Broadmark’s Adam Fountain Explains Gap in Short-Term Financing Market

By Adam Fountain, co-owner of Broadmark Real Estate Management

Q: What has caused a gap in the market for short-term real estate financing?
A: Regional, community lenders used to provide short-term real estate financing for small to mid-sized builders and developers. Many of these banks were forced to either close or consolidate because of the financial crisis of 2008.

The banks that remain are larger, more cumbersome and prefer to lend to larger builders with steady cash flows. Smaller builders and developers tend to have lumpy cash flow but good balance sheets. They build highly marketable projects, and have a real need for consistent, efficient sources of credit. We look beyond cash flow to the underlying collateral.

Our firm’s biggest problem is raising enough capital to meet demand for our loans. We decided to re-introduce our open-ended fund, Broadmark Real Estate Lending Fund II (BRELF II) on the RealCrowd platform. The fund has $359 million in assets under management, and is targeting a $10 million fundraise on RealCrowd. It writes short-term, first-position loans for real estate transactions in Colorado, Utah, and Texas without using leverage.

We like the RealCrowd platform because it introduces us to accredited investors that we would not have met otherwise. Our firm has raised more than $30 million in capital through RealCrowd. We were also impressed with their vetting of us. We were required to go through an extensive due diligence process before they placed us on their platform.

Q: How are short-term real estate loans typically used by the borrower?
A: Generally, these types of loans are used to develop, renovate or upgrade commercial or residential properties. The loan is repaid through the sale of the property or refinancing into a long term loan.

Q: What else is important to know about short-term loans?
A: There is strong demand for these loans. Small to mid-sized builders and developers continue to play an important role in meeting the demand for housing, typically supplying the bulk of new home construction. This is especially true in urban infill areas that have seen tremendous population and economic growth since the financial crisis. In a credit market with shrinking supply and fundamental demand, investors have a unique opportunity to realize attractive yields at modest levels of risk. BRELF II allows investors to immediately diversify across an entire portfolio of 125 conservatively underwritten, short term, first position loans.

For comments, questions or concerns, please contact Dennis Kaiser