Phoenix & Southwest + Southwest + Office | February 7, 2019

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.

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.