I am pleased to provide you with this quarter’s update for the LYNK Capital fund. This quarter produced the highest volume of new assets added to the portfolio in the fund’s history. The demand from borrowers for non-institutional money remains strong and solid mortgage loan opportunities continue to be available for the LYNK Capital fund. While we added considerable assets, the fund experienced a slight increase in investor returns for the quarter. With the strong demand for capital coupled with the stable market conditions, the fund has filed an amendment to its registration with the SEC increasing the equity raise to $40million from $25million. This increase reflects the optimism of LYNK Capital’s management and in no way will reduce the lending disciplines or risk management.
Growth in Assets and Equity
In last quarter’s report, we touched on the solid months of loan production that was expected in Q1 of 2017. Consistent with expectations, LYNK Capital completed its best quarter for the number of new loan assets and overall growth in total assets outstanding. The fund began the quarter with 67 assets and added 30 new loans, had 13 loans payoff for a net increase of 17 loans. The increase totaled $18,118,068 of new loans as of the quarter ending with $52,234,798 in total assets, a growth of 38 % for the quarter. The loan payoffs for the 13 loans totaled $1,950,49 and were secured by single family housing. Equity in the quarter grew by $2,576,383 taking the fund’s total equity to $26,742,640 for an increase of approximately 10 %. Q1 2017 loan closings have increased by over 300% from Q4 2016.
LYNK CAPITAL 2017 1st Quarter Production
|Transactions paid off||13|
|Dollar amount funded||$18,118,068|
|Growth in equity||$2,576,383|
Delinquent loans remained consistent with previous quarters with the same few loans showing slow pay or no pay. Delinquent loans 30 days or more remained at 4 or 4.76% of total number of loans outstanding. Only 1 loan was 60-days or more delinquent and in a foreclosure status. The borrower on this loan did make 2 payments in the last 30 days and is attempting to become current. Overall, the delinquency rate remains in line with projections and below private lending historical delinquencies, and no major concerns or impact to investor returns are projected. At the time of this report, only 2 loans were in 30 day or more delinquency status.
As in past quarterly reports, the completion and sale of the handful of existing LYNK-owned assets is management’s priority to complete and sell these assets due to the non-accrual status and the drag on investor yields. While it seems to be moving very slowly, most of the projects are nearing completion or have been completed and are for sale. The two largest projects represent 66% of the real estate held for sale by LYNK Capital and are ready for building permits and housing to be built. Our plan with these 2 projects is to have a builder build out these small subdivisions so that we can maximize investor returns and take advantage of the strong real estate in Montgomery County, Maryland. We are confident in our strategy to sell these two projects at our target sales prices, however this process will take another 12-18 months to complete and sell the new homes.
Market indicators produce strong arguments for a stable economic environment and specifically the housing market for the foreseeable few years, supporting our business model’s opportunities and risks profile. Housing inventories are low with less than a 3-month supply. Additionally, housing affordability remains favorable when compared to historical data. According to Zillow, homeowners are spending only 15.8% of their income on mortgages versus historic levels closer to 21%. However, as home prices continue to rise, coupled with a rise in interest rates, home prices will likely level off and inventories will probably increase. Home prices have outpaced incomes and at some point, housing affordability will be an issue. All of the market indicators will continually be monitored and reported to investors in most of the quarterly reports. See charts below for housing and market data.
Looking forward, we believe that LYNK Capital’s business model continues to remain relevant and provide value to both investors and borrowers. Opportunities for growth and profitability remain strong, and the fundamental need for private mortgage capital remains as prevalent today as it did three years ago. Accordingly, we are now planning for the future growth of LYNK, which will include a plan to grow and extend the existing LYNK Capital fund. Information about this plan will be distributed to our investors in the coming days and we will greatly appreciate your consideration of this plan.
As always, we remain committed to our core principles – to protect investment capital while producing above-market risk adjusted returns. So, on behalf of the entire management team at LYNK Capital, we thank you for your support and more importantly, for your trust with your money.
LYNK Capital, LLC
(To view a PDF version of this report, click here)