Dear Broadmark Private REIT Investors,
We would like to address the dip in returns in the Private REIT for the first quarter of this year. First, rest assured, the portfolio is healthy. There are no defaults in the Private REIT. We continue to originate loans according to our conservative underwriting guidelines, which include a maximum 65% loan to value ratio, personal guarantees from every borrower, and third-party appraisals extensively reviewed by our team. Protection of investor capital is our utmost priority.
As you know, returns in the Private REIT are determined by formula, are a simple revenue share between investors and management, and are separate from dividends issued by BRMK. The primary factors that affect returns are the performance of the assets and the utilization of our capital. The only asset that does not generate returns is cash. While we work on deploying the cash available, we may not be able to accept additional investments in the near term.
We are in a highly competitive market, which has seen significant capital inflows over the past year. Interest rates remain a at historic lows and new entrants as well as existing competitors are aggressively pursuing the attractive yields that construction lending can provide. While we view this intense investor interest as a validation of our business model, heightened competition may drive increased variability in originations from month to month as we seek loans that fit our underwriting standards.
We are considering all options to retain our competitive edge in this changing market. Our investment and credit committees continue to review additional states in which to extend our lending activities. We are also evaluating our pricing relative to project types and appropriate risk levels. We hope to share updates with you in the near future.
Demand for housing still overwhelmingly exceeds supply and substantial opportunities in real estate lending remain. The goal of the Broadmark Private REIT continues to be principal preservation and we will continue to underwrite each loan as we always have – with care and appreciative of the trust you have placed in us. By remaining disciplined, we will continue to act as good stewards of investor capital.
As always, we thank you very much for your support.
Jeffrey B. Pyatt