Investors looking for a play on the commercial real estate market but don’t have the stomach for defaults and declining property values may have an interesting alternative on the horizon. The company is Velocity Commercial Capital and it filed to go public late last week. It’s relatively small but that’s what makes it attractive.
The company originates or buys small business commercial real estate loans. All are first lein. And the largest loan it will get involved with is $3 million. The average loan value in its portfolio is $391,000.
The company has around $540 million in loans outstanding – which means it has a very diversified portfolio. Velocity prides itself on conservative underwriting practices. Almost 92% of the loans in the portfolio are 30-year-term loans, not adjustable teaser-rate kind of loans that can create all sorts of havoc. And the loans carry a loan-to-value ratio typically between 60% and 70%. Since its inception in 2004, it has lost $1.9 million on loans.
Small and conservative may seem boring. But it also means that if you want real estate exposure and want to sleep at night, a company like this may be the way to go. The company is a real estate investment trust, which eliminates some of the double-tax issue company’s and investors face on distributions. The REIT doesn’t have to pay taxes on distributions to holders but must distribute about 90% of its income to holders.
The company has around $540 million in loans outstanding – which means it has a very diversified portfolio. Velocity prides itself on conservative underwriting practices. Almost 92% of the loans in the portfolio are 30-year-term loans, not adjustable teaser-rate kind of loans that can create all sorts of havoc. And the loans carry a loan-to-value ratio typically between 60% and 70%. Since its inception in 2004, it has lost $1.9 million on loans.
Small and conservative may seem boring. But it also means that if you want real estate exposure and want to sleep at night, a company like this may be the way to go. The company is a real estate investment trust, which eliminates some of the double-tax issue company’s and investors face on distributions. The REIT doesn’t have to pay taxes on distributions to holders but must distribute about 90% of its income to holders.
