Trinity Merger Corp.'s $1.2 billion acquisition of the Broadmark lending and real estate management companies, and the formation of a new publicly traded mortgage real estate investment trust, will give the lender a permanent source of capital and enable it to expand in traditionally underserved markets, executives said.
Broadmark entities provide construction, land and development financing for commercial and residential properties, with about $992.2 million in committed loans outstanding as of March 31. The combined companies plan to form a new mortgage REIT, Broadmark Realty Capital Inc., that will apply for listing on the NYSE.
A migration of Americans out of high-cost states and into low-cost states in the years since the financial crisis has fueled rising demand for housing and therefore construction financing in Broadmark's markets, which include Washington state, Oregon, Idaho, North Carolina and Georgia, Steve Haggerty, a managing partner of Trinity Investments, said in a conference call. Trinity Investments is an affiliate of the sponsor of Trinity Merger, a special purpose acquisition company.
Haggerty said Broadmark's markets have been served by regional, community and commercial banks, but regulatory changes have made it more difficult for banks to provide transitional loans, creating high demand for real estate debt.
While the lender has expanded into Texas, Colorado and Utah in recent years in response to significant population and job growth, Broadmark's traditional markets remain "significantly under-penetrated," Haggerty said, adding that the new REIT will seek to expand Broadmark's business there.
Becoming a public company "is something that was very attractive to us because we have always been capital-constrained," Broadmark Capital LLC founder and President Joseph Schocken, who will be chairman of the new REIT, said on the call.
Jeffrey Pyatt, president of Pyatt/Broadmark Management LLC, will become CEO of the REIT. He said on the call that the combined lender plans to appeal to investors with a double-digit dividend yield and limited correlation to broader equity markets.
Broadmark's strategy of targeting loans with short-term maturities should mitigate interest rate risk and provide a buffer against collateral price declines, he said. Pyatt also said the lender maintains rigorous underwriting, noting that the average loan-to-value ratio on its loans is 58%.
The transaction is expected to close in early November.