December, 2020
The Broadmark Private REIT, LLC is pleased to report the results of our operations for the month ended December 31, 2020.
Monthly Return net of fees for month ended December 31, 2020: 0.81%
Assets Under Management at December 31, 2020: $61.6M
For further details please see the attached Fact Sheet.
Market Insights
Strong demand in residential housing continued through year-end 2020. The Mortgage Bankers Association reported that purchase applications ahead of the holidays were up 26% for the week ending December 18th compared to the same week a year ago. Although interest rates have ticked up slightly in recent weeks, with the 10-year Treasury crossing back above 1%, mortgage rates have been much slower to increase from record lows in December. Low interest rates remain supportive of construction activity across all property types, including single-family and multifamily residential.
Winter is typically a slower season for the housing market, however the persistent undersupply of housing should continue to stimulate activity. As measured by the St. Louis Federal Reserve, the supply of available houses for November 2020 remained near historic lows at 4.1 months of inventory available. Trends driving the sustained demand for housing include millennial household formation, the desire for more space in a work-from-home world, and the continued economic recovery that is expected to accompany the COVID-19 vaccine rollout and the lifting of stay-at-home measures.
Case Study
Each lending situation is different and may not be representative of our portfolio generally. However, we hope these profiles provide current and potential investors with some insight into our methodology.¹
Loan Type: Development and Construction
Total Broadmark Realty Loan Commitment: $6,472,500
Property Location: West Richland, WA
Month Funded: December 2020
The subject loan is a development and construction loan for $6,472,500 that is collateralized by two projects from the same borrower. Broadmark Realty has issued separate deeds of trust for each project. This type of cross-collateralization can be beneficial for both Broadmark Realty and the borrower. It is a convenience for both the borrower and Broadmark Realty to process and service one loan as opposed to two when construction on each project occurs simultaneously. In addition to convenience, Broadmark Realty also benefits from having extra collateral. The larger loan balance relative to the individual value of the properties allows us to take proceeds from whichever property sells first.
The first project is the site development and some vertical construction of phase 2 Western Ridge, a residential development in West Richland, Washington. The appraised as-completed value of this project is $6,865,000. The second project is vertical construction of the residential portion of a mixed use project in downtown West Richland. The appraised as-completed value of this project is $3,260,000. The aggregate appraised as-completed value is $10,125,000 giving this loan a loan to value ratio (LTV) of 63.9%. Consistent with Broadmark Realty’s lending practices, the entire loan amount is not released at closing. Funds are disbursed as construction draws as the project progresses. Broadmark Realty’s draw process is detailed and includes third party inspections and lien releases through each stage of construction before additional funds are disbursed.
The phase 2 of the Western Ridge project will consist of 39 buildable lots for various types of residential properties including townhomes, triplexes, multifamily buildings and single-family homes. The borrowers have already invested approximately $1M of their own funds into development work. Progress has been made on street expansion, grading, asphalt, water and sewer. The proceeds of the subject loan will be used to complete development work, complete construction of 12 single family homes and prepare the remaining lots for vertical construction.
The second project is closer to the downtown area of West Richland, but not far from the first project. The subject loan will finance the vertical construction of six residential properties – four fourplexes and two duplexes. At a later date the borrower will build an office building, a small strip mall, and a storage facility adjacent to these multifamily homes. The commercial elements of the project are not included in the subject loan proceeds but the lot is included in our collateral.
The subject projects are close to both Red Mountain, home to top-rated vineyards, and Badger Mountain, which has popular hiking trails and other outdoor activities. There is easy access to Interstate 82 which provides a fifteen-minute commute to the Tri-Cities as well as a direct route to both Seattle and Boise. The area is experiencing high growth with lots of development activity in the immediate area from both national and regional builders. According to the Tri-Cities Area Journal of Business, home inventory hit a record low in September 2020. The towns of Richland and West Richland are currently building four new schools to address the population growth which is driving demand for continued residential construction in the area.
The borrower has extensive experience and has demonstrated a clear ability to execute large-scale residential projects. He has 20 years of experience working for large companies managing development projects over $100M, and since starting his own company in 2015, he has built and developed over 80 units and 30 acres. Phase 1 of the Western Ridge project, not financed by Broadmark Realty, was the development of 31 single family lots. The borrower completed and sold 27 of those lots and kept the remainder for private use.
This will be the second loan between Broadmark Realty Capital and the subject borrower. The other loan is financing a project across the street from the Western Ridge Development and is also a large-scale residential project. This loan has been performing well.
If you have questions or would like to make an investment, please do not hesitate to contact me to request a copy of the Private REIT’s confidential private placement memorandum. We accept capital from qualified purchasers on the first of each month depending on availability. Due to an increase in investor interest we are currently adding new investors to our waiting list. Please contact us to be put on the waiting list.
We look forward to a healthy future.
As always, thank you for your support.
Jessica Disman
Director of Sales and Marketing
Broadmark Private REIT
1420 Fifth Avenue
Seattle, WA 98101
Phone: (206) 623-1200 ext. 127
Broadmark Private REIT Management, LLC (the "Manager") provides this presentation to prospective investors on a confidential basis for informational and discussion purposes only. This presentation is not an offer to sell or a solicitation to buy preferred units of Broadmark Private REIT, LLC (the “Private REIT”). We will only make any such offering to qualified purchasers through the Private REIT’s current Confidential Private Placement Memorandum (the “Memorandum”). The Private REIT’s preferred units may not be eligible for sale in some U.S. states or countries, nor are they suitable for all investors.
The Private REIT is a private real estate finance company that primarily participates in short-term, first deed of trust loans secured by real estate that are originated, underwritten and serviced by Broadmark Realty Capital Inc., a publicly-traded REIT (“Broadmark Realty,” Ticker: BRMK). The Private REIT’s allocations of income, fees, and other amounts from participating in Broadmark Realty’s loans will vary based on applicable participation percentages.
The Manager calculates the Private REIT’s Monthly Return based on based on cash distributed to investors from loan origination fees and other fee-based income, less expenses and reserves, divided by total paid in capital, as of the end of each month. The Manager has broad discretion to determine distributable cash on a monthly basis. Assets Under Management are based on total paid in capital, less any permanent capital losses from loan participations.
Certain Risks. Real estate lending is speculative and entails substantial risks. As a real estate finance company, the Private REIT’s revenue and net income is limited to interest and fees received from participations in Broadmark Realty’s loans. The Private REIT’s ability to invest in additional loan participations is limited by the cash available to lend from new capital contributed by investors on a monthly basis. An investment in the Private REIT is speculative, involves substantial risk, and is suitable only for investors who can bear the economic risk of the loss of part or all of their investment. There can be no assurance that the Private REIT will achieve its investment objective or avoid substantial losses. The Manager does not guarantee the return of an investment or the performance of the Private REIT. Please carefully review the Memorandum, including “Certain Risk Factors,” for a general description of certain risks potentially applicable to an investment in the Private REIT. In making a decision to invest in the Private REIT, potential subscribers must rely on their own legal, tax and financial advisors in reviewing the proposed offering.
Historical performance data of Broadmark Realty is provided for illustrative purposes only. References to Broadmark Realty include its consolidated subsidiaries after a business combination which occurred on November 2019, and refers to the Pyatt Broadmark Real Estate Lending Companies I-IV for all periods prior to that date. The Private REIT was recently organized and has a limited operating history of its own upon which prospective investors may base an evaluation of its performance. Any loan data or performance information presented for Broadmark Realty is not the past performance of the Private REIT, and is not indicative of possible future results of the Private REIT. There is no assurance nor should it be assumed that the future performance of the Private REIT will achieve results comparable to the past performance of Broadmark Realty. PAST PERFORMANCE IS NO INDICATION OF FUTURE RESULTS.
The impact of the COVID-19 pandemic and the measures implemented to contain the spread of the virus have had, and are expected to continue to have, a material adverse impact on the real estate lending business and results of operations of Broadmark Realty and the Private REIT, including the ability of borrowers to complete real estate projects and make timely payments of principal and interest on loans.
Certain Conflicts of Interest. Potential investors should be mindful of the important differences between Broadmark Realty and the Private REIT as outlined in the Memorandum. The Private REIT will largely be dependent on Broadmark Realty to source, negotiate, and originate mortgage loans, and to foreclose on defaulting borrowers. The success of the Private REIT is largely dependent on Broadmark Realty offering sufficient attractive loan participations, and Broadmark Realty could elect to offer a higher (or lower) participation interest in any loan for any reason, which could result in conflicts of interest. It is possible that the interests of Broadmark Realty will at times conflict with those of the Private REIT, which could negatively affect its performance. There is no guarantee that the Private REIT will achieve results that will allow it to pay a specified level of cash dividends or to increase the level of such dividends in the future similar to Broadmark Realty. The Manager may be delayed in reporting performance or other information relating to Broadmark Realty’s loan portfolio until after certain financial information has been publicly filed by Broadmark Realty. The Private REIT’s preferred units are subject to substantial restrictions on redemptions, including a one-year initial lock-up period and quarterly limit on the total amount redeemed, and are not eligible to be transferred or resold to the general public.
Vigilant Distributors, LLC, SEC-registered broker-dealer and FINRA member, serves as placement agent with respect to the offer and sale of the Private REIT’s preferred units. The Manager has elected to pay Vigilant Distributors’ fees for the initial year of the Private REIT’s operations. Certain of the Manager’s personnel are Vigilant Distributors -registered representatives who market the Private REIT’s preferred units. The Manager’s personnel are also employees of Broadmark Realty. Broadmark Realty has adopted a bonus policy for eligible employees based on various performance factors, including contributions to the growth of the Manager. The Private REIT and the Manager have engaged independent selling broker-dealers and web-based platforms to market the Private REIT’s preferred units. The Manager (not the Private REIT) pays platform fees and expenses, and also pays to any independent broker an upfront fee equal to 1.00% of a subscriber’s invested capital and, after the first anniversary thereof, an annual fee equal to 0.50% of the subscriber’s invested capital. Due to the compensation paid, these persons have a conflict of interest in recommending the Private REIT to potential investors.
