SACHEM CAPITAL CORP. (SACH) SPO
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|Company Name||SACHEM CAPITAL CORP.|
|Company Address||23 LAUREL STREET
BRANFORD, CT 06405
|CEO||John L. Villano and Jeffrey C. Villano|
|Employees (as of 10/25/2017)||6|
|State of Inc||NY|
|Fiscal Year End||12/31|
|Shares Over Alloted||0|
|Shareholder Shares Offered||--|
|Lockup Period (days)||180|
|Quiet Period Expiration||12/4/2017|
Assuming gross proceeds of $15.0 million, we estimate that the net proceeds from the issuance and sale of our common shares in this offering will be approximately $13.4 million (approximately $15.5 million if the representatives exercise their over-allotment option in full), after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The principal purpose of this offering is to raise additional funds to increase our loan portfolio. As a real estate finance company whose primary source of income is interest generated from our loan portfolio, the only way for us to increase our revenue is to increase the size of our loan portfolio. The table below sets forth our expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. Amount Percentage Funding loans $ 13,175,000 98.1% Working capital and general corporate purposes 250,000 1.9% $ 13,425,000 100.00% Funding loans. Approximately $13.2 million, or 98.1%, of the net proceeds of this offering will be used to fund new loans and grow our loan portfolio. Until we are actually ready to fund new loans, we will use the net proceeds to reduce the outstanding balance on the Bankwell Credit Line and reborrow such funds from Bankwell as needed. As of June 30, 2017 and September 30, 2017, the outstanding balance on the Bankwell Credit Line was approximately $12.2 million and $15.9 million, respectively. Working capital. We expect that our general and administrative expenses, such as compensation and other employee-related expenses, insurance, rent, legal and accounting, will continue to increase over the next 12 months on account of our various reporting and compliance obligations and our expanded operations.
The real estate finance market in Connecticut is highly competitive. Our competitors include traditional lending institutions such as regional and local banks, savings and loan institutions, credit unions and other financial institutions as well as other market participants such as specialty finance companies, REITs, investment banks, insurance companies, hedge funds, private equity funds, family offices and high net worth individuals. In addition, we estimate that, in addition to us, there are approximately five “hard money” lenders of significant size serving the Connecticut real estate market. Many of these competitors enjoy competitive advantages over us, including greater name recognition, established lending relationships with customers, financial resources, and access to capital. Notwithstanding the intense competition and some of our competitive disadvantages, we believe we have carved a niche for ourselves among small real estate developers, owners and contractors throughout Connecticut and the rest of New England as well as in parts of New York State because we are relatively well-capitalized, our ability to structure each loan to suit the needs of each individual borrower and our ability to act quickly. In addition, we believe we have developed a reputation among these borrowers as offering reasonable terms and providing outstanding customer service. We believe our future success will depend on our ability to maintain and capitalize on our existing relationships with borrowers and brokers and to expand our borrower base by continuing to offer attractive loan products, remain competitive in pricing and terms, and provide superior service.
We are a Connecticut-based real estate finance company that specializes in originating, underwriting, funding, servicing and managing a portfolio of short-term (i.e., three years or less) loans secured by first mortgage liens on real property located primarily in Connecticut. Each loan is also
personally guaranteed by the principal(s) of the borrower, which guaranty is typically collaterally secured by a pledge of the guarantor’s interest in the borrower. Our typical borrower is a real estate investor who will use the proceeds to fund its acquisition, renovation, rehabilitation, development and/or improvement of residential or commercial properties held for investment or sale. The property may or may not be income producing. We do not lend to owner-occupants. Our loans are referred to in the real estate finance industry as ‘‘hard money loans.’’ --- Since commencing operations in 2010 through June 30, 2017, we made 541 loans, including renewals of existing loans, which we treat as new loans. At June 30, 2017, (i) our loan portfolio included 280 mortgage loans with an aggregate loan amount of approximately $47.8 million, (ii) the principal amount of individual mortgage loans ranged from $10,000 to $1.2 million, (iii) the average original principal amount of the mortgage loans was $170,740 and the median mortgage loan amount was $120,000 and (iv) approximately 83% of the mortgage loans had a principal amount of $250,000 or less. At June 30, 2017, unfunded commitments for future advances under construction loans totaled $3.3 million. Our loans typically have a maximum initial term of three years and bear interest at a fixed rate of 9% to 12% per year and a default rate for non-payment of 18% per year. In addition, we usually receive origination fees, or ‘‘points,’’ ranging from 2% to 5% of the original principal amount of the loan as well as other fees relating to underwriting, funding and managing the loan. When we renew or extend a loan we generally receive additional ‘‘points’’ and other fees. Interest is always payable monthly in arrears. As a matter of policy, we do not make any loans if the original principal amount of the loan exceeds 65% of the value of the property securing the loan (referred to as the ‘‘loan-to-value ratio’’). In the case of construction loans, the loan-to-value ratio is based on the post-construction value of the property. In the case of loans having a principal amount in excess of $325,000, we require a formal appraisal by a licensed appraiser. In the case of smaller loans, we rely on readily available market data, including tax assessment rolls, recent sales transactions and brokers to evaluate the strength of the collateral. Finally, we have adopted a policy that will limit the maximum amount of any loan we fund to a single borrower or a group of affiliated borrowers to 10% of the aggregate amount of our loan portfolio after taking into account the loan under consideration. --- Our principal executive officers are experienced in hard money lending under various economic and market conditions. Our founders and co-chief executive officers, Jeffrey C. Villano and John L. Villano, are responsible for business development as well as on underwriting, structuring and servicing the loans in our portfolio. A principal source of new transactions has been repeat business from existing and former customers and their referral of new business. We also receive leads for new business from banks, brokers, attorneys and web-based advertising. --- Our principal executive offices are currently located at 23 Laurel Street, Branford, Connecticut 06405 and our telephone number is (203) 433-4736. We plan to relocate our entire operation to 698 Main Street, Branford, Connecticut in the second quarter of 2018. The URL for our website is www.sachemcapitalcorp.com.
|Auditor||Hoberman & Lesser, LLP|
|Company Counsel||Morse Zelnick Rose and Lander, LLP|
|Lead Underwriter||FBR Capital Markets & Co|
|Lead Underwriter||Joseph Gunnar and Co., L.L.C|
|Transfer Agent||Computershare Trust Company, N.A|
|Underwriter||Axiom Capital Management, Inc.|
|Underwriter||THE BENCHMARK COMPANY, LLC|
|Underwriter Counsel||Blank Rome LLP|
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