LYNK Capital invests primarily in short-term loans made to borrowers who are building or renovating residential or mixed-use real estate. Investing in mortgages – being a lender to owners of real estate – offers an alternative form of real estate exposure with certain benefits:
- Lower Capital Risk: Borrowers are required to bring equity into the project (typically 15 – 25%) and take the risk of first loss in the event that the property sells for less than expected. This results in less capital risk for the lender compared to property ownership.
- Consistent Returns: Investor returns are paid directly by the borrower, through monthly interest payments, and aren’t reliant upon property price appreciation.
- Security: In the event of a default, the lender can foreclose and assume ownership of the underlying real estate.
LYNK Capital aims to provide consistent monthly income paired with the security of having first-lien security in real estate.
- Distributions: Paid monthly
- Security: First lien mortgages on real estate
At LYNK Capital, we believe that, when done properly, mortgage lending can be an attractive and secure investment. To this end, we utilize the following principals when underwriting loans:
Conservative Loan-To-Value Limits: Loan-To-Value (LTV) simply means the amount of the loan divided by the value of the property. Lower LTVs mean lower risk, as there is greater collateral value securing the loan. While Wall Street loans of the mid-2000s were often done at 100% LTV and banks still routinely make 95% LTV loans on owner-occupied properties today, LYNK makes loans where the LTV at completion of any improvements will be no greater than 75%. Overall, we target a portfolio LTV of no more than 70%.
Short-Term Loans: Long-term loans can be risky, as interest rates and market conditions can vary greatly over time. At LYNK, we focus on short-term loans – typically between 6 and 18 months in duration. By focusing on shorter-term loans, we can underwrite loans to a specific set of market conditions and quickly adapt when things change.
Focus on Repayment: For each loan, we focus intently on how our funds will be repaid, even if the borrower defaults. This includes an analysis of the borrower’s experience and capacity to complete the project, the strength of the renovation or improvement plan, and overall market conditions. As a backup, if we do not believe that LYNK can take over a project and complete it successfully, we don’t do the loan.
A primary focus of LYNK Capital is the origination of small-balance renovation and construction loans on residential properties. We believe this is an attractive market because:
Prior to the mid-2000s, builders and property developers were traditionally served by local community banks; however, as a result of increasing regulations and oversight, these banks have reduced their levels of lending and have generally made obtaining renovation and construction loans a more difficult and time-consuming process. As a result, many small property developers are under-served by the traditional banking system and have a strong need for financing from private lenders – meaning that lenders like LYNK Capital can make good quality loans at higher rates than those offered by banks.
While loans from banks are difficult and cumbersome to obtain, there are always properties that need to be renovated; additionally, many areas served by LYNK simply have an abundance of older properties that can be increased in value and desirability with moderate renovations.
Beyond the market conditions noted above, renovation and construction lending is inherently short-term in nature, meaning that LYNK can help reduce risks related to interest rates and market conditions by focusing on lending to projects with foreseeable completion and repayment dates.
