Description

Manhattan Bridge is a “Hard Money Lender” structured as a REIT. LOAN is essentially a bridge lender to small real estate developers focused on “fix n flip” or residential repositioning in the metro NYC area. They get personal guarantees from the borrower as well as lending at 75% LTV. I believe their focus on the NYC metro area, that is plagued by a dearth of housing stock, bodes well for the credit of LOAN portfolio. The target population for LOAN needs less than $5m to finance a purchase and repositioning of a property and eventual sale, usually less than $2.5 m.

The developers in question do not intend to hold the stabilized asset but rather sell it and recycle any profits into future projects. This is the mom and pop developer. In that process, they become repeat customers for LOAN. These developers opt for Hard Money loans versus bank financing because of the speed at which Hard Money Lenders operate and the comfort these lenders have with less sophisticated developers and less robust documentation. This is reflected by LOAN into superior economics (7-8 % ROA). LOAN worries about the collateral thus the “Hard Money”, versus other aspects of the borrower.

The business, in a growing, thriving residential market like NYC is very low risk. Over the life of the company, it has never suffered a loss, nor have they foreclosed on a property (since 2007). Although in 2007-09 the did extensions to help get through the market when sale markets were frozen. They are viewed as partners and why they generate tons of repeat business. They know their neighborhoods well, and respond quickly, and close quickly so folks can bid on projects with confidence.

We believe the company can grow loans as bank capital has gotten tighter, and even other hard money lenders who rely on all equity models are getting squeezed. LOAN operates as a “scaled” hard money lender which allows it to get bank financing and access to the debt markets, even though they are modestly leveraged.

Currently, the company trades at about book value, yields 10%, and is basically covering its dividend. As NYC has created tons of incentives to push up the stock of residential housing, we believe there will continue to be plenty of opportunities to deploy capital and grow the loan book by 50-100% over the coming three years. In tandem, the company is buying back stock, and with it’s low leverage we believe that looking out three years the company can grow its eps, and stock price while stockholders get paid a healthy and covered dividend. We believe any material dislocation below book value will result in an aggressive buyback, and be accreative to EPS. The CEO owns a good chunk of the company and has provided a personal guarantee to the bank line.

So in three years we believe you will get a 30%+ cash return and a growth in EPS by 50% resulting in a total 70-90% over the next few years with great collateral in an low leverage credit model, all assuming no major multiple expansion. We do believe the company will amp up leverage modestly and that introduces some level of future risk, but we are starting at a low level.  A recent launch of a South Florida focused operation should also open a new avenue of growth, but local market knowledge is key so unfamiliarity with this new market could be a risk too. But in all the company has 75m of loans against 42m of equity and only 25m of debt. The company is extremely conservative which should allow it to play offense and get market share, increase EPS, as capital starts to leave the space, especially as banks start to deal with the CRE crisis over next 5-7 years and further ignore this market. Relative to the opportunity in NYC alone there is indefinite growth opportunity and an ability to cherry pick the best projects given their small size. Insiders own 23% of the equity, and as mentioned the CEO offers a limited guarantee on the bank-line which was just rolled three years.

Risk –

Rates for sure, but with a low duration portfolio, as loans rolls off, they can reprice the portfolio. They also take origination fees that mitigate this risk.

Example projects - https://manhattanbridgecapital.com/images-from-the-field.php

Investor Preso - https://manhattanbridgecapital.com/pdf/mbc-presentation.pdf

Catalyst

- buyback

-increased loan book

-increased div yield