75 acres, 68.6 of which are tillable, for just $200,000. This works out to only $2,667 per acre. The corn farm land here in Marshall County enjoys yields in the range of 150 to 160 bushels per acre, which is considerably higher than the 125 bushels per acre, for example, experienced by neighboring Starke County. As a result, prime corn farm land here in Marshall County often commands as much as $4,000 per acre. If the land has future development value, it can often command $6,000 to $8,000 or more per acre. At just $2,667 per acre, our purchase price looks superb. The seller is an old woman who has owned the land for many years. She is selling this land and her restaurant in order to retire. There is anecdotal evidence that she had the land listed for around $400,000 for two years a few years back. We appear to be buying at a time when she just wants to retire and rest. Why buy corn farm land in the middle of Indiana? According to a February 20th article in Bloomberg entitled Corn Farms Replace New York Lofts as Hottest Property, “Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years. Demand for corn used in ethanol increased the value of crop land 16 percent in Indiana and 35 percent in Idaho in 2006, government figures show. Farmland returns `will take a quantum leap over the next 18 months,’ after corn prices surged to a 10-year high in February, said Murray Wise, the 58-year-old chairman and chief executive officer of Westchester Group Inc. in Champaign, Illinois, who oversees $460 million of land investments. Wise, who was born on a Canadian farm and now manages 85,000 acres, said prices in the U.S. Midwest may gain 12 percent a year through 2017. Farmland rose in value in 34 of the last 37 years, according to data compiled by UBSAgriVest, a unit of UBS AG, the world's biggest money manager. The returns are attracting hedge funds and investment brokers.” “Average U.S. farm prices increased by 15 percent in 2006, Agriculture Department data show … Marc Faber, a Hong Kong-based investor who manages about $300 million, ‘Farmland is very inexpensive in a world of inflated asset prices,’ he said in an interview Feb. 4. ``It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand,'' said Jim Farrell, “Jim Rogers, the hedge fund manager (and the former partner of George Soros in the Quantum Fund) who predicted the start of the commodity rally in 1999, said global warming will hinder crops and has advised purchasing farmland for at least a decade. ‘Because of the disruptions, agricultural prices will go through the roof,’ he told reporters in Melbourne on Feb. 7. `I am extremely bullish on agriculture’.” According to the DailyReckoning.com: The best bet for long-term profits is grain, argues Mark McLornan, founding member of Argo Terra - a global farming company. “When incomes rise, so does meat consumption - growth in beef and chicken consumption in China is running at 20% a year. It takes nine kilograms of grain to produce one of beef. Already, 67% of global grains are used as animal feed, so this surge in demand will have a huge impact on the grains market. Demand for biofuels is making matters worse. Corn used in fuel production in America is set to rise from 6.4% of U.S. corn production in 2001 to 30% by 2007/2008.” McLornan says that stocks of corn and wheat, the main global grains, are at record low levels. And as demand rises, it is getting harder and harder to expand supplies. Fertilizers have added to output greatly in the last 50 years, but additional inputs of fertilizers now produce diminishing returns. Nor is it easy to put new land into production. While land is available, water is scarce. And as populations and human development increases, agriculture has to compete for water with other uses. “I believe the fundamentals make grains a once-in-a-decade opportunity,” says McLornan. According to a March 7, 2007 article in the Wall Street Journal: “Farmland prices are soaring across the Midwest amid a surge in demand for corn driven by the ethanol boom. In the past year, cropland prices have climbed by double-digit percentages in many parts of the Heartland, as growers looking to cash in on $4-a-bushel prices for corn-up from about $2 a year ago-have scrambled to add arable acreage. Some outside real-estate investors also are seeking agricultural land, but the most recent aggressive buyers have been established farmers who want to expand.” “The dynamics of our market changed,” as the prices of commodities such as corn and soybeans soared, says John Kirkpatrick, a vice president and real-estate broker with Westchester Group Inc., a farm asset-management company. Mr. Kirkpatrick adds that farmers now “have a chance to make some real money.”
Ours is a productive piece of corn-growing land that is lush with water. The location of the property is particularly fortuitous because it is located just thirty minutes south of South Bend, Indiana, the site of one of the largest ethanol plants in the state. There are over 75 new ethanol plants under construction or in the planning stages throughout the United States. Their appetite for corn will be voracious. The U.S. ethanol market has grown dramatically in recent years as more states ban MTBE, a fuel additive used to increase octane levels of gasoline, and replace it with ethanol to meet state and federal clean air requirements. The National Energy Bill passed by Congress in 2005 is also fueling more ethanol production by requiring refiners to increase ethanol usage to 7.5 billion gallons by 2012. As of February 2006, the annual U.S. ethanol capacity stood at 4.4 billion gallons, with another 2.1 billion gallons on the way as additional plants come into production, according to the U.S. Department of Agriculture.
George has personally visited the property, and the stock cornfield photographs attached to this Property Investment Bulletin are a fair representation of the subject property during the growing season. Right now, of course, the snow has just melted, so the photographs of the subject property are not terribly attractive. It is this same melted snow, however, that replenishes the area’s wonderful water table.
We will not be farming the land. Instead we will be renting the property out to a nearby farmer for around $85 per acre or $6,375 per year. This is more than enough to pay the taxes. Corn prices have risen sharply in recent months, so we may be able to negotiate a slightly higher rental rate next year. It is customary in Indiana for farmers to alternate between corn and soybeans every few years. This is something that the tenant farmer will handle. This land purchase will be a short-term hold. Our anticipated holding period is just three-and-a-half years. We will hold the property until most of these new ethanol plants come on line, at which time we hope to sell the property for a 60% to 200% return. Title will be held in the name of Blackburne & Brown Equity Preservation Fund, LLC, Class 2007-2. Please don’t be confused by the name of the limited liability company, “Blackburne & Brown Equity Preservation Fund”. You are not investing in a pool of land investments. You are investing in the subject property only. In addition, land investments involve substantial risk, so there are no guarantees, despite the name, that your equity will in fact be preserved. That being said, land is a real asset, as opposed to a paper one. I suspect your grandmother would nod her head in approval at the prospect of you investing in free and clear real property at a time of market volatility. The Fund is a special Delaware-registered limited liability company, where each class of membership interests in the Fund is a separate legal entity. Each class of membership interests (think of each class like a separate class of stock) only owns the assets purchased by that class. Each class is only obligated for the liabilities incurred by that class. This reduces your legal fees considerably. In fact, the investors in this property will have no legal expenses associated with creating the class. This means that far more of your investment will be spent to actually acquire land, instead of being used to pad the pockets of some attorneys. Arguably the biggest single advantage to participating in this purchase is the fact that the members of this investment group will be buying this property for “all cash”. The LLC will own this property free and clear. This means the LLC will have the staying power to weather bad markets and hold out until the market is ripe for sale. The investment term is anticipated to be three-and-a-half years, although the managing member of the LLC, Blackburne & Brown Mortgage Company, Inc., will notify the investors of all written offers. If the group gets a fabulous offer to sell the land earlier than three-and-a-half years, the investors can vote to accept it. Votes are based on percentage of ownership. Blackburne & Brown will receive a syndication fee of ten points for finding the property and assembling the investment group. In addition, Blackburne & Brown will earn 30% of the appreciation of the property, but only after the investors get a cumulative, non-compounded preferred return of 8% annually. If your annualized return is less than 8%, Blackburne & Brown will make nothing more than its original syndication fee for organizing and managing the LLC. While our target return is a total over 3.5 years of 60% to 200%, please be careful here. Blackburne & Brown cannot make any guarantees or predictions about your potential return. This investment is intended to be a medium-risk, high-return opportunity. It is very possible that if the economy implodes that you could lose much of your investment. While it is anticipated that the rent from the farm land will cover the holding costs of the land, stuff happens. The existing renter could cheat us or go bankrupt. We might not be able to timely find a new renter. Therefore you must be prepared to pay your pro rata share of the annual real estate taxes and management fee. Failure to pay your assessments will have some fairly severe financial consequences, so please be sure to plan for it. There are no provisions for an early withdrawal, so you must be prepared to ride out the volatile swings in land values for the three to five years. This investment is a registered security. As a result, you can only sell your interest with the approval of Blackburne & Brown. We must insure that the buyer is an accredited and suitable investor and that he has received all of the required disclosures. Approval of the California Department of Corporations is also required. There will be a substantial fee to handle this paperwork, in addition to any discount required by the buyer, if one can even be found. The wise investor will therefore only enter this investment with the idea of holding it until the property is sold. Investors may, however, grant their interest to their children and their grandchildren. In fact, a $23,000 investment in this property could prove to be a fine college fund for a very young child. Not everyone is suitable to invest in land with Blackburne & Brown. First of all, you must be a California resident. Secondly, an individual investor must have a net worth in excess of $1 million (including your home, furnishings, and automobile) and the investor must have either (a) a net worth of at least $250,000 and an annual income of at least $65,000 or (b) a net worth of at least $500,000; not including your home, furnishings, and automobiles. Finally, the investor must appreciate that this will be a three to five year investment. The investor must not reasonably foresee the need for these funds for five years. Investing in land involves substantial risk, so please be sure to carefully read the Risk Factors section of the Offering Circular before investing. That being said, when you invest in corn farm land today three major forces are working in your favor – rising energy prices, China’s growing meat consumption, and inflation. For a more detailed explanation of why investing a little money in land makes sense, please be sure to read the brochure, Land Investments from Blackburne & Brown below.
LAND INVESTMENTS FROM BLACKBURNE & BROWN “Land investments, George? Why on earth would I want to invest in land? Yuck. Land doesn’t generate any income.” Exactly. Very few investors can afford to invest in an asset that doesn’t at least pay 2% in interest or dividends. Most investors want at least some current income to supplement their pensions and social security. Less competition is what creates the opportunity to earn great returns by investing in land.
“Great returns, my eye. I’ve known land values to fall by 65% during recessions.” You’re absolutely right. Land values can be extremely volatile. But just as land prices can fall precipitously in recessions, well-located land has been known to rise quite handsomely in value when it finally becomes ripe for development. This is why land must often be held for at least ten to fifteen years before the timing is right to sell. When you invest in land in California, you are betting on the proposition that the population of this sunny state will continue to increase and that the urban sprawl will continue to expand. The history of California has shown that this is a pretty reasonable bet. “Why even bother with land, George? Why take the risk?” Ahhhh, here’s the reason - Land and improvements appreciate at different
rates,
Suppose a Bay Area resident bought his home twenty-five years ago for $50,000 and the home is now worth over $750,000. That’s a pretty common story, right? Do you really think that the cost to build a 2,200 square foot home has increased by fifteen-fold in twenty-five years? No way! That $50,000 home probably cost around $40,000 to build in 1981. If it burned to the ground, it could probably be rebuilt today for less than $280,000 ($127/sf). Building costs may have increased seven times over the past twenty-five years. The rest of the appreciation was due to the appreciation in the land! In our hypothetical example above, the Bay Area resident bought the home for $50,000 - of which $40,000 was the cost of the bricks and sticks. The cost of the lot was around $10,000. Now if the home is worth $750,000 today and the bricks and sticks are worth only $280,000 - then the lot is now worth on the order of $470,000. That’s a forty-seven-fold increase over twenty-five years. Now you can see why the wise investor will invest at least a small part of his real estate portfolio in land. Land and improvements appreciate at different rates ... and land can sometimes appreciate much more.
“Why does land appreciate so much more than buildings?” The supply of land is finite, as opposed to lumber, steel, and concrete, for example, which are renewable resources. In addition, land that will not be suitable for development for 15 years can often be purchased for just a tiny fraction of the cost of land that is ripe for development today. After all, very few developers can afford to hold land in inventory for 15 years. Finally, there are two major forces driving land values higher - inflation and population growth. “So if I invest in land, Blackburne & Brown
is guaranteeing me a 47-fold return over twenty-five years?” No-no-no! We are merely demonstrating a concept using an example you have probably observed from your own experience. We cannot guarantee you any return, and you could easily lose most of your investment. The only thing we are guaranteeing is what Will Rogers once said, “Buy land. They ain’t making any more of the stuff.” “But George, I just can’t get past the fact that this investment doesn’t generate any return. In fact, I’ll have to pay my share of the real estate taxes, right?” That’s true. If you invest in land with Blackburne & Brown, you will have to pay every year your pro rata share of the real estate taxes, the liability insurance, and the LLC’s property management fee. While these expenses are modest, this investment will have a negative return for 15 years. That’s why many accredited investors over 60 years of age may not be suitable to invest in land deals from Blackburne & Brown. If you need income, or you can foresee the need to access these funds anytime over the next 15 years, these land investments are definitely not for you. But for some investors, land might be a very fine investment. Example: Let’s suppose you are like me, George Blackburne. You want to receive at least $100,000 a year upon retirement, and in order to earn $100,000 a year in interest at 5%, you will need to have a portfolio of $2 million. In order to grow a $300,000 portfolio to $2 million in just 15 short years, you are going to need some big winners, some five-baggers and ten-baggers. Investing in land, and owning it free and clear (that’s important), is one reasonable way to swing for the fence without risking your entire investment. Example: Your kid finally gives you a grandchild. A $20,000 investment in a desirable piece of land, one located in the future path of growth, if held for 15 years, could make a big dent in your grandchild’s future college tuition. And because the investment is in something tangible, you can be more confident of it’s continued existence and purchasing power. We have all seen high-flying stocks become worthless.
“George, you said something about free and clear ...” That’s right. We will buy the land for cash. There will be no debt on it. That means there will be little pressure to sell the land in a bad market. Your investment will enjoy staying power, the ability to hold on through the tough markets and sell at a more opportune time.
Nope. You can invest with as little as $20,000. Investing in an all-cash land purchase is arguably less risky than a leveraged, improved-property purchase. There is no fire risk, no flood risk, no earthquake risk, no leasing risk, and no tenant risk. You are not going to lose your investment because the first mortgage lender foreclosed on the property. You just buy now, hold, and sell at an opportune time. In the meantime, inflation and population growth may work in your favor. Nevertheless, investing in land still involves significant risk. Be sure to read of Risk Factors section of the Offering Circular before investing. “Since I can’t spend my IRA money until I retire anyway, can I use IRA funds?” Yes. Blackburne & Brown can introduce you to an IRA firm that will handle this investment. Financial Suitability First of all, you must be a California resident. Secondly, an individual investor must have a net worth in excess of $1 million (including your home, furnishings, and automobile) and the investor must have either (a) a net worth of at least $250,000 and an annual income of at least $65,000 or (b) a net worth of at least $500,000; not including your home, furnishings, and automobiles. Finally, the investor must appreciate that this will be a long-term investment. The investor must not reasonably foresee the need for these funds for 15 years. “Okay, I am willing to bet a little dough on California
land and want to see an Offering Circular for more information. What
do I do?”
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Blackburne & Brown Mortgage Company, Inc.--For more
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Blackburne If
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Blackburne & Brown Equity Preservation Fund is putting together a small group of private investors to buy approximately 75 acres of corn farm land in Walkerton, Indiana. With syndication costs, closing costs, and a reserve for taxes and contingencies we are raising a total of $230,000. We will be buying the land for all cash.
chief executive officer at Farmers National Co. in Omaha, which manages almost 1.2 million acres of farmland on 3,700 farms. ``Midwest farmland is predicated by the strength or weakness of corn prices.'' Corn futures have jumped 82 percent on the Chicago Board of Trade in the past year. They gained 0.6 percent to $4.32 a bushel in electronic trading as of 3:43 a.m. local time. 
After the 130 degree temperatures in the inland areas of California this summer, the wise investor will appreciate the importance of water. Walkerton, Indiana is located within 15 minutes of George Blackburne’s home in Northern Indiana and less than 45 miles south of Lake Michigan. As a result, the land enjoys lake effect snow during the winter. When this snow melts into the ground, it adds to the already plentiful water table. In reality, however, many corn farmers in Northern Indiana don’t even have to pump up water to irrigate their land. They can rely on the natural rainfall to irrigate their crops.
Hypothetical:
“Do
I have to risk a lot of money?” 