February, 2021
The Broadmark Private REIT, LLC is pleased to report the results of our operations for the month ended February 28, 2021.
Monthly return net of fees for month ended February 28, 2021: 0.56%
Assets under management at February 28, 2021: $83.0M
For further details please see the attached Fact Sheet.
We’ve expanded the Broadmark Private REIT website to include a section with thoughts about our business, the investment landscape and broader market topics. We recently posted a new piece titled, “The Differences between Investing in a Publicly Traded REIT and a Private REIT.” We invite you to browse our other articles here. We welcome your feedback, and if there is a topic that you would like us to address, please don’t hesitate to contact us.
Market Insights
Housing fundamentals remain strong. While mortgage rates have ticked up slightly from record lows in December 2020 and costs of materials such as lumber have put pressure on builders, permits in February remain well above the (seasonally adjusted) average over the past 3 years. Permits are a key leading indicator of construction activity as the U.S. enters the busy spring building season.
With unsold home inventory at only 4.8 months of supply as of February, home prices have increased significantly over the past year. All of the 161 metro areas tracked by the National Association of Realtors witnessed home prices grow from a year ago, with 88% of the metro areas seeing double-digit price increases. This growth in home price appreciation has helped to create sustained demand for the types of construction projects that Broadmark seeks to finance, such as single family houses and townhomes. Additionally, the COVID-19 pandemic has accelerated the movement of Millennials from city centers out to Broadmark’s predominantly suburban markets, and this trend in household formation is expected to continue even as the vaccine is rolled out.
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: Horizontal Construction
Total Broadmark Realty Loan Commitment: $2,030,146
Property Location: Spanish Fork, UT
Month Funded: February 2021
The subject loan is for the horizontal improvement of a site to prepare for the construction of 20 single-family homes. The loan amount is $2,030,146 and the appraised as-completed value of the improved land site is $3,345,000, with a loan to value ratio (LTV) of 60.7%. 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. We believe 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 subject project is called River Point, a proposed residential development in Spanish Fork, Utah, located immediately south of Provo. The project consists of 41 single-family lots which will be completed in four phases. The subject loan is for Phases 1 and 2 and will finance the land improvements including water lines, power, gas, paving, and telecommunications for 20 of the lots. The homes will be a mix of custom builds and marketed lots.
The Provo/Orem area has been ranked among the top 10 most livable areas by surveys in Fortune Magazine and Time Magazine, with strong economic and population trends supported by nearby ski resorts, corporate headquarters, and several major universities. The estimated value per completed lot for the subject loan is $167,250. Based on Spanish Fork’s market profile, the completed homes will target the “move-up” market segment, often consisting of families looking for additional space, with typical home values ranging from $400,000 to $600,000.
The borrower group includes two experienced developers along with a third well-capitalized financial backer, all three of whom have excellent credit profiles and will serve as guarantors. One of the borrowers is a repeat Broadmark customer. The general contractor for the development is also a Broadmark customer who has worked with one of the guarantors on other Broadmark-funded projects.
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.
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.
