I am pleased to provide you with this quarter’s update for the LYNK Capital fund. The 2nd quarter of 2017 showed continued growth in most areas of the LYNK Fund. Growth in new loan assets and equity was positive with a considerable number of loan payoffs being received. One of the areas we did not achieve an increase was the overall interest rates to our new borrowers. Interest rates are compressing slightly downward as more non-bank lenders are entering the marketplace. If LYNK keeps its loan pricing above the market, the fund will become adversely selected by lower quality borrowers and loans, driving the default risk higher. These market conditions translate to LYNK earning 50 basis points less on a loan but keep the quality of loan and lending standards higher. One other area of good news is LYNK closed on a 4-million-dollar debt facility with an attractive interest rate. This is important to help offset the lower interest rates being offered to new borrowers. Our returns to investors should remain steady even with lower note rates to borrowers given the cost of debt being reduced proportionally. We also were successful in selling two LYNK owned assets that produced positive returns for the fund.
Growth in Assets and Equity
The fund began the quarter with 84 assets totaling $52,234,798, added 29 new loans for $6,887,239 and received 20 loan payoffs totaling $3,425,889 for a net increase of 9 loans ending the quarter with 93 assets under management. The increase in assets under management grew by 9.21% for the quarter; ending the quarter with $57,047,099 in total assets. The new loan assets comprised of 22 single family, 6 multi-family and 1 commercial loan. The funds equity in the quarter grew by $3,290,250 taking the fund’s total equity to $30,032,890 for an increase of approximately 12.30 %. The growth in equity demonstrates confidence in the fund and the investment strategy in general.
|LYNK CAPITAL 2017 1st Quarter Production|
|Transactions paid off||20|
|Dollar amount funded||$6,887,239|
|Growth in equity||$3,290,250|
Delinquent loans have increased slightly with the number of loans 30 days late or more increasing to 5 at the end of the quarter. This increase as a percentage of total loans managed represents 5.4% of the number of assets and less than 3% of assets in terms of gross dollars. These figures are below projections of 8% for 30+ days and 2% for 60+ days late. One loan remains in 90+ day status and 1 at 60+ day status at quarters end. LYNK is working through the collection process with these borrowers and remains confident in its loan to value position and collection process to recover all invested capital.
In this quarter LYNK sold off two owned properties totaling $965,000. The two main projects owned by LYNK are nearing the fully developed phases and builder contracts are being worked on to begin the vertical construction phase of the projects. Twenty-three new homes are scheduled to begin in quarter four of 2017 with the construction of four model homes in two Maryland subdivisions.
Projections for the upcoming quarter remain consistent with previous quarters in the LYNK fund. Expectations for slow but steady growth in assets and equity should continue with slight margin pressures keeping the investor returns to around 11% for the next two quarters. The lending strategy and loan underwriting will remain consistent for the foreseeable future. There is much optimism within the equity and debt markets and some concerns should exist overall with investors given the likely rise in interest rates and expected inflation. Given these market changes, residential housing affordability could decrease lowering demand and ultimately home prices. Expectations from LYNK investors should be that the LYNK management team will continue to pay close attention and focus on economic forecasts and indicators and more specifically the residential housing markets. In the last quarters investor report I stated that LYNK will deploy “cautious optimism” in its approach to real estate lending and that remains the same as we work through upcoming quarters.
As always, we thank you for your trust and confidence with your money and will 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 look forward to a successful and profitable future together.
LYNK Capital, LLC
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