Attached files
file | filename |
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EX-3.1II - Bridge Private Lending, LP | v173276_ex3-1ii.htm |
EX-23.1 - Bridge Private Lending, LP | v173276_ex23-1.htm |
EX-5.1 - Bridge Private Lending, LP | v173276_ex5-1.htm |
As
filed with the Securities and Exchange Commission on January __,
2010.
Registration
No. 333-163556
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
PRE-EFFECTIVE
AMENDMENT No. 1
to
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
BRIDGE
PRIVATE LENDING, LP
(Exact
Name of Registrant As Specified in Its Charter)
Maryland
|
6162
|
20-4687482
|
||
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
100
West Pennsylvania Avenue, Suite 4
Towson,
Maryland 21204
(410)
583-1990
(Address,
Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s
Principal Executive Office)
Alan
David Borinsky
100
West Pennsylvania Avenue, Suite 4
Towson,
Maryland 21204
(410)
583-1990
(Name,
Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent
for Service)
with
copies to:
Abba
David Poliakoff, Esq.
Andrew
D. Bulgin, Esq.
David
B. Gibber, Esq.
Gordon,
Feinblatt, Rothman, Hoffberger & Hollander, LLC
The
Garrett Building
233
E. Redwood Street
Baltimore,
Maryland 21202
Approximate date of commencement of
proposed sale to the public: As soon as practicable after the effective date of
this Registration Statement.
If any of the securities being
registered on this Form are to be offered on a delayed or continuous basis
pursuant to Rule 415 under the Securities Act of 1933, check the following box.
x
If this form is filed to register
additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. ¨
If this form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definition of “large accelerated
filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer: ¨
|
Accelerated
filer: ¨
|
Non-accelerated
filer: ¨
|
Smaller
reporting company: þ
|
(Do
not check if a smaller-reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to Be
Registered
|
Amount to Be
Registered (1)
|
Proposed Maximum
Aggregate Offering
Price Per Unit
|
Proposed Maximum
Aggregate Offering Price (1)
|
Amount of
Registration
Fee (2)
|
||||||||||||
Class
A Limited Partnership Units
|
— | $ | 500 | — | — | |||||||||||
Class
B Limited Partnership Units
|
— | $ | 500 | — | — | |||||||||||
Class
C Limited Partnership Units
|
— | $ | 500 | — | — | |||||||||||
Total
|
88,000 | $ | 44,000,000 | $ | 2,456 |
(1)
|
Registrant
is offering, in the aggregate, up to 88,000 limited partnership interests,
known as “Units”, comprised of Class A Units, Class B Units and/or Class C
Units. An investment will be allocated to a particular class of Unit based
on an investor’s instructions at the time of subscription. In no event
will the total number of Units, of all classes, sold exceed
88,000.
|
(2)
|
Previously
paid. In accordance with Rule 457(o), the registration fee is
calculated upon the basis of the maximum aggregate offering price of all
securities listed in the table
above.
|
THE
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
The
information contained in this prospectus is not complete and may be changed. We
may not sell these securities until the Registration Statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject
to Completion, dated February __, 2010
Bridge
Private Lending, LP
88,000
Limited Partnership Interests, Liquidation Amount $500 per
Unit,
to be
designated
Class
A Units
Class
B Units
Class
C Units
This prospectus relates to the offer
and sale by Bridge Private Lending, LP (referred to in this prospectus as the
“Partnership”, “BPL”, “we” “us”, or “our”) of up to 88,000 limited partnership
interests, to be designated as Class A Units, Class B Units and/or Class C
Units, as described in detail in this prospectus.
We are a Maryland limited
partnership formed in November 2009 and the successor by merger to Bridge
Private Lending, LLC (referred to in this prospectus as “Bridge LLC”). Our
business is, and the business of Bridge LLC was, making short-term commercial
loans to real estate investors for the purpose of financing the acquisition and
rehabilitation of single-family and multi-family homes in low- and
moderate-income neighborhoods in Baltimore City, Maryland and surrounding areas,
where demand for housing is strong but institutional financing is generally not
available. Our loan program focuses on real estate investors who employ “green
building practices” when rehabilitating their properties. The Partnership does
not make consumer loans.
Our general partner is Bridge GP,
LLC (referred to in this prospectus as the “General Partner”). The Managing
Member of the General Partner is BPL Manager, LLC, the sole member of which is
Alan David Borinsky, the founder of Bridge LLC. Our business operations are
conducted from our headquarters in Towson, Maryland.
The class of a Unit purchased will
depend on the period during which the Unit is not redeemable by its holder, or
the “Non-Redemption Period”. At the time of investment, an investor will
designate whether to invest in Class A Units, Class B Units or Class C Units, or
any combination thereof. Holders of Units will be entitled to receive, out of
funds legally available therefor, monthly cash distributions when, as and if
declared by the General Partner, the amount of which will depend on the class of
Unit. Dividends will be cumulative. Investors will have 30 days from the end of
a Non-Redemption Period to exercise an option to require us to redeem their
Units. If an investor fails to timely exercise this option, the Unit will remain
outstanding and a new, identical Non-Redemption Period will commence. The Class
A Units, Class B Units and Class C Units will rank equally and without
preference in all respects except for the Non-Redemption Period and the annual
cumulative dividend rates to be paid on the Units. The Units will rank senior in
right of payment to the general partnership interests, but will rank junior in
right of payment to all of the Partnership’s debt. Information about the
Non-Redemption Periods and the annual dividend rates with respect to the Units
are as follows:
Class
|
Non-Redemption Period
|
Annual Cumulative
Dividend Rate
|
||||
Class
A Unit
|
5
years
|
9.0%
|
||||
Class
B Unit
|
3
years
|
7.0%
|
|
|||
Class
C Unit
|
18
months
|
5.0%
|
An investor must purchase a minimum
of 10 Units, which may be of any class, although we reserve the right to waive
this subscription minimum and accept a lesser amount from any investor. There is
no minimum aggregate number of Units that must be sold under this offering. The
Units will be offered and sold on behalf of the Partnership by Alan David
Borinsky, the sole member of the Managing Member of the General Partner pursuant
to the exemption from broker-dealer registration under Rule 3a4-1 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). In the future,
after satisfying any applicable state issuer-agent registration requirements,
certain of our other associated persons may also offer and sell the Units on
behalf of the Partnership. None of these associated persons will receive special
compensation.
This offering will terminate when
all 88,000 Units offered have been sold or when we determine to terminate the
offering, whichever is earlier. We are not required to sell all or any specified
number of Units before issuing any Units and using the proceeds from those sales
and/or terminating the offering. The offering may be completed even if
substantially less than the total number of Units offered is sold. The Units are
being sold without the services of an underwriter or broker-dealer and we may
not be able to sell the entire 88,000 Units we are offering with this
prospectus, or any of the Units. We do not intend to deposit the proceeds from
this offering in any escrow, trust or similar account. The proceeds from the
sale of any Units will be paid directly to us for our use.
The Units are not listed on any
national securities exchange, including The NASDAQ Stock Market, or on any other
exchange, and we do not expect any trading market to develop for the
Units.
None of our securities are currently
registered under Section 12 of the Exchange Act.
We are not a bank or depository
financial institution and the Units will not be insured against loss by the FDIC
or any governmental or private agency.
Investing in the Units involves
certain risks. See “RISK FACTORS”
beginning on page 7 of this
prospectus.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The
date of this prospectus is ___________, 2010
TABLE
OF CONTENTS
A
WARNING ABOUT FORWARD-LOOKING STATEMENTS
|
1
|
|
PROSPECTUS
SUMMARY
|
2
|
|
RISK
FACTORS
|
7
|
|
USE
OF PROCEEDS
|
15
|
|
FINANCIAL
STATEMENTS
|
15
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
|
16
|
|
THE
PARTNERSHIP
|
25
|
|
OUR
BUSINESS
|
26
|
|
MANAGEMENT
|
33
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
35
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
36
|
|
INDEMNIFICATION
OF CONTROL PERSONS
|
36
|
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
37
|
|
DESCRIPTION
OF THE UNITS
|
37
|
|
DESCRIPTION
OF THE LIMITED PARTNERSHIP AGREEMENT
|
38
|
|
ERISA
CONSIDERATIONS
|
41
|
|
DETERMINATION
OF OFFERING PRICE
|
44
|
|
PLAN
OF DISTRIBUTION
|
44
|
|
EXPERTS
|
45
|
|
LEGAL
MATTERS
|
45
|
|
ADDITIONAL
INFORMATION
|
46
|
|
INDEX
TO FINANCIAL STATEMENTS
|
47
|
|
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
II-1
|
i
A
WARNING ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements contained, or
incorporated by reference, in this prospectus may include projections,
predictions, expectations or statements as to beliefs or future events or
results or refer to other matters that are not historical facts. Such statements
constitute “forward-looking information” within the meaning of Section 21E of
the Exchange Act, and the Private Securities Litigation Reform Act of 1995.
Those statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking statements are based on
various factors and were derived using numerous assumptions. In some cases, you
can identify these forward-looking statements by words like “may”, “will”,
“should”, “expect”, “plan”, “anticipate”, intend”, “believe”, “estimate”,
“predict”, “potential”, or “continue” or the negative of those words and other
comparable words. You should be aware that those statements only reflect our
predictions. Actual events or results may differ substantially. Important
factors that could cause our actual results to be materially different from the
forward-looking statements are disclosed under the heading “RISK FACTORS” and
throughout this prospectus.
1
PROSPECTUS
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS
CONTAINED IN THIS PROSPECTUS. EACH INVESTOR IS URGED TO READ THIS PROSPECTUS IN
ITS ENTIRETY PRIOR TO MAKING AN INVESTMENT DECISION IN THE OFFERED
SECURITIES.
The
Partnership
The Partnership’s primary business is
making short-term commercial loans to real estate investors to finance the
acquisition and rehabilitation of single-family and multi-family homes in low-
and moderate-income neighborhoods in Baltimore City, Maryland and surrounding
areas, where we believe demand for housing is strong but institutional financing
is generally not available. The Partnership is not in the business of making
consumer loans, which are generally defined as loans that are secured by
owner-occupied real property or loans in which the proceeds will be used for
personal, household, or family purposes.
Our loan programs focus on
rehabilitation using “green building practices”. Green building practices
include the construction and design of homes in an ecological and resource
efficient manner, including installing energy efficient utilities and utilizing
framing and insulation that are designed to reduce energy costs and improve air
quality. We expect that our program of facilitating green building practices
will enhance the value of the properties whose renovations we finance because
the homes will have significantly lower utility costs and superior interior air
quality. We also believe that the use of green building practices will make the
homes more attractive to live in, thereby enhancing the quality of the credit
being extended by us. Our underwriting procedures include an evaluation of the
borrower’s experience and commitment to using green building practices. For more
information regarding our current green building practice initiative see “Green
Building Practices” on page 28.
Our
current loan program involves short-term acquisition and rehabilitation loans
(which we refer to in this prospectus as “Short Term Loans”), which are
typically small in amount - usually under $100,000 and seldom more than
$200,000. The average loan size per property that was originated from October 1,
2008 through September 30, 2009 is $81,714. From January 2007 through December
31, 2009 the Company made 258 Short Term Loans, of which 139 loans have been
repaid. For more information regarding our Short Term Loans see “Short Term
Loans” on page 26.
We intend to
begin a new loan program of medium-term loans (two to five years) secured by
properties that have been recently rehabilitated and rented (which we refer to
in this prospectus as “Mini-Perms” and, together with Short Term Loans, “BPL
Loans”). All BPL Loans are, or at the time they are made will be,
personally guaranteed by the individual borrower or, if the borrower is an
entity, by the person with control of the borrower, and, with few exceptions,
are secured by a first lien on the underlying real estate. The personal
guarantees are for the full amount of the loans and are unconditional.
Since
late 2008, the number of banks and other institutional lenders willing to lend
for the acquisition and rehabilitation of homes in low- and moderate-income
neighborhoods, whether for home buyers or investors with fully rehabbed rental
properties, has decreased. We believe that the BPL Loans fill a significant gap
by providing much needed financing for areas with a growing need in a manner
that minimizes the downsize risk inherent in these loans.
Although all lending, including loans
secured by first liens on real estate, is subject to risk, we attempt to
minimize the risk by generally requiring the after renovated value (referred to
in this prospectus as the “ARV”) of the property to not be greater than 70% to
80% of the loan; this means that the value of the real estate after the
renovation is completed should be at least 20% to 30% higher than the proposed
amount of the loan. In addition, to protect against shifts in real estate
values, Short Term Loans typically have short maturities, six to eight months in
most cases. We have developed underwriting standards and procedures to help us
further mitigate the risks inherent in such loans. These underwriting procedures
apply standards relating to approval limits, debt service coverage ratios, and
other matters relevant to the loans and their collateral. We also expect our new
Mini-Perms Programs will be available only to persons with whom we have had a
satisfactory experience under our Short Term Loans program or who have been
referred to us by other lenders that have had satisfactory experience with the
borrower. Our underwriting standards and procedures are subject to change as we
deem necessary to further our goals.
Our net income depends largely upon (i)
net interest income and (ii) loan fees. Net interest income is the difference
between interest income that we earn from BPL Loans and investments and the
dividends that we pay to holders of the Units. Loan fees consist primarily of
fees charged at closing on loans denominated as a percentage, typically four to
six percent, of the BPL Loan amount. The Partnership charges its borrowers other
small, miscellaneous fees as well. These items are discussed more fully in this
prospectus under the headings “OUR BUSINESS” and “RISK FACTORS”.
2
We intend to use a majority of the
proceeds from this offering to make BPL Loans and to use the remainder for our
other general corporate purposes. These other purposes may include paying our
offering expenses, satisfying our debt from time to time outstanding, making
dividends on Units (if and when declared), redeeming Units at the end of their
Non-Redemption Periods, and/or redeeming outstanding participation interests in
BPL Loans. See the section of this prospectus entitled “USE OF
PROCEEDS”.
Our business is currently focused in
Baltimore City, Maryland and surrounding areas. In the future, depending on our
success and the availability of funds to do so, we may expand our loan programs
to other cities with comparable housing conditions and similar demographic
profiles.
How
to Contact Us
Bridge Private Lending, LP is a
Maryland limited partnership. Our offices are located at 100 West Pennsylvania
Avenue, Suite 4 Towson, Maryland 21204. Our telephone number is (410) 583-1990.
You may access our website at www.bridgeprivatelending.com.
Information on our web site is not incorporated into this prospectus and should
not be considered a part of this prospectus.
3
Summary
of the Terms of the Offering
Securities
|
Limited
partnership interests, or “Units”, to be designated by the investor as
Class A Units, Class B Units and/or Class C Units. See
“DESCRIPTION OF THE UNITS” on page 37.
|
|
Number
and Amount
|
We
are offering up to 88,000 Units, for an aggregate purchase price of
$44,000,000.
|
|
Minimum
Investment
|
Generally,
you must purchase a minimum of 10 Units for an aggregate investment of
$5,000. We reserve the right to waive this minimum and accept a lesser
amount from any investor. In fact, we intend to allow purchases of as
little as one Unit, or $500, if the purchaser is a custodian acting for a
minor family member ( i.e ., a member of the
purchaser’s family who is under 18 years old).
|
|
IRA
and Employee Benefit Plan Investments
|
Individual retirement accounts,
or IRAs, and employee benefit plans may also purchase a minimum of 10
Units for $5,000. Units offered to employee benefit plans and IRA
investors will be limited to the extent necessary to avoid the assets of
the Partnership being considered “plan assets” under ERISA. See
“ERISA
CONSIDERATIONS” on
page 41.
|
|
The
General Partner
|
Bridge
GP, LLC is the General Partner of the Partnership. The Managing Member of
the General Partner is BPL Manager, LLC, of which the sole member is Mr.
Borinsky (who was also the managing member of Bridge LLC). Mr. Borinsky
has the sole power to act on behalf of the General Partner and is in
control of the day to day operations of the partnership. The General
Partner has a Board of Directors, comprised of Craig Fadem, David Holmes,
and Steven Rosenblatt, which oversees the business and affairs of the
General Partner. See “MANAGEMENT” on page 33. The General Partner also has
certain other non-management or passive investors.
|
|
Classes
of Limited Partners and Units
|
Units
are divided into three classes, depending on the Non-Redemption Period, as
follows: (a) Class A Unit — a five-year Non-Redemption Period;
(b) Class B Unit — a three-year Non-Redemption Period; and/or
(c) Class C Unit — an 18-month Non-Redemption
Period.
|
|
Cumulative
Dividends
|
The
holders of the Units will be entitled to receive, out of funds legally
available therefor, monthly cash dividends, based on the liquidation
amount of each Unit, when, as and if declared by the General Partner,
based on the Class of Units they hold, as follows: (a) 9% per
annum for Class A Units; (b) 7% per annum for Class B Units; and (c) 5%
per annum for Class C Units, from the original issuance
date. Dividends will be cumulative and will accrue on each Unit
on a daily basis from the original issuance date, whether or not earned or
declared and whether or not there are net assets or profits of the
Partnership legally available for the payment of such
dividends. Dividends will be computed on the basis of a 360-day
year of twelve 30-day months.
|
|
Payment
of Dividends
|
Provided
the Partnership has funds available for dividends, the General Partner
currently intends to make dividends on the first day of the month
following the month in which a Unit is issued.
|
|
Redemption
of Units by Investors
|
Prior
to the expiration of the Non-Redemption Period applicable to each Unit you
hold, we will notify you of the pending expiration of the Non-Redemption
Period of your Unit and give you the opportunity to exercise an option to
require us to redeem that Unit. You will have 30 days from the
end of your Non-Redemption Period to elect to exercise your option, and we
will have up to 60 days thereafter to redeem your Units. The
redemption price per Unit will be its liquidation amount plus all unpaid
dividends that have accrued through the date on which the Non-Redemption
Period expires. If you do not timely exercise your option, then
your Unit will remain outstanding and will be subject to an new, identical
Non-Redemption
Period.
|
4
Redemption
by Partnership
|
We
may call your Units for redemption at any time without penalty or
premium. Upon such redemption, you will be entitled to receive,
in cash, the aggregate liquidation amount of your Units plus all unpaid
dividends that have accrued on them.
|
|
Use
of Proceeds
|
We
currently intend to use a majority of the proceeds of this offering to
make BPL Loans, and to use the remainder of the proceeds for our other
general corporate purposes. These other purposes may include
paying our offering expenses, reducing our outstanding indebtedness,
making dividends on the Units (if and when declared), redeeming Units at
the end of their Non-Redemption Periods, and redeeming outstanding
participation interests in BPL Loans. See “USE OF PROCEEDS” on
page 15.
|
|
Plan
of Distribution
|
We intend to sell the Units on a
continuous basis to the public. The Units will be offered and sold by our
General Partner, specifically by Mr. Borinsky, the sole member of the
Managing Member of the General Partner, pursuant to the exemption from
broker-dealer registration under Rule 3a4-1 of the Exchange Act. In the
future, after satisfying any applicable issuer-agent registration
requirements, certain of our associated persons may also offer and sell
the Units. None of these persons will receive special compensation. There
is no minimum amount of Units that must be sold under this offering.
Proceeds from the Units will not be held in any escrow, trust or similar
account. See “PLAN OF DISTRIBUTION” on page 44.
|
|
Limited
Liability of Limited Partners
|
The
liability of a holder of a Unit is limited to the amount paid for that
Unit plus any unpaid distributions, including accrued but unpaid
dividends.
|
|
Indemnification
of Control Persons
|
Our
Limited Partnership Agreement provides that the General Partner and its
affiliates, including Mr. Borinsky and the Directors of the General
Partner, are entitled to indemnification by the Partnership for certain
damages they suffer in connection with the provision of services to us in
their official capacities. See “INDEMNIFICATION OF CONTROL
PERSONS” on page 37.
|
|
Book
Entry Form
|
The
Units will be issued in book entry form only. We do not intend to issue
any certificates.
|
|
Risk
Factors
|
Purchasing Units involves certain
risks, including, without limitation, the lack of liquidity and
marketability of the Units, the absence of any sinking fund to pay amounts
due upon redemption, our right to make a mandatory call of the Units, and
our limited operating history. You should carefully review the
risks described in this prospectus beginning on page 7 under the heading “RISK FACTORS”.
|
5
Selected
Financial Data
Prior to its formation, the business
of the Partnership was conducted through Bridge LLC. In November 2009, Bridge
LLC was merged into the Partnership; the Partnership is therefore the successor
to the business conducted by Bridge LLC.
The following table presents
selected financial data regarding the business of the Partnership and its
predecessor, Bridge LLC. The information in the following table should be
reviewed together with the more detailed financial statements and the section
entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS contained elsewhere in the Prospectus.
(Dollars in Thousands)
|
||||||||||||||||
Nine Months Ended
September 30,
(Unaudited)
|
Years Ended
December 31,
(Audited)
|
|||||||||||||||
|
2009
|
2008
|
2008
|
2007
|
||||||||||||
Total
assets
|
$
|
14,699
|
11,915
|
12,403
|
8,292
|
|||||||||||
Cash
and cash equivalents
|
84
|
349
|
27
|
85
|
||||||||||||
Loans,
net
|
13,835
|
9,846
|
10,637
|
7,292
|
||||||||||||
Notes
payable
|
2,948
|
2,450
|
2,817
|
1,800
|
||||||||||||
Participation
loans payable
|
6,259
|
4,306
|
4,166
|
2,370
|
||||||||||||
Other
loans payable
|
1,681
|
471
|
660
|
—
|
||||||||||||
Members’
equity
|
3,722
|
4,604
|
4,645
|
4,087
|
||||||||||||
Ratio
of interest earning assets to interest bearing
liabilities
|
145.63
|
%* |
139.43
|
%* |
143.70
|
%
|
182.69
|
%
|
||||||||
Members’
equity as a percentage of assets
|
25.30
|
%* |
38.64
|
%* |
37.45
|
%
|
49.29
|
%
|
||||||||
* — Annualized |
SELECTED
OPERATIONAL DATA
(Dollars in Thousands)
|
||||||||||||||||
Nine Months Ended
September 30
(Unaudited)
|
Years Ended
December 31
(Audited)
|
|||||||||||||||
|
2009
|
2008
|
2008
|
2007
|
||||||||||||
Interest
income
|
$
|
1,652
|
$
|
1,230
|
$
|
1,607
|
$
|
1,253
|
||||||||
Interest
expense
|
731
|
478
|
664
|
549
|
||||||||||||
Net
interest income
|
921
|
752
|
943
|
704
|
||||||||||||
Provision
for loan losses
|
123
|
41
|
165
|
1,578
|
||||||||||||
Net
interest income after provision for loan losses
|
798
|
711
|
778
|
(874
|
)
|
|||||||||||
Non-interest
income
|
239
|
43
|
99
|
28
|
||||||||||||
Non-interest
expenses
|
728
|
354
|
546
|
263
|
||||||||||||
Net
income
|
$
|
308
|
$
|
400
|
$
|
331
|
$
|
(1,109
|
)
|
SELECTED
FINANCIAL RATIOS
Nine Months Ended
September 30,
(Unaudited)
|
Years Ended
December 31,
(Audited)
|
|||||||||||||||
Weighted average yield/rate on:
|
2009*
|
2008*
|
2008
|
2007
|
||||||||||||
Loans
|
14.00 | % | 11.96 | % | 11.90 | % | 11.38 | % | ||||||||
Interest
bearing cash and cash equivalents
|
0.39 | % | 2.08 | % | 2.14 | % | 4.26 | % | ||||||||
Borrowings
|
10.31 | % | 10.21 | % | 10.18 | % | 11.06 | % | ||||||||
Net
interest spread
|
3.67 | % | 1.64 | % | 1.59 | % | 0.28 | % | ||||||||
Net
interest margin
|
4.84 | % | 3.99 | % | 5.09 | % | 4.92 | % | ||||||||
*— Annualized |
6
RISK
FACTORS
Your investment in the Units involves
certain risks. In addition to the other information in this prospectus, you
should carefully consider the risks described below and all the information
contained in this prospectus before deciding whether to purchase any of the
Units.
Risks
Related to the Units and the Offering
The
Units are not insured against loss by the FDIC or any governmental agency, so
you could lose your entire investment.
Neither the Federal Deposit Insurance
Corporation nor any other governmental or private agency insures the Units. The
redemption of the Units and payment of any dividend on the Units is dependent
solely upon our earnings, our working capital and other sources of liquidity
available to us. If these payment sources are inadequate, you could lose your
entire investment.
The
Units lack liquidity and marketability and you may not transfer a Unit without
our consent. Accordingly, you may not be able to freely sell or transfer your
Units or easily use them as collateral for a loan.
There is no public market for the Units
and management does not anticipate that any market will develop in the
foreseeable future. As a result, you may not be able to freely sell or transfer
your Units or easily use them as collateral for a loan. Your ability to transfer
a Unit depends in part on the presence in the marketplace of a willing buyer.
Moreover, Units may not be transferred without our prior written consent and
without complying with federal and state securities laws. Due to these factors,
there can be no assurance that you will be able to sell your Units, even if we
permitted a transfer, at prices or times desirable to you. Accordingly, you
should anticipate holding your Unit for at least one Non-Redemption
Period.
We
do not set aside funds in a sinking fund to redeem the Units, so you must rely
on our revenues from operations and other sources for redemption. These sources
may not be sufficient to meet our obligations to redeem the Units.
We do not contribute funds on a regular
basis to a separate account, commonly known as a sinking fund, to redeem the
Units upon the end of the applicable Non-Redemption Period. Accordingly, you
will have to rely on our cash from operations and other sources of liquidity for
redemption. Our ability to generate revenues from operations in the future is
subject to general economic, financial, competitive, legislative, statutory and
other factors that are beyond our control. Therefore, funds from these sources
may not be sufficient to meet our anticipated future operating expenditures and
debt repayment obligations as they become due.
Our
management will have broad discretion over the allocation of the proceeds from
the offering, and you could lose your entire investment if management invests
our funds in unsuccessful initiatives.
Our management will have broad
discretion in determining how the proceeds from this offering will be used, and
you will be relying on the judgment of our management regarding the application
of these proceeds. Management’s allocation of the net proceeds will affect how
our business grows. It is possible that our management may not apply the net
proceeds of this offering in ways that increase the value of your investment,
and management might not be able to yield a significant return, if any, on any
investment of the net proceeds. See the section of this prospectus entitled “USE
OF PROCEEDS”.
7
We
have the right to make a mandatory call of the Units, so you may earn less
return on your investment than originally expected.
We may redeem your Units from you at
any time without penalty or premium. If we do so, you may not be able to
re-invest your funds with us or elsewhere at comparable rates and, therefore,
may earn less than you originally expected.
We
are selling the Units on a best efforts basis without making any arrangements
for escrow of the proceeds and all subscriptions for Units will be irrevocable.
Accordingly, your investment will be at greater risk that we may not have
sufficient cash on hand to support operations and growth, which would likely
reduce our profits and impair our ability to pay dividends on or redeem the
Units.
No escrow or trust account will be
established and all purchases of the Units will be irrevocable. Therefore, funds
that you tender will be available for our use immediately. The absence of an
escrow arrangement, and
the absence of the ability to revoke your subscription, may cause greater risk
to you if the amount raised in this offering is insufficient to support future
growth of the Partnership’s business.
We
are not required to sell all or any specified number of Units to consummate the
offering and we may not implement our growth strategy, which may reduce our
profits and impair our ability to pay dividends or redeem the
Units.
We are not required to sell all or any
specified number of Units before issuing any Units and using the proceeds from
those sales and/or terminating the offering. The offering may be completed even
if substantially less than the total number of Units offered is sold. The Units
are being sold without the services of an underwriter or broker-dealer and we
may not be able to sell the entire 88,000 Units offered under this prospectus.
If we are unable to raise sufficient capital in this offering, we may not be
able to implement our growth strategy. See the section of this prospectus
entitled “Plan of Distribution”.
We
may incur future debt that could reduce our profits and impair our ability to
pay dividends or redeem the Units.
To fund operations, we may incur
substantial debt in the future. The terms of the Units as set forth in the
Limited Partnership Agreement of the Partnership will not prohibit us from doing
so. Your right to receive payment upon redemption of your Units is junior in
right of our creditors to receive payment on our outstanding indebtedness.
Moreover, if we incur new debt, the risks described below would be increased.
Our indebtedness could have important consequences to you. For example, it
could:
|
·
|
increase
our vulnerability to general adverse economic and industry
conditions;
|
|
·
|
limit
our ability to obtain additional
financing;
|
|
·
|
require
the dedication of a substantial portion of our cash flow from operations
to the payment of principal and interest on our indebtedness, thereby
reducing the availability of such cash flow to fund our growth strategy,
working capital, capital expenditures and other general corporate
purposes;
|
|
·
|
increase
our vulnerability to interest rate increases if future debt must be
incurred at higher rates of interest than currently
exist;
|
|
·
|
limit
our flexibility in planning for, or reacting to, changes in our business
and the industry;
|
|
·
|
place
us at a competitive disadvantage relative to competitors with less debt;
and
|
|
·
|
make
it difficult or impossible for us to redeem your Units at the end of your
Non-Redemption Period if you elect not continue your investment or pay any
return on your Units.
|
A
change in market interest rates may reduce our profits and impair our ability to
pay dividends or redeem the Units.
Rapid changes, either upward or
downward, in interest rates may adversely affect our profits. Any future decline
in interest rates may lower our profitability. Any future rise in interest rates
may:
|
·
|
reduce
customer demand for our loans;
|
8
|
·
|
change
loan prepayment rates;
|
|
·
|
increase
our cost of funds;
|
|
·
|
increase
the possibility of redemption requests;
and
|
|
·
|
limit
our access to borrowings in the capital
markets.
|
Risks
Related to Our Business
Our
management team has no experience managing a public company, which increases the
risk that we will be unable to fully comply with the reporting, control and
other requirements imposed under the Exchange Act.
Following this offering, we will be
required to comply with rigorous reporting and compliance obligations. In
particular, but without limitation, we will be required to establish and
maintain effective disclosure controls and internal control over financial
reporting pursuant to the Sarbanes-Oxley Act of 2002. Although the Directors and
the Managing Member of the General Partner have substantial business experience,
they have no experience in managing a public company. The standards that must be
met for management to assess the effectiveness of disclosure controls and
internal control over financial reporting are complex and require significant
documentation, testing and possible remediation. Accordingly, we may encounter
problems or delays in completing activities necessary to establish effective
controls and/or to make an assessment of those controls. If we cannot assess our
internal control over financial reporting and determine if it is effective or
provide adequate disclosure controls or implement sufficient control procedures,
investor confidence and our value may be negatively impacted.
The
Partnership has a limited operating history on which to base an evaluation of an
investment in the Units. Our future growth and profits may not equal or exceed
our growth or profits in prior periods.
Prior to its formation, the business of
the Partnership was conducted through Bridge LLC. In November 2009, Bridge LLC
was merged into the Partnership; the Partnership is therefore the successor to
the business conducted by Bridge LLC. Bridge LLC had a three and a half year
operating history on which to base an evaluation of our commercial mortgage
lending business and prospects. Our prospects must be considered in light of the
risks and uncertainties encountered by companies in the early stages of
development. In particular, but without limitation, our historical results may
not be indicative of the actual results for any future period. In evaluating an
investment, you should consider the performance of others in the lending arena,
both generally and over the period of our operating history.
Our
focus on green building practices may limit our future growth and
success.
Management’s decision to restrict the
availability of our loan programs to only those borrowers who agree to employ
green building practices could restrict our growth and lending opportunities and
limit our profits. Additionally, green building practices are relatively new,
and there is limited and inconclusive information regarding the general economic
impact of these practices and the affect, if any, of these practices on the
market value of properties. Accordingly, green building practices employed by
our borrowers may not offer the level of utility savings and other benefits that
we or our borrowers anticipate. For these reasons, our requirement that
borrowers incur additional costs to use green building practices may cause these
borrowers to realize less upon the sale of the properties than they anticipated.
Additionally, these risks may be magnified because our management has limited
experience operating a business that focuses on green building
practices.
Our
assessment of the quality of loans we originate and acquire may be inaccurate,
which may lead to more losses on our loans that anticipated.
Before we originate loans, we
evaluate them to determine whether they are suitable for our portfolio. Our
initial evaluation of the loans may be flawed and actual results may be
different than expected, which, if unfavorable, could adversely affect our
financial condition and results of operations. Our loans are secured by real
estate, and we attempt to underwrite loans such that the underlying collateral
should be adequate to cover both the principal and interest due on the loan if
the borrowers should default. Depending on the size of the loan and our
experience with the proposed borrower, we require the pledge of property that,
on completion of renovation, we estimate will have a value that is 20% to 30%
higher than the proposed maximum loan amount. The Partnership utilizes multiple
sources to valuate property that will serve as collateral. We obtain
independent vaulations from third party appraisers and consult multiple
listing services to obtain comparable data. Additionally, we often lend for
projects in areas in which the General Partner has lending experience, so we
often request input on valuations from the Managing Member of the General
Partner. Although we generally utilize all the above resources that available,
no source is definitive, and the Managing Member has ultimate discretion as to
whether the Partnership will make a loan. If the underwriting methodology we
employ is, or our assumptions with respect to these loans are, flawed, then our
loan loss percentage could increase, which could adversely affect our
profitability. See the section of this prospectus entitled “OUR BUSINESS” under
the headings “Lending Activities” and “Allowance for Loan Losses” for further
information.
9
Our
borrowers may fail to repay their loans, which may reduce our profits and impair
our ability to pay dividends or redeem the Units.
Other than interest earned on funds
invested in bank depository instruments pending the use for loans, all of our
income is generated from our lending business. Thus, the primary risk associated
with our business is that persons to whom we lend money will fail to repay their
loans or will fail to make timely payments to us. As of December 31, 2009
and 2008, we had 9 and 21 loans that were more than 90 days past due,
respectively. We consider numerous factors when deciding whether to call a loan
or allow a defaulting borrower to continue working through his or her problems
while a loan is in default – primarily, the value of the collateral and the
amount of the debt, and the plan of the defaulting borrower to repay the debt.
In addition, we consider the costs and burdens that would be occasioned by
calling the loan, such as bringing suit and/or foreclosing on collateral. There
can be no guarantee that our policy of periodically working with defaulting
borrowers rather than pursuing collection will not ultimately result in the need
to pursue collection or make it less likely that we will not ultimately realize
a loss with respect to these loans. The risks relating to the ability of our
borrowers to repay their loans are discussed in the next risk factor. It is
impossible to predict whether one of our borrowers will default or what impact
any one borrower’s default may have on our business.
Changes
in the economic conditions in our lending areas could have a material adverse
impact on our financial condition, the ability of our borrowers to repay their
loans and the value of the real estate and other collateral securing those
loans.
Any negative changes that arise in the
economy and/or real estate market of the areas in which we make and sell loans
could have a materially adverse impact on our net income, the ability of our
borrowers to make payments under their loans, and any recovery we can obtain by
proceeding against the collateral securing those loans, all of which would
reduce our ability to pay our debts as they come due. The national and local
real estate economies have significantly weakened during the past two years. As
a result, real estate values across the country have decreased, in some cases by
substantial amounts, and the general availability of credit, especially credit
secured by real estate, has significantly decreased. These conditions have made
it more difficult for real estate owners and owners of loans secured by real
estate to sell their assets at the times and at the prices they desire. If we
are forced to foreclose on
real property securing our mortgage loans, there can be no guarantee that we
would be able to sell the foreclosed property at the times or the prices that we
desire. Because of the foregoing, holders of the Units could lose all or a part
of their investments if we were to become insolvent or forced to liquidate and
our assets at that time were not sufficient to satisfy our obligations to those
holders. See the section of this prospectus entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS” under the heading “Liquidity and
Capital Resources” for further information about this risk.
Our
use and estimate of the after renovated value of a property underlying a loan
may increase the risk that we may not be able to fully collect the amounts due
under that loan.
Other commercial lenders in our
market area limit loan amounts to a percentage of the estimated market value of
the property securing the loan at the time a loan is made. When we
make a loan, we generally limit the amount of the loan to no more than 80% of
the ARV, or after renovated value, of the real property securing that
loan. In each case, the ARV is based on external sources of
information, such as third-party valuations of the unrenovated property, and on
what we believe the property will be worth if and when the real estate is
developed in accordance with the borrower’s renovation and development
plan. Our beliefs are based on various factors that are
unpredictable, such as the current real estate market, the materials to be used
in the renovation, and our review of comparables among other completed projects
in the market area. Our estimate of the ARV may prove to be
inaccurate, such that the value of our collateral is less than what we
anticipated. Moreover, a borrower may fail to develop (or fully
develop) a property, which could also cause the value of our collateral to be
less than what we anticipated. In such cases, if a borrower were to
default under a loan and/or we were forced to foreclose on that property, we may
not recover the full amount owed to us, and our allowance for loan losses may
prove to be insufficient to absorb our actual losses. Accordingly,
our use of ARV to establish the loan-to-value ratio of a particular loan, as
opposed to using the value of the undeveloped property, increases the risks
associated with our lending business, which, if realized, could materially and
adversely impact our financial condition and results of
operations.
Certain
loans in the Partnership’s loan portfolio may be pledged to secure a working
capital line of credit and may be unavailable to use to for redemption of the
Units.
Currently, the Partnership has a
$1,000,000 line of credit with Hopkins Federal Savings Bank that we use to make
BPL Loans. The line of credit facility is secured by the pledge of discrete,
identified BPL Loans originated by the Partnership. From time to time, we pledge
some of the mortgage loans in our portfolio to secure loans or lines of credit
from a noninstitutional lender. If the Partnership elects to continue to borrow
from Hopkins Federal Savings Bank or from another financial institution or
noninstitutional lender, it will need the ability to grant a first priority lien
in some BPL Loans to those lenders. In those cases, in the event we defaulted on
our credit obligations, our lenders would have the first right to take
possession and/or sell those BPL Loans. If this were to occur, we would have
fewer assets available to Limited Partners to pay dividends and/or amounts due
upon redemption of the Units.
Most
of the mortgage loans we make will have a balloon payment feature, which
presents additional risks to investors and could have a material adverse impact
on our financial condition.
We anticipate 90% to 100% of our
mortgage loans will have “balloon payment” features. A loan with a balloon
payment feature contemplates a large payment of principal at the maturity of the
loan, with small or no principal payments during the term of the loan. Loans
with balloon payment features are riskier than loans with regular scheduled
payments of principal because the borrower’s ability to repay the loan at
maturity generally depends on its ability to refinance the loan or sell the
underlying property at a price that equals or exceeds the amount due under the
loan. There are no specific criteria used to evaluating the credit quality of
borrowers for mortgage loans with balloon payment features. Furthermore, a
substantial period of time may elapse between the time the loan is made and the
time the loan matures, and the borrower’s financial condition at those times may
be significantly different. As a result, there can be no assurance that a
borrower will have sufficient resources to make a balloon payment when
due.
10
Our
allowance for loan losses may be insufficient, which could have a material
adverse impact on our financial condition.
We maintain an allowance for loan
losses, which is a reserve established through a provision for loan losses
charged to expense, that represents management’s estimate of probable losses
that have been incurred within the existing portfolio of loans. The allowance,
in the judgment of management, is necessary to reserve for estimated loan losses
and risks inherent in the loan portfolio. The level of the allowance reflects
management’s continuing evaluation of, among other things, general economic,
political and regulatory conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, the value and
marketability of the collateral for the loan, loan concentrations, our loan loss
experience, current loan portfolio quality. The determination of the appropriate
level of the allowance for loan losses inherently involves a high degree of
subjectivity and requires us to make significant estimates of current credit
risks and future trends all of which may undergo material changes. If
management’s assumptions and judgments prove to be incorrect and the allowance
for loan losses is inadequate to absorb future losses, our earnings and capital
could be significantly and adversely affected. Furthermore, management may need
to change its assumptions and/or adjust its methodology if there are changes in
economic conditions or other adverse developments arise with respect to
our impaired or performing loans. Material additions to the allowance for
loan losses would result in a decrease in our net income and capital and could
have a material adverse effect on our financial condition. For detailed
information about our allowance methodology, see “Allowance for Loan Losses” in
the section of this prospectus entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.
Our
remedies for collecting on a defaulted loan may be inadequate, which may lead to
more losses on our loans and impair our ability to pay dividends or redeem the
Units.
We may fail to collect funds from
originated and acquired loans. Our ability to fully recover amounts due under
the originated and acquired loans may be adversely affected by, among other
things:
|
·
|
the
financial failure of the borrowers;
|
|
·
|
adverse
changes in the values of the real estate or other property that are
pledged to secure our loans;
|
|
·
|
the
purchase of fraudulent loans;
|
|
·
|
misrepresentations
by a broker, bank or other lender;
|
|
·
|
third-party
disputes; and
|
|
·
|
third-party
claims with respect to security
interests.
|
These potential future losses may be
significant, may vary from current estimates or historical results and could
exceed the amount of our reserves for loan losses. We do not maintain insurance
covering such losses. In addition, the amount of provisions for loan losses may
be either greater or less than actual future write-offs of the loans relating to
these provisions. Any of these events could have a materially adverse effect on
our business. See “Allowance for Loan Losses” in the section of this prospectus
entitled “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS” for further information about this risk.
There
are risks associated with taking a security interest in real property, and the
realization of these risks could have a material adverse impact on our financial
condition and results of operations.
Our loan portfolio is and will be
secured by real property. During the ordinary course of business, we may
foreclose on and take title to properties securing certain loans. If a
borrower defaults under a loan, we may have to foreclose on and take possession
of such real estate to protect our financial interest in the loan. In
that case, various factors could cause us to realize less than we anticipated or
otherwise impose burdens on us that would reduce our profits. These
factors include, without limitation, fluctuations in property values, occupancy
rates, variations in rental schedules and operating expenses. In
addition, owning and selling foreclosed property may present additional
considerations, including:
11
|
·
|
To
facilitate a sale of the property on which we foreclose, it may be
necessary for us to finance all or a portion of the purchase price for the
buyer of the property. In such cases, we will not receive the
sale price immediately but will have to rely on the purchaser’s ability to
repay its loan, which ability is subject to the repayment risks discussed
elsewhere in this prospectus.
|
|
·
|
There
is a risk that hazardous or toxic substances could be found on properties
that we take back in foreclosure. In particular, because most
properties pledged to secure BPL Loans are relatively old, they may
contain lead paint. Rental units in Baltimore City, where the predominance
of the Partnership’s collateral is located and where there is the greatest
likelihood of lead paint, must be registered with government authorities
before being rented, and rental interests that have not passed a lead
paint inspection cannot be registered. If hazardous or toxic
substances are found, we may be liable for remediation costs, as well as
for personal injury and property damage. Environmental laws may require us
to incur substantial expenses and may materially reduce the affected
property’s value or limit our ability to use or sell the affected
property. Any environmental review we undertake before taking title under
any foreclosure action on real property may not be sufficient to detect
all potential environmental hazards. The remediation costs and any other
financial liabilities associated with an environmental hazard could have a
material adverse effect on our financial condition and results of
operations.
|
|
·
|
We
may be subject to liability to third persons in excess of the limits
covered by insurance to the extent such person or person’s property is
injured or damaged while on property acquired by us through
foreclosure.
|
We
may have difficulty protecting our rights as a lender, which may impair our
ability to continue making loans investors and could have a material adverse
impact on our financial condition.
The rights of our borrowers and other
lenders may limit our realization of the benefits of our loans. For
example:
|
·
|
Judicial
foreclosure is subject to the delays of protracted litigation, and our
collateral may deteriorate and/or decrease in value during any delay in
foreclosing on it.
|
|
·
|
A
borrower’s right of redemption during foreclosure proceedings can deter
the sale of our collateral and can require us to manage the property for a
period of time.
|
|
·
|
The
rights of senior or junior secured parties in the same property can create
procedural hurdles for us when we foreclose on
collateral.
|
|
·
|
To
the extent we assign as collateral one or more of our loans to other
lenders, those other lenders will have a prior claim on any foreclosure
proceeds.
|
|
·
|
We
may not be able to pursue deficiency judgments after we foreclose on
collateral.
|
|
·
|
Federal
bankruptcy law can prevent us from pursuing any actions, regardless of the
progress in any of these suits or
proceedings.
|
|
·
|
At
or near the end of foreclosure proceedings, a borrower will sometimes file
bankruptcy to further delay the Partnership’s efforts to take ownership of
the real estate collateral. Depending on the circumstances, a bankruptcy
can take six to twenty-four months or more to resolve. Further, the more
equity a borrower has in a property, the greater the chances that the
court will grant the borrower additional time for protection from
foreclosure action.
|
Our
lending activities are at present concentrated in the Baltimore metropolitan
area and events in the region may have a material adverse effect on our
financial condition and results of operations.
Our success depends in large part on
the general economic conditions of the Baltimore metropolitan area. The local
economic conditions in the area have a significant impact on the demand for our
loans as well as the ability of our customers to repay loans, the value of the
collateral securing loans and the stability of our funding sources. A
significant decline in general economic conditions, caused by inflation,
recession, acts of terrorism, outbreak of hostilities or other international or
domestic occurrences, unemployment, changes in securities markets or other
factors could impact these local economic conditions and, in turn, have a
material adverse effect on our financial condition and results of
operations.
12
We
may not be able to sustain our historical levels of loan originations and our
profits may not continue at the current rate, which could impair our ability to
pay dividends or redeem the Units.
It will be necessary for us to continue
adding loans to our investment portfolio because we need to re-invest proceeds
of loan payoffs and invest the additional capital received from the sale of the
Units. Our ability to sustain the level of loan originations needed depends upon
a variety of factors outside our control, including:
|
·
|
interest
rates;
|
|
·
|
economic
conditions in our primary market
areas;
|
|
·
|
decline
in real estate values;
|
|
·
|
competition;
and
|
|
·
|
regulatory
restrictions.
|
Changes
in federal and state regulation of commercial lenders could impose significant
burdens on us, which could adversely impact on our financial
condition.
Our current lending business does not
subject us to licensing under federal or state laws that govern commercial
lending. We are, however, subject to various laws that affect the
lending business, such as laws relating to taking security interests in real
estate, foreclosing on real estate, and limits on interest and
usury. We may violate or otherwise fail to comply with these laws in
the future, which could, among other things, subject us to regulatory scrutiny
and/or actions, cause us to lose money on our loans and the underlying real
estate, and cause us to lose priority with respect to underlying real
estate Moreover, changes in the laws that govern commercial lenders
may impose licensing requirements in the future, and a failure to qualify for
any such license or to comply with such new requirements could subject us to
additional regulatory scrutiny and/or an inability to continue our lending
business. These risks, if realized, could have a materially adverse
effect on our financial condition and results of operations.
We
are subject to regulatory and public policy risks, which could affect the value
of the property that secures our loans.
Decisions of federal, state and local
authorities may affect the value of property that secures our
loans. Examples of these decisions including zoning changes,
revocation or denial of sanitation, utility and building permits, condemnations,
relocations of public roadways, changes in municipal boundaries, changes in land
use plans, modifications of parking or access requirements, and changes in
permitted uses. Also, shifts in public policy reflected by court, legislative or
other regulatory authorities may affect provisions of security documents and
make realization upon the collateral more time-consuming and
expensive. Any of these decisions or changes could cause us to
recognize a loss on property securing a loan, which could adversely affect our
financial condition and results of operations.
Our
underwriting standards and procedures are more lenient than those used by
conventional lenders, which exposes us to a greater risk of loss than
conventional lenders face.
Our underwriting standards and
procedures are more lenient than conventional lenders in that the mortgage loans
that we originate will be from borrowers who may not be required to meet the
credit standards of conventional mortgage lenders, which may create additional
risks to your return. We approve mortgage loans more quickly than other mortgage
lenders. Generally, we will not spend more than 20 days assessing the character
and credit history of a borrower. Due to the nature of loan approvals, there is
a risk that the credit inquiry we perform will not reveal all material facts
pertaining to the borrower and the security. Furthermore, when the needs of the
borrower dictate, we may spend substantially less than 20 days to evaluate loan
opportunities. There may be a greater risk of default by our borrowers which may
impair our ability to make timely dividends to you and which may reduce the
amount we have available to distribute to you. Our assessment of the quality of
our mortgage loans that we originate may be inaccurate. An incorrect analysis
with respect to one or more of our loans could have a materially adverse impact
on our profitability and our ability to make the cumulative dividends.
Additionally, if our analysis is wrong with respect to a BPL Loan and we are
forced to proceed against the collateral securing that loan, then investors
could lose all or part of their investment.
13
We
face significant competition for loans, which could have a materially adverse
impact on our financial condition.
The market for construction loans is
highly competitive. We compete with banks, credit unions, other mortgage banking
firms, consumer finance companies, and several other types of financial
institutions for BPL Loans (many with greater name recognition than
ours). Our competitors could provide a competitive challenge to us
by, for example, offering lower rates and better terms to our potential
borrowers. Significant competition challenges could have a material adverse
impact on our financial condition.
Our
success is dependent in part on our senior management, and the loss of the
services of senior management could disrupt our operations.
We are a limited partnership under
Maryland law, and our General Partner is Bridge GP, LLC, a Maryland limited
liability company. The Managing Member of the General Partner is BPL
Manager, LLC, of which Mr. Borinsky is the sole member. Pursuant to our Limited
Partnership Agreement, the General Partner, and therefore Mr. Borinsky,
essentially has complete control over our day-to-day
operations. Accordingly, our future success and the success of
investors will depend, in large part, on the continued services and experience
of Mr. Borinsky. We depend on the services of Mr. Borinsky to, among
other things, continue our growth strategies and maintain and develop our client
relationships. The loss of Mr. Borinsky’s services would disrupt our
operations and would delay our planned growth while we worked to replace him. We
do not have in place any policy of “key person” life insurance on the life Mr.
Borinsky.
Our
Limited Partnership Agreement requires us to indemnify the General Partner and
its affiliates for claims related to actions taken on behalf of the
Partnership.
Our Limited Partnership Agreement
provides that the General Partner and its affiliates, including Mr. Borinsky,
are entitled to indemnification by the Partnership for all damages, claims,
liabilities, judgments, fines, penalties, charges, and similar items incurred in
connection with defending any threatened, pending or completed action or suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that the person was acting for or on behalf of the Partnership
unless such liability is finally found by a court of competent jurisdiction to
have resulted primarily from the indemnified party’s bad faith, gross negligence
or intentional misconduct, or material breach of the Limited Partnership
Agreement. Maryland law prohibits indemnification unless it is shown
that the person to be indemnified (i) acted in good faith, (ii) reasonably
believed its actions to be in or not opposed to the best interests of the
Partnership, (iii) did not actually receive an improper personal benefit in
money, property, or services, and (iv) in a criminal proceeding, had no
reasonable cause to believe its conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act of 1933
(referred to in this prospectus as the “Securities Act”) may be permitted to
these persons, pursuant to the foregoing provisions or otherwise, the SEC is of
the opinion that such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. Our
indemnification obligations may require us to use our cash resources to
indemnify rather than to pay general operating expenses, dividends on the Units
and amounts due upon redemption of Units.
Some
of our affiliates may invest in the Units, which may create conflicts of
interest.
As of
November 2009, the equity owners of our General Partner and the Directors of the
General Partner held no investor Units. We expect that some of these persons may
participate in this offering. Although the Partnership has adopted a
policy that is intended to prevent our affiliates from taking actions that could
create conflicts of interest, investments by our affiliates may nevertheless
create the possibility for conflicts of interest in the event we experience
financial difficulties.
We
do not have a separately-designated compensation committee, which may cause
conflicts of interest with the Directors and the Managing Member of the General
Partner.
Currently, we do not have a
compensation committee and do not have plans to form such a committee. The
Directors of the General Partner determine the management fee of the Managing
Member of the General Partner. The Directors of the General Partner currently do
not receive compensation for serving on the board of directors of the General
Partner, but any such compensation would be determined by the Directors of
General Partner. This fact may give rise to conflicts of interests between the
Partnership and management of the General Partner, which may not necessarily be
resolved in our favor. This could have a material adverse effect on our
business, operating results and financial condition.
14
The
Directors and the Managing Member of the General Partner are not prohibited from
engaging in other business ventures, which may create conflicts of
interest.
The Directors and the Managing Member
of our General Partner may engage in other business ventures and activities.
Neither we nor any Limited Partner has any rights with respect to any such
ventures and activities or the income or profits derived therefrom. Although the
General Partner intends to avoid situations involving conflicts of interest when
engaging in other ventures and activities, there may be situations in which our
interests conflict with the interests of the General Partner and/or its
Directors.
The
exemption from the Investment Company Act may restrict our operating
flexibility. Failure to maintain this exemption may adversely affect
our profitability.
At all
times we intend to conduct our business so as to fall within the exemption from
the definition of “investment company” provided by Section 3(c)(5)(C) of the
Investment Company Act of 1940, as amended (referred to in this prospectus as
the “1940 Act”). Section 3(c)(5)(C) of the 1940 Act excludes from regulation as
an investment company any entity that is primarily engaged in the business of
purchasing or otherwise acquiring “mortgages and other liens on and interests in
real estate.” To qualify for this exemption, we must ensure our asset
composition meets certain criteria. Generally, 55% of our assets must consist of
qualifying mortgages and other liens on and interests in real estate, and the
remaining 45% must consist of other qualifying real estate-type interests.
Maintaining this exemption may adversely impact our ability to acquire or hold
investments, to engage in future business activities that we believe could be
profitable, or could require us to dispose of investments that we might prefer
to retain. If we are required to register as an investment company under the
1940 Act, then the additional expenses and operational requirements associated
with such registration may materially and adversely impact our financial
condition and results of operations in future periods.
USE
OF PROCEEDS
The proceeds from this offering will be
added to our general funds to be used for our general corporate purposes. We
currently intend to use a majority of these proceeds to make BPL Loans. We have
made only Short-Term Loans to date; the future allocation between Short-Term
Loans and any Mini-Perms will be at the discretion of the General Partner. We
may use the remainder of the proceeds to, among other things, pay our offering
expenses, reduce indebtedness from time to time outstanding, make dividends on
Units, if and when declared by the General Partner, redeem Units at the
expiration of their Non-Redemption Periods, and/or redeem outstanding
participation interests in BPL Loans. We have not allocated any portion or
percentage of the remainder of the proceeds to any of these other purposes.
Rather, the allocation of the offering proceeds will be at the discretion of the
General Partner.
There is no minimum amount of Units
that must be sold under this offering and we do not anticipate any material
changes to our planned use of proceeds if we fail to achieve the maximum
$44,000,000 offering amount.
FINANCIAL
STATEMENTS
Prior to its formation, the business of
the Partnership was conducted through Bridge LLC. In November 2009, Bridge LLC
was merged into the Partnership; the Partnership is therefore the successor to
the business conducted by Bridge LLC. Bridge LLC’s audited financial statements
for the years ended December 31, 2008 and 2007, and unaudited financial
statements for the nine months ended September 30, 2009 and 2008, and the notes
thereto, together with the reports of the independent registered public
accounting firm thereon are presented beginning at page F-1.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Partnership was formed in November
2009; prior to our formation our business was conducted through Bridge LLC,
which was merged into the Partnership in November 2009. The General Partner of
the Partnership is Bridge GP, LLC. The Managing Member of the General Partner is
BPL Manager, LLC, of which the sole member is Alan David Borinsky, the founder
of Bridge LLC. Before the merger, the equity owners of Bridge LLC contributed
all their membership interests of Bridge LLC to the General Partner and became
members of the General Partner. Our business operations are conducted from our
headquarters in Towson, Maryland. The following discussion relates to our
business activities previously conducted by Bridge LLC, as well as our plans and
expectations for the conduct of that business by the Partnership. Reference in
this discussion to “our” include the General Partner, the Partnership and Bridge
LLC.
15
Since January 2007, our primary
business has been making low balance Short Term Loans secured by first mortgages
on residential properties to be acquired and renovated (or rehabilitated)
located in low-and moderate-income areas in Baltimore City, Maryland and
surrounding areas. We generally limit our loan amounts to under $200,000 for
single-family homes and $400,000 for multi-family homes. The average loan size
per property originated since January 2007 is $118,107, 78% of the loans were
under $150,000, and 50% of the loans were under $100,000. The average loan size
per property that was originated from October 1, 2008 through September 30, 2009
is $81,714. Loans are all short term, typically due in full in six to eight
months. Currently, the interest rates on the Short-Term Loans range from 10% to
13.9%. In the past, we have made Short Term Loans with interest rates
as low as 6%. We generally charge four to six points for the Short
Term Loans. We also may collect additional points if we extend the
original term of the Short-Term Loans. Our intention is that
the interest rate on the Mini-Perms will be around 10%.
Prior to that time, in 2006, when our
business commenced, a substantial part of our business activities consisted of
lending money secured by unimproved land and other speculative collateral, and
we made loans from $100,000 to over $2,000,000. We no longer make such loans. As
of January 1, 2010, we have two loans secured by unimproved land. On
occasion, we will agree to release a lien for less than the full amount owed in
order to facilitate a sale or refinancing of the loan that will allow for a
recovery of a substantial portion of the loan. In that case, the
borrower will sign a substitute note for the unpaid portion and secure the
obligation with a lien on that property or another property. As
of September 30, 2009, Bridge held five such notes, with the aggregate
outstanding amount being 71,824.33.
Prior to this offering we relied, in
part, upon investors in loan participations. We originated and, on occasion,
acquired commercial loans secured by mortgages and deeds of trust, and sold
“participation interests” in our portfolio of loans to investors. Each
participation interest is a direct interest in the principal and interest due
under all BPL Loans outstanding from time to time. Each holder of a
participation interest is paid a fixed interest rate on their
investment.
Comparison
of Results of Operations for Nine Months Ended September 30, 2009 and
2008
General. We commenced our current
lending of Short Term Loans, that is, small balance construction loans in low-
and moderate-income neighborhoods, in January of 2007, and substantially all the
loans made by us in 2007, 2008 and 2009 have been Short Term Loans. During the
eight months of operations from April 2006, when we commenced operations, until
December, 2006, we funded several large land loans (which are referred to in
this prospectus as “Land Loans”). As a result of instituting our policy in
January 2007 of no longer extending either large sum loans or loans secured by
unimproved land, we have broken out for management purposes loss and loan loss
reserves relating to our Land Loans (all made in 2006) and our Short Term
Loans.
For the
nine month period ended September 30, 2009, we reported net income of
$308,440, compared to
net income of $399,498 reported for the nine month period ended September 30,
2008. The increase in net income for the nine months ended September 30, 2009
was due to a substantial increase in non-interest expenses partially offset by
an increase in loan fee income. As of September 30, 2009 our allowance for loan
losses totaled $340,397 (2.40% of our loan portfolio).
Net Interest
Income. Our revenues are derived from our lending business,
and our net income depends largely upon our net interest income. Net interest
income is the difference between interest income from loans (which includes loan
origination fees) and investments, referred to as interest-earning assets, and
interest expense on the participation interests and other borrowed funds,
referred to as interest-bearing liabilities. Loan origination fees are fees
charged to the borrower at the closing of a BPL Loan and are denominated as a
percentage of the loan amount. Net interest income, divided by average
interest-earning assets, represents our net interest margin.
Currently, except for a few loans, all
of our loans were made to acquire and renovate residential properties and are
secured by improved real estate.
Net interest income for the nine month
period ended September 30, 2009 was $921,070, compared to $751,934 for the same
period in the prior year. The $169,136 (22.5%) increase for the nine months
ended September 30,
2009 was primarily due to a $423,528 (34.5%) increase in interest income and
loan origination fee income, offset by an $252,771 (52.9%) increase in interest
expense on the participation interests and other loans payable. Our interest
income increased during the nine months ended September 30, 2009 due to an
increased loan portfolio, and our interest expense increased due to higher
levels of borrowing to fund our lending activities. Our net interest margin for
the nine months ended September 30, 2009 was 4.84% and for the nine month ended
September 30, 2008 was 3.99%.
Provision for
Loan Losses. Our allowance for loan losses is based on the
probable estimated losses that may be sustained in our loan portfolio and is
based on Financial Accounting Standards Board (“FASB”) guidance for accounting
by creditors for the impairment of a loan, which requires that losses be accrued
based on the differences between the value of collateral, present value of
future cash flows or values that are observable in the secondary market and the
loan balance.
16
The
allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for credit losses
when management believes that the collectability of the principal is unlikely.
The allowance, based on evaluations of the collectability of loans and prior
loan loss experience, is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectable. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, value of collateral, and current economic conditions and trends
that may affect the borrower’s ability to pay.
During
the nine-month period ended September 30, 2009, we made a provision of $123,000
for loan losses, compared to a provision of $41,149 for loan losses for the same
period in 2008. As of September 30, 2009, the allowance for loan losses as
a percent of loan receivables was 2.4%, compared to 2.3% as of
September 30, 2008. The
increased provision in 2009 was due to growth in outstanding loans receivable,
an increase in specific reserves on impaired loans, and an increase in charge
offs. At September 30, 2009, the allowance for loan losses equaled 31% of impaired
loans.
Transactions in the allowance for loan
losses for the periods noted below were as follows:
Nine Months Ended
September 30,
|
||||||||
|
2009
|
2008
|
||||||
Beginning
balance
|
$ | 318,203 | $ | 200,000 | ||||
Provision
for loan losses
|
123,000 | 41,149 | ||||||
Short
Term Loans charged off (net of recoveries)
|
(100,806 | ) | — | |||||
Ending
balance
|
$ | 340,397 | $ | 241,149 |
Non-Interest
Income. For the nine months ended September 30, 2009 our
non-interest income increased to $238,560 from $43,084 in the same period in
2008. Non-interest income consists of loan fees, gain on sale of loans, and a
loss on the sale of real estate acquired through foreclosure. The $195,476
(453%) increase in non-interest income for the nine months ended September 30,
2009 over the comparable period in 2008 was primarily due to significant fees
earned on loan extensions performed during 2009.
Non-Interest
Expense. For the nine months ended September 30, 2009 our
non-interest expense, consisting primarily of salaries, commissions and other
operating expenses, increased to $728,190 from $354,371 in the same comparable
period in 2008. This $373,819 (105.5%) increase was due to, the expenses of
marketing our new green building initiatives, legal and accounting expenses
relating to this offering, higher compensation and other operation and overhead
expenses due to increased loan activity.
Income
Taxes. Bridge LLC was a limited liability company and treated
as a partnership for tax purposes. Accordingly, income and losses were taxed to
Bridge LLC’s members and no provision for income taxes is made in Bridge LLC’s
financial statements.
Comparison
of Results of Operations for the Years Ended December 31, 2008 and
2007
General. For the year ended
December 31, 2008, we reported net income of $331,052 , compared to a net loss of $(1,109,429)
for the year ended December 31, 2007. The increase in net income for 2008 was
due to an increase in total interest income and a significant decrease in our
provision for loan losses in 2008 from 2007, partially offset by an increase in
interest expense and non-interest expenses. In 2007, we provided a $1,578,225 loan loss reserve, of which
$1,378,225 were due to losses on two Land Loans in 2006. In 2008, we provided a
$164,964 loan loss reserve (1.6% of our portfolio of Short Term
Loans).
Net Interest
Income. Our revenues are derived from our lending business,
and our net income depends largely upon our net interest income. Net interest
income is the difference between interest income from loans (which includes loan
origination fees) and investments, referred to as interest-earning assets, and
interest expense on the participation interests and other borrowed funds,
referred to as interest-bearing liabilities. Loan origination fees are fees
charged to the borrower at the closing of a BPL Loan and are denominated as a
percentage of the loan amount. Net interest income, divided by average
interest-earning assets, represents our net interest margin.
Net interest income for the year ended
December 31, 2008 was $943,341, compared to $703,717 for the year ended December
31, 2007. The $239,624 (34%) increase for 2008 was primarily due to a $354,595
increase in interest income and loan origination fee income, offset by an
$114,971 increase in interest expense on the participation interests payable.
Our interest income increased during 2008 due to an increased loan portfolio,
and our interest expense increased due to higher levels of borrowing to fund our
lending activities. Our net interest margin for 2008 was 5.09% and for 2007 was
4.92%.
17
Provision for
Loan Losses. Our allowance for loan losses is based on the
probable estimated losses that may be sustained in our loan portfolio and is
based on FASB’s guidance for accounting by creditors for the impairment of a
loan, which requires that losses be accrued based on the differences between the
value of collateral, present value of future cash flows or values that are
observable in the secondary market and the loan balance.
The allowance for loan losses is
established through a provision for loan losses charged to expense. Loans are
charged against the allowance for credit losses when management believes that
the collectability of the principal is unlikely. The allowance, based on
evaluations of the collectability of loans and prior loan loss experience, is an
amount that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectable. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, value of
collateral, and current economic conditions and trends that may affect the
borrower’s ability to pay.
During the year ended December 31,
2008, we made a provision of $164,964 for loan losses, compared to a provision
of $1,578,225 for loan losses for the year ended December 31, 2007. As of
December 31, 2008, the allowance for loan losses as a percent of loan
receivables was 2.9%, compared to 2.67% as of December 31,
2007. The large provision in 2007 was due to
net charge offs on two Land Loans totaling $1,378,225. In 2008 net charge
offs totaled $46,761. At December 31, 2008, the allowance for loan losses
equaled 9.0% of impaired and past due loans compared to 10.5% at December
31, 2007.
Transactions in the allowance for loan
losses during the past two fiscal years were as follows:
Years Ended December 31,
|
||||||||
|
2008
|
2007
|
||||||
Beginning
balance
|
$ | 200,000 | $ | — | ||||
Provision
for loan losses
|
164,964 | 1,578,225 | ||||||
Short
Term Loans charged off (net of recoveries)
|
(46,761 | ) | ||||||
Land
Loans charged off (net of recoveries)
|
— | (1,378,225 | ) | |||||
Ending
balance
|
$ | 318,203 | $ | 200,000 |
Non-Interest
Income. Non-interest income increased to $98,644 in 2008 from
$28,408 in 2007. Non-interest income consists of loan settlement costs and loan
fees. The $70,236 (247.2%) increase in non-interest income in 2008 over 2007 was
primarily due to increased loan volume.
Non-Interest
Expense. Non-interest expense, consisting primarily of
salaries, commissions and other operating expenses, increased to $545,969 in
2008 from $263,329 in 2007. This $282,640 (107.3%) increase was primarily due to
higher compensation and other operation and overhead expenses due to increased
loan activity.
Income
Taxes. Bridge LLC was a limited liability company and treated
as a partnership for tax purposes. Accordingly, income and losses were taxed to
Bridge LLC’s members and no provision for income taxes is made in Bridge LLC’s
financial statements.
Comparison
of Financial Condition at December 31, 2008 and 2007
Assets.
Our total assets increased to $12,402,964 at December 31, 2008 from
$8,292,365 at December 31, 2007. Our net loan portfolio increased to $10,637,093
at December 31, 2008 compared to $7,291,733 at December 31, 2007. The increase
in the loan portfolio during the 2008 period is due to an increase in our
business as more borrowers utilized us for acquisition and rehabilitation
loans.
Liabilities.
Our liabilities consist primarily of commercial and private loans
used to fund our lending business. In addition, we have in the past funded our
lending activities by issuing participation interests in our mortgage loans to
investors, whereby each investor holds an undivided participation interest in a
particular loan or pool of loans. Our total liabilities increased to $7,757,916
in 2008 from $4,205,076 in 2007 primarily due to our growing loan portfolio. The
following table illustrates our liabilities for the two years:
18
As of December 31,
|
||||||||
|
2008
|
2007
|
||||||
Loans
payable (1)
|
$ | 2,817,183 | $ | 1,799,808 | ||||
Loan
participation interests (2)
|
4,165,566 | 2,369,900 | ||||||
Other
Loans payable (commercial bank line) (3)
|
659,700 | — | ||||||
Accounts
payable and accrued expenses
|
115,467 | 35,368 | ||||||
TOTAL
LIABILITIES
|
$ | 7,757,916 | $ | 4,205,076 |
(1)
|
Rates of return on these loans
payable range from 8.0% to 13.5%. As of December 31, 2008, $1,800,957 of
the outstanding amounts is unsecured, and the balance is secured by the
assignment of certain loans receivable. These loans mature at different
times, with an aggregate $1,317,183 maturing in 2009, and $1,500,000
maturing in 2011.
|
(2)
|
The loan participation
interests carry rates ranging from 10% to 12%. All of these loan
participation interests mature as the underlying loans are repaid, with
amounts not requested back by the investors automatically rolled over into
other loans in our
portfolio.
|
(3)
|
During 2008, we entered into a
line of credit facility with Hopkins Federal Savings Bank with available
credit of up to $1,000,000 and interest payable on outstanding balances at
the rate of 9.5% per annum. This line matured in January 2010 but we
extended it for two additional years at a reduced interest rate of 8.5%
per annum.
|
|
Past
Due Loans. As of December 31, 2008 we had loans of $2,426,051,
compared to $1,911,255 as December 31, 2007, which were more than 90 days late
and for which we continue to accrue interest. We believe that these loans are
adequately collateralized and that both the principal and related accrued
interest are collectable.
Impaired
Loans. Under FASB’s guidance for accounting by creditors for the
impairment of a loan, a loan is considered impaired if it is probable that a
lender will not collect all principal and interest payments according to the
loan’s contractual terms. The impairment of the loan is measured at
the present value of the expected cash flows using the loan’s effective interest
rate, or the loan’s observable market price, or the fair value of the collateral
if repayment is expected to be provided by the collateral. Generally,
our impairment of such loans is measured by reference to the fair value of the
collateral. Accrual of interest is discontinued when its receipt is
in doubt, which typically occurs when a loan becomes impaired. Any interest
accrued to income in the year when interest accruals are discontinued is
generally reversed. Management may elect to continue the accrual of interest
when a loan is in the process of collection and the estimated fair value of the
collateral is sufficient to satisfy the principal balance and accrued interest.
Loans are returned to accrual status once the doubt concerning collectibility
has been removed and the borrower has demonstrated the ability to pay and remain
current. Payments on impaired loans are generally applied to
principal.
Information with respect
to impaired loans as of December 31, 2008 and 2007 is as
follows:
19
December 31
|
||||||||
|
2008
|
2007
|
||||||
Total
recorded investment in impaired loans at the end of the
period
|
$
|
1,113,697
|
$
|
—
|
||||
Amount
of that recorded investment for which there is a related allowance for
credit losses
|
1,113,697
|
—
|
||||||
Amount
of that recorded investment for which there is no related allowance for
credit losses
|
—
|
—
|
||||||
Amount
of related allowance for credit losses associated with such
investment
|
243,697
|
—
|
||||||
Amount
of allowance for credit losses associated with other than impaired
loans
|
74,506
|
200,000
|
||||||
The
average recorded investment in impaired loans during the
period
|
1,083,350
|
—
|
||||||
The
related amount of interest income recognized within that period when the
loans were impaired
|
—
|
—
|
||||||
The
amount of income recognized using a cash basis during the time within that
period that the loan was impaired
|
—
|
—
|
Real estate owned represents property
acquired by foreclosure, deed in lieu of foreclosure or purchase, and consists
of rental and held for sale real estate. At December 31, 2008, we had held for
sale real estate owned of $1,127,131, which are considered non-performing
assets, compared to none held at December 31, 2007.
Equity.
Members’ equity increased to $4,645,048 as of December 31, 2008 from
$4,087,289 as of December 31, 2007 due to contributions of $2,210,811 and net
income of $331,052, offset by distributions of $1,985,104.
Off-Balance Sheet
Arrangements. Aside from commitments letters with expiration
dates of 30-90 days, we did not enter into agreements to make loans to borrowers
in the ordinary course of our business. However, we did make line of credit type
loans for rehabilitation of properties whereby borrowers draw down on their
approved loans as needed. At December 31, 2008 we had $4.679,561 in these types
of loans approved, with $1,003,057 of the approved amount unused or unfunded as
of that date. At December 31, 2007 we had $1,746,790 in these types of loans
approved, with $301,364 of the approved amount unused or unfunded as of that
date. In addition, we had certain contractual obligations that are discussed
below under the heading “Liquidity and Capital Resources”.
Comparison
of Financial Condition at September 30, 2009 and December 31, 2008
Assets.
Our total assets increased to $14,698,941 as of September 30, 2009
from $12,402,964 at December 31, 2008. Our net loan portfolio increased to
$13,834,855 at September 30, 2009 compared to $10,637,093 at December 31, 2008.
The increase in the loan portfolio during the first nine months of 2009 is due
to an increase in business as more borrowers utilized us for acquisition and
rehabilitation loans.
Liabilities.
Our total liabilities increased to $10,976,893 as of September 30,
2009 from $7,757,916 as of December 31, 2008, primarily due to our growing loan
portfolio. The following table illustrates our liabilities at September 30, 2009
and December 31, 2008:
September 30,
2009
|
December 31,
2008
|
|||||||
Loans
payable (1)
|
$ | 2,948,199 | $ | 2,817,183 | ||||
Loan
participation interests (2)
|
6,259,037 | 4,165,566 | ||||||
Other
loans payable (3)
|
1,680,698 | 659,700 | ||||||
Accounts
payable and accrued expenses
|
88,959 | 115,467 | ||||||
TOTAL
LIABILITIES
|
$ | 10,976,893 | $ | 7,757,916 |
20
(1)
|
Rates on these loans payable
range from 8.0% to 13.5%. As of September 30, 2009, $1,500,000 of the
outstanding amounts is unsecured, and the balance is secured by the
assignment of certain loans receivable. These loans mature at different
times, with an aggregate $1,448,199 maturing in 2009, and $1,500,000
maturing in 2011.
|
(2)
|
The loan participation interests
carry rates ranging from 10% to 12%, and are secured by the assignment of
interests in a particular loan or pool of
loans.
|
(3)
|
Other loans payable includes a
line of credit facility with Hopkins Federal Savings Bank with available
credit of up to $1,000,000 that was entered into in 2008 with interest
payable on outstanding balances at the rate of 9.5% per
annum. The line matured in January 2010 but we extended the
line for two additional years at a reduced interest rate of 8.5% per
annum. In addition, $1,207,500 was borrowed from PSC Bridge,
LLC during 2009 with interest payable at the rate of 15% per annum, which
is also secured by the assignment of certain mortgages held by us on
outstanding loans. This loan has been extended to July 2010 with an
interest rate of 14% per annum; it can be further extended at the General
Partner’s discretion. Also during 2009, the Company borrowed
$31,698, interest-free, from Ford Motor Credit to finance the purchase of
an automobile for business purposes.
|
|
Past
Due Loans. As of September 30, 2009 we had loans of $3,805,125,
compared to $2,426,051 as December 31, 2008, which were more than 90 days late
and for which we continue to accrue interest. We believe that these loans are
adequately collateralized and that both the principal and related accrued
interest are collectable.
Impaired Loans. Information with respect to impaired loans as of
September 30, 2009 and December 31, 2008 is as
follows:
September 30,
2009
|
December 31,
2008
|
|||||||
Total
recorded investment in impaired loans at the end of the
period
|
$
|
395,400
|
$
|
1,113,697
|
||||
Amount
of that recorded investment for which there is a related allowance for
credit losses
|
395,400
|
1,113,697
|
||||||
Amount
of that recorded investment for which there is no related allowance for
credit losses
|
—
|
—
|
||||||
Amount
of related allowance for credit losses associated with such
investment
|
228,207
|
243,697
|
||||||
Amount
of allowance for credit losses associated with other than impaired
loans
|
112,190
|
74,506
|
||||||
The
average recorded investment in impaired loans during the
period
|
754,549
|
* |
1,083,350
|
|||||
The
related amount of interest income recognized within that period when the
loans were impaired
|
—
|
—
|
||||||
The
amount of income recognized using a cash basis during the time within that
period that the loan was impaired
|
—
|
—
|
* Average of
September 30, 2009 and December 31, 2008
Real estate owned represents property
acquired by foreclosure, deed in lieu of foreclosure or purchase, and consists
of rental and held for sale real estate. At September 30, 2009, we had held for
sale real estate owned of $289,386 which are considered non-performing assets,
compared to $1,127,131 at December 31, 2008. The reduction in real estate owned
is due to improvements in our underwriting standard and procedures, and the sale
of properties during the nine months ended September 30, 2009.
Equity.
Bridge LLC’s members’ equity decreased to $3,722,048 as of September
30, 2009 from $4,645,048 as of December 31, 2008 due to contributions of $78,800
and net income of $308,440, offset by distributions of
$1,310,239.
Off-Balance Sheet
Arrangements. At September 30, 2009 we had $11,424,108 in
draw type of loans approved, with $928,486 of the approved amount unused or
unfunded as of that date. At December 31, 2008 we had $4,679,561 in these types
of loans approved, with $1,003,057 of the approved amount unused or unfunded as
of that date. In addition, we have certain contractual obligations that are
discussed below under the heading “Liquidity and Capital
Resources”.
21
Liquidity
and Capital Resources
The following table reflects the
funding sources of Bridge LLC as of September 30, 2009.
Members’
Equity
|
$
|
3,722,048
|
||
Notes
Payable
|
2,948,199
|
|||
Loan
Participation Interests
|
6,259,037
|
|||
Other
Loans Payable
|
1,680,698
|
|||
Total
|
$
|
14,609,982
|
We
depend on the availability of cash and cash equivalents to make loans, satisfy
redemption requests from holders of our participation interests and otherwise
fund operations. Prior to this offering, we funded operations primarily from
contributions and unsecured loans from Bridge LLC’s members and the sale of loan
participation interests in our outstanding loan portfolio. Each loan
participation interest has a direct interest in the principal and interest due
under all our loans outstanding from time to time. The loan participation
interests carry rates ranging from 10% to 12%. The holders of the loan
participation interest may withdrawal their investment when the underlying BPL
Loans are repaid to the Partnership. In the event the holders of the
participation interest do not withdraw their investment when the underlying BPL
Loans are repaid to the Partnership, their investment will be reinvested in new
BPL Loans.
In 2008, we entered into a line of
credit facility with Hopkins Federal Savings Bank with available credit of up to
$1,000,000 and interest payable on outstanding balances at the rate of 9.5% per
annum. The line matured in January 2010 but we extended the line for two
additional years at a reduced interest rate of 8.5% per annum. The
balance of this loan as of January 20, 2010 was under $250,000. This
loan is secured by the assignment of certain mortgages that were held by us on
outstanding loans. From time to time, we may pledge some of the
mortgage loans in our portfolio to secure loans or lines of credit for our
activities. The proceeds of this line of credit are generally used to make BPL
Loans. In the discretion of the General Partner, we may repay the
outstanding balance of this loan with proceeds of the offering or with payments
on the BPL Loans made using the proceeds of this offering.
In 2009, we borrowed $1,207,500 from
PSC Bridge, LLC with interest payable at the rate of 15% per
annum. We paid down the PSC Bridge loan by $250,000 in December 2009
and the interest rate, as of January 2010, is 14% per annum. The loan is secured
by the assignment of certain mortgages that were held by us on outstanding loans
and is guaranteed by the Partnership and Alan David Borinsky. This
loan matures on July 10, 2010 and can be further extended at the General
Partner’s discretion. The proceeds of this loan are used to make BPL
Loans. In the discretion of the General Partner, this loan may be
repaid with the proceeds of this offering or with payments on the BPL Loans made
using the proceeds of this offering.
Also in 2009, we borrowed $31,698,
interest-free, from Ford Motor Credit to finance the purchase of an automobile
for business purposes.
For the nine month period ended
September 30, 2009, our primary sources of cash were principal and interest
payments on loans (50%), capital contributions and subordinated unsecured loans
from our members or equity owners (1%), proceeds from the sales of participation
interests in loans (27%), and the proceeds from short-term private and
commercial borrowings (21%). For the nine month period ended September 30, 2008,
our primary sources of cash were proceeds from the sales of participation
interests in loans, capital contributions from our members, and the proceeds
from short-term private borrowings.
Although
maturities and scheduled amortization of loans and investments are predictable
sources of funds, the sale of Units, redemption requests, and mortgage loan
prepayments are unpredictable and are greatly influenced by interest rate
trends, economic conditions and competition.
If our General Partner, in its sole
discretion, determines to pay a dividend on outstanding Units, we will have
additional liquidity needs for those dividends. We intend to add any
proceeds that we receive from this offering to our general funds to be used for
our general corporate purposes. Such purposes may include the making
of BPL Loans, possible reduction in outstanding indebtedness from time to time
outstanding, the redemption of outstanding participation interests, the payment
of cumulative dividends that are declared by the General Partner, and the
redemption of outstanding Units.
We will also have additional
liquidity needs for redemption requests upon the end of the Non-Redemption
Periods. We do not contribute funds on a regular basis to a separate
account, commonly known as a sinking fund, to redeem the Units upon the end of
the applicable Non-Redemption Period. Accordingly, holders of the Units may have
tot rely on our cash reserves, which we fund with revenues from operations for
redemption. We also intend that the maturity dates of the BPL Loans
will be staggered to allow us to have sufficient liquidity and cash reserves to
meet redemption requests .
22
We intend to continue to expand our
operations through this offering and future public offerings of investor Units
marketed by us. We intend to bolster our liquidity and revenues
from our operations with the proceeds from the additional BPL Loans made with
the proceeds of this offering. We expect that we will be able to attract more
investors who are interested in our longer-term Units that have a monthly
cumulative dividend. However, there is no assurance that we will be
successful.
Known
Trends, Events or Uncertainties
Impact of Inflation and Interest
Rates . Our financial statements and notes thereto, presented
elsewhere herein, have been prepared in accordance with accounting principles
generally accepted in the United States of America, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is generally to increase
the value of underlying collateral for the loans made by us to our borrowers.
Unlike typical industrial companies, nearly all our assets and liabilities are
monetary in nature. As a result, interest rates have a greater impact on our
performance than the effects of inflation generally.
Critical
Accounting Policies
The SEC has issued guidelines on the
disclosure of critical accounting policies, which are those policies that
require application of management’s most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent
periods.
Our
significant accounting policies are disclosed in Note 1 to the audited financial
statements presented elsewhere in this prospectus. We believe the following
significant accounting policies also are considered critical accounting
policies:
Loan Impairment
. Under FASB’s guidance for accounting by creditors for the
impairment of a loan, a loan is considered impaired if it is probable that a
lender will not collect all principal and interest payments according to the
loan’s contractual terms. The impairment of the loan is measured at the
present value of the expected cash flows using the loan’s effective interest
rate, or the loan’s observable market price, or the fair value of the collateral
if repayment is expected to be provided by the collateral. Generally, our
impairment of such loans is measured by reference to the fair value of the
collateral. Accrual of interest is discontinued when its receipt is in
doubt, which typically occurs when a loan becomes impaired. Any interest accrued
to income in the year when interest accruals are discontinued is generally
reversed. Management may elect to continue the accrual of interest when a loan
is in the process of collection and the estimated fair value of the collateral
is sufficient to satisfy the principal balance and accrued interest. Loans are
returned to accrual status once the doubt concerning collectibility has been
removed and the borrower has demonstrated the ability to pay and remain current.
Payments on impaired loans are generally applied to
principal.
Allowance for Loan Losses
. Our allowance for loan losses is increased for charges to income
and decreased for charge-offs (net or recoveries). Our periodic evaluation of
the adequacy of the allowance is based on our past loan loss experience, known
or inherent risks in our loan portfolio, adverse situations which may affect a
borrower’s ability to repay, the estimated value of underlying collateral and
current economic conditions. It is reasonably possible that our allowance for
loan losses could change in the near term.
Our allowance for loan losses is the
result of an estimation done pursuant to the FASB’s guidance for accounting by
creditors for the impairment of a loan. The allowance consists of a specifically
allocated component and a general unallocated component. The specific allowances
are established in cases in which we have identified significant conditions or
circumstances related to a loan that leads management to believe the probability
that a loss may be incurred in an amount different from the amount determined by
general allowance calculation described below.
Loans that are delinquent for more
than three months are evaluated for collectability and placed in impaired
status when management determines that future earnings on that loan may be
impaired. While in impaired status, collections on loans, if any, are
recorded as collection of loan principal and no interest is recorded. Loans
deemed uncollectable are charged against the loan loss allowance, while
recoveries are credit to, the allowance. Management adjusts the level of the
allowance through the provision for loan losses, which is recorded as a current
period operating expense.
Recent
Accounting Pronouncements
Following is a discussion of recent
pronouncements applicable to the Partnership:
23
On April 9, 2009, the FASB issued
additional application and disclosure guidance regarding fair value measurements
and impairments of securities in order to enhance consistency by increasing the
frequency and clarity of fair value disclosures. The guidance was effective for
interim and annual periods ending after June 15, 2009.
In May 2009, the FASB issued guidance
on subsequent events, requiring entities to disclose the date through which they
have evaluated subsequent events and whether the date corresponds with the
release of their financial statements. This guidance is effective for fiscal
years and interim periods ending after June 15, 2009. The requirements of the
guidance did not have a material impact on our financial condition or results of
operation.
In June 2009, the FASB issued the
Accounting Standards Codification (“Codification”), which became the source of
authoritative GAAP recognized by FASB. Adherence to the new Codification is
effective for financial statements issued for reporting periods that end after
September 15, 2009. Rules and interpretive releases of the SEC are also sources
of authoritative GAAP for SEC registrants. The requirements of the guidance were
adopted beginning with the interim period ended September 30, 2009 and did not
have a material impact on our financial condition or results of
operation.
24
THE
PARTNERSHIP
Overview
The Partnership is a Maryland
limited partnership that was formed on November 19, 2009 with Bridge GP, LLC, a
Maryland limited liability company, as the General Partner and Alan David
Borinsky as the initial limited partner. The Partnership is the successor to the
business previously conducted by Bridge LLC, a Florida limited liability
company. In November 2009, the equity owners of Bridge LLC contributed all their
membership interests and became members of Bridge GP, LLC, as a result of which
Bridge LLC became a wholly owned subsidiary of Bridge GP, LLC. Thereafter,
Bridge LLC was merged with and into the Partnership.
This discussion relates to the
business now being conducted by the Partnership, which was previously conducted
by Bridge LLC. The management referred to in this section is the current
management of the General Partner, which manages the Partnership and previously
managed Bridge LLC. The management of the Partnership and the General Partner is
discussed further in the section entitled “MANAGEMENT”.
Prior to November 2009, Bridge LLC’s
capital was contributed from three sources: the equity investments of the
members of Bridge LLC, investment by investors in participation interests in BPL
Loans, and short term commercial debt. The previous equity owners of Bridge LLC
are the equity owners of Bridge GP, LLC, the General Partner of the Partnership.
As a result of the merger of Bridge LLC into the Partnership, the Partnership
acquired assets from the General Partner having a net value of more than $3
million. Under the Partnership’s Limited Partnership Agreement, the General
Partner covenants not to withdraw capital from the Partnership if it would cause
the Partnership to have less than $3 million of equity. This covenant does not
require the General Partner to restore its capital to $3 million if the equity
in the Partnership falls below $3 million due to losses or any other
reason.
Participation
Interests
Prior to the merger, Bridge LLC made
commercial loans secured by mortgages and deeds of trust. To fund the
origination of these loans, Bridge LLC sold “participation interests” in its
outstanding portfolio of BPL Loans to investors. Each participation interest has
a direct interest in the principal and interest due under all BPL Loans
outstanding from time to time. Each holder of a participation interest is paid a
fixed interest rate on their investment.
In general terms, Bridge LLC
assigned the investor an initial interest equal to percentage of all outstanding
loans at that time expressed as a fraction, the numerator of which was the
amount of the investment and the denominator of which was the total of all
outstanding loans funded by Bridge LLC from time to time. For example, if the
total of all outstanding loans funded by Bridge LLC at a particular time is $5
million, each investor who invested $100,000 was assigned a 2% interest in the
principal and all payments under all of the loans. Each investor’s participating
interest was adjusted from time to time as loans are repaid and/or more
loans are funded. While an investor’s percentage interest changed as the size of
Bridge LLC’s loan portfolio changed, the absolute dollar amount credited to each
investor was not changed by virtue of changes in the size of Bridge LLC’s loan
portfolio.
Each holder of a participation interest
is paid a fixed interest rate on their investment, which may have represented
less than the full interest on the BPL Loan. For example, if the interest rate
charged on the BPL Loan was 12% and the participation interest pays 10%, Bridge
LLC retained the 2% “spread” as part of its compensation for acquiring or
originating and funding the loan.
In some instances when there was
insufficient funding from investors to fund a prospective loan, Bridge LLC
funded the balance needed. Bridge LLC also retained an interest in several BPL
Loans for our own account when selling participation interests from inventory.
The Partnership’s participation interest in the BPL Loans increased or decreased
periodically as additional investors acquired participation interests or
investors sold their participation interests.
The Partnership is not offering
additional participation interests; rather, investors will invest in equity in
the Partnership in the form of the Units. The participation interests in BPL
Loans held by previous investors will be diluted by the capital raised in this
offering. For example, an investor invested $100,000 for a 2% participation
interest in the BPL Loans based on $5 million of outstanding BPL Loans; if, as a
result of this offering there are $40 million of BPL Loans outstanding, the
investor’s interest will be readjusted to a 0.25% participation interest. The
foregoing calculations are only applicable to participation interests previously
issued by the Partnership and are not applicable to the
Units.
25
OUR
BUSINESS
The Partnership’s primary business
is making short-term commercial loans to real estate investors for the purpose
of financing the acquisition and rehabilitation of single-family and
multi-family homes in low- and moderate-income neighborhoods in Baltimore City,
Maryland and surrounding areas, where demand for housing is strong but
institutional financing is generally not available. As discussed
below and elsewhere in this prospectus, our loan program focuses on borrowers
who endeavor to use “green building practices” to rehabilitate their
properties.
We believe that since late 2008, the
number of banks and other institutional lenders willing to lend for the
acquisition and rehabilitation of homes in low- and moderate-income
neighborhoods, whether for home buyers or investors with fully rehabbed rental
properties, has decreased. Additionally, we believe, in good markets and bad,
banks and other institutional lenders tend not to lend money secured by
moderately priced housing until the property is fully renovated and either
rented or ready for purchase by an owner-occupant. Investors particularity rely
on private lending sources such as the Partnership to fill the need for
financing between the time a property is purchased and the time, after
rehabilitation, when it is ready to be rented or sold. We believe that the BPL
Loans fill a significant gap by providing much needed financing for areas with a
growing need in a manner that minimizes the downsize risk inherent in these
loans.
Although the demand for our loans is in
part dependent on the strength of the national and local real estate markets,
neither the quality nor the quantity of our loan opportunities appears to have
been adversely affected by the recent downturn in the overall
market.
Short
Term Loans
Short Term Loan amounts are
typically small, usually under $100,000 and seldom more than $200,000. The
average loan size per property that was originated from October 1, 2008 through
September 30, 2009 is $81,714. All BPL Loans are personally
guaranteed by the borrower or borrowers, or if the borrower is an entity, then
the person with control of the borrower, and, with few exceptions, are secured
by a first lien on improved real estate. The personal guarantees are
for the full amount of the loans and are unconditional. While all
lending, including lending secured by first liens on real estate, can be risky,
we attempt to minimize the risk by only lending against real estate with a value
that we estimate to be twenty to thirty percent higher than the loan amount. In
order to insulate us from the risk of long term shifts in real estate values,
the loans typically have short maturities, six to eight months in most
cases. During the 21-month period from January 1, 2008 to September
30, 2009, we approved and funded 195 separate loans. Upon the
maturity of a Short Term Loan, we may choose to renew it and, in connection with
that renewal, charge points to the borrower. As of September 30,
2009, the average actual term that the Short Term Loans were outstanding was 13
months.
From January 2007 through December 31, 2009 the Company made 258
loans, of which 139 loans have been repaid as of December 31, 2009. As of
December 31, 2008, 21 loans were more than 90 days past due, with a total
aggregate principal balance of $2,426,051. As of September 30, 2009, 20
loans were more than 90 days past due, with a total aggregate principal balance
of $3,805,125. As of December 31, 2009, 9 loans were more than 90
days past due, with a total aggregate outstanding principal balance of
$686,139. As of December 31, 2009 the percentage of loans that were
90 days past due was 7.56%.
Interest rates on the Short-Term
Loans currently range from 10% to 13.9%. In the past, we have made
Short Term Loans with interest rates as low as 6%. The interest rate that we
charge on a loan is based on our determination of the risk associated with that
loan. We generally charge an origination fee of between four and six
points on Short Term Loans, which amount is determined based on the term of the
loan. We attempt to set our rates so that we are competitive with
other private lenders making similar loans. The interest rates and points that
we charge and collect on the BPL Loans are subject to change based on various
unpredictable factors, including the housing market, economic conditions, and
governmental financial policy.
Our
typical borrower is an investor who desires to acquire and/or rehabilitate real
estate in a safe, quality, code-compliant manner. Even when the
loan-to-value ratio and other credit indicators are strong, we will not lend
unless the borrower has prior renovation experience and has made a commitment to
improve the property securing the loan to modern standards. During the 21-month
period from January 1, 2008 to September 30, 2009, we approved and funded 195
separate loans. Almost all of our loans are construction or
rehabilitation loans which are drawn down as needed by the borrower, and
therefore the face amount of the loans is greater than the total amount we
actually funded during that period. The average size per property of
these loans was approximately $118,107, and the total amount funded during that
period was approximately $21,828,320.
26
Mini-Perms
We expect to continue to focus on our
Short Term Loans lending programs. However, we also plan to use some of the
funds raised in this offering to begin a new program of medium term loans
secured by properties that have been recently rehabbed and rented. The concept
of this new program is to provide interim financing for investors who need to
refinance out of short term construction financing. While some local banks are
making loans of this kind, there appears to be a shortage of credit for this
purpose. We also expect our new Mini-Perms Program will only be available to
persons with whom we have had a satisfactory experience with our Short Term
Loans Program or have been referred to us by other lenders whom have had
satisfactory experience with the borrower. Our underwriting standards and
procedures are subject to change as we deem necessary to further our
goals.
Our intention is that the interest
rate on the Mini-Perms will be around 10% and that the term of the Mini-Perms
will range from one to four years.
We believe that there will be
significant demand for Mini-Perms. One reason is that there is a shortage of
institutional lenders willing to underwrite such loans. Another reason is that
banks are perceived as slower to process loan requests than noninstitutional
lenders such as the Partnership, and banks are perceived as more restrictive on
loan approvals. We also believe that we have greater expertise on the housing
markets in which the properties securing Mini-Perms are located, because we
specialize exclusively in loans for these types of collateral in these
neighborhoods. Also, the Partnership will have greater familiarity with the
character and business
skills of its borrowers, as it will typically have dealt with him or her on at
least one prior Short Term Loan or the borrower will have been referred by
another lender who had a satisfactory experience with the
borrower.
Under the Community Reinvestment Act,
banks are required to lend in areas otherwise underserved by institutional
lenders. We expect that our Mini-Perms will be secured by properties located in
the underserved areas targeted by the Community Reinvestment Act. We expect to
offer our Mini-Perms for sale to commercial banks, because such loans will count
toward a bank’s Community Reinvestment Act obligations. If such sales occur, the
proceeds from the loan sales will be returned to our pool of funds available to
fund new construction and Mini-Perms.
Underwriting
of BPL Loans
We have developed underwriting
standards and procedures to control the inherent risks relating to such loans.
The procedures apply standards relating to approval limits, loan-to-value
ratios, debt service coverage ratios, the skill and experience of the borrower,
and other matters relevant to the loans and their collateral. We
determine the skill and experience of the borrower by interviewing the borrower,
reviewing referrals, and reviewing financial statements. We determine
the loan-to-value ratio based on our estimate of the after-renovation value of
the property, or ARV. The Partnership has a policy of pursuing
relationships with borrowers who are regularly in the business of purchasing and
renovating urban properties, so that much of the lending is with repeat
customers with a demonstrated ability to perform loan obligations. Generally,
the Partnership does not make loans secured by owner-occupied property or loans
where the funds will be used for personal, household, or family
purposes.
We concentrate on the ratio of the
loan amount to the ARV when making a loan and require that this ratio be no
greater than 80%. In doing so, we hope to protect ourselves in the
event real estate values suffer significant declines. Generally, the
value of property securing a BPL Loan would have to decline more than 20% before
we would suffer a loss upon the sale of that property after foreclosure
(assuming we received the ARV upon such sale). We primarily make
loans in low- and moderate-income neighborhoods, and we target loans where the
value of the real estate collateral is in the “average” range relative to other
nearby properties. We favor loans of this kind for the following
reasons: (i) “average” properties tend to experience smaller price
declines when local real estate values deteriorate due to market conditions,
(ii) because our loans are short term, typically six to eight months, there is
less exposure to long term trends in the market, and (iii) because the
collateral securing our loans, once renovated, tends to be in better than
average condition in comparison to other properties in the neighborhood, we
believe the properties are relatively more desirable than surrounding properties
to potential renters and buyers.
We
also determine the creditworthiness of the borrowers in part by considering
credit scores. Credit scores are determined by complex computer programs which
take into consideration many factors. There are three companies that are the
primary providers of credit reports and credit scores for individuals, and we
generally obtain credit reports and/or credit scores from all three companies.
Credit scores range from the 400’s to the 800’s, with the lower the credit
score, the lower the creditworthiness of the individual. For Short Term Loans,
the credit score is one of several factors, along with ARV and the skill and
experience of the borrower, which goes into the decision of whether to lend. For
Mini-Perms, the borrower, or principal owner of the borrower if an entity, a
credit score of 600 to 800 (the highest score possible) is within the range of
acceptability, however, we prefer the credit score to be in the mid-600’s and
above. Although credit
scores are based on complicated algorithms and are imperfect indicators or
creditworthiness, we use a score of 600 as the presumptive cutoff because that
is the score that commercial lenders who make loans in our market area generally
use as their cutoff. It should be stressed, however, that a
borrower’s credit score is only one factor used to evaluate a loan
proposal. We reserve the right to make loans irrespective of credit
scores if we determine that the borrower’s circumstances warrant the
loan. We would make such a determination only after a satisfactory
complete review of the prospective borrower’s current financial statements,
experience on similar projects, and any borrowing experience with
us.
27
The General Partner’s Managing
Member may approve any loan up to and including $200,000. The General Partner’s
Managing Member and another member of the General Partner’s Board of Directors
together must approve all loans over $200,000.
We have no internal appraisers and,
as such, we rely upon multiple sources for the valuation of the property that is
collateral for our loans. We obtain independent valuations from third
party appraisers and consult multiple listing services to obtain comparable
data. Additionally, the Partnership often lends for projects in areas
in which our General Partner has prior lending experience, so we may look to the
Managing Member of the General Partner for valuation
assistance. Although we generally utilize all the aforementioned
resources that are available, no source is definitive and the Managing Member of
the General Partner can decide in his discretion whether the Partnership will
make the loan. We require title and hazard insurance on the property
for all mortgage loans and a recorded deed of trust or mortgage. In addition, if
we make a Mini-Perm, we may require the borrower to make payments to a mortgage
escrow account for the payment of property taxes and insurance. We will monitor
any Mini-Perms we make to ensure that all applicable taxes and insurance are
timely paid.
By limiting our loans to low and
moderate value properties, if there is a delay in repayment upon maturity, it is
likely that the borrower can generate income from the property sufficient to
keep current the obligations for the BPL Loans. Furthermore, we believe that
properties in this value range experience smaller price declines than the
overall market when values deteriorate, thereby reduce our risk of loss from non
performing loans.
By making smaller loans we also
spread our risk among many small loans so that in the event we experience a
loss, the loss does not have a significant impact on the capital or earnings of
the Partnership. We intend to continue to limit our lending to projects which we
believe will limit the possibilities of losses. If the borrower is
unable to repay the loan at maturity of the loan we often negotiate with the
borrower to either extend the loan (and collect additional points on the loan)
or to sell the property. In order for us to facilitate a sale of the property it
may be necessary to finance all or some portion, of the purchase price for the
buyer of the property. We do not intend to do any such financing but
it may be required for the loan to be repaid. We do not have general
terms for such financing; such terms will be negotiated on a case by case basis
with the intent to recover as much as possible of the outstanding
loan.
Balloon
Payments
The BPL Loans involve greater risk
than traditional loans because they generally have balloon payment
features. We anticipate 90% to 100% of future BPL Loans will have
balloon payment features. A balloon payment is a large payment is a large
payment of principal at the maturity or payoff of the loan. During
the loan period, the terms of a loan with a balloon payment feature may require
the borrower to make no principal payments or they may provide for principal
payments based on an amortization schedule that is longer than term of the
loan. In either case, the borrower will have repaid none or only a
small portion of the principal balance. Loans with balloon payment features are
riskier than loans with fully-amortized and/or regularly scheduled payments of
principal, because the borrower’s ability to fully repay the loan depends on its
ability to refinance the loan or sell the property for more than the amount due
under the loan when the loan comes due. We use our underwriting
procedures to control such risk by generally requiring the ratio of the loan
amount to the ARV to be no greater than 80%. We believe that making
loans with balloon payment features allows us to make loans with shorter
terms. It also allows us to collect additional points, as we make
more loans and collect points for each origination or renewal of a
loan.
Green
Building Practices
We
have recently focused our loan programs on construction and rehabilitation using
ecological and resource efficient material and building practices, often
referred to as “green building practices”. Green building practices include the
design and construction of homes using energy efficient utilities and framing
and insulation that are designed to reduce energy costs. We try to
set the amount of required green building practices so that it is consistent
with the scale of the project. For example, if the project is only a
renovation of the kitchen, we will only require that the borrower install
energy-star utilities. If the project is the complete renovation of a
shell of a building, however, we will also require insulation and framing that
are designed to reduce energy costs and have better air
quality.
If a
borrower has no experience using green building practices, we generally require
the borrower to hire a third party consultant with such experience to assist on
the rehabilitation. We also require inspections by a third party
inspector to ensure that our borrowers are utilizing green building
practices.
We
also may encourage, but do not require, the utilization of additional ecological
and resource efficient building practices. Theses practices include
the deconstruction, that is the selective dismantlement of building components,
specifically for re-use, recycling, and waste management, rather than
demolition. These practices may also include the use low volatile
organic chemical paint and carpet that enhances air quality, the placing of the
air ducts inside the insulation envelope rather than in an uninsulated crawl
space, building plans that reduce lumbar waste.
28
We
expect that our program of facilitating green building practices will enhance
the value of the properties whose renovations we finance because the homes will
have significantly lower utility costs and superior interior air
quality. For example, energy efficient utilities and framing and air
ducts placed within the insulation envelope can reduce utility
costs. Using low volatile organic paint and carpet improve air
quality. We also believe that the use of green building material will
make the homes more attractive to live in, thereby enhancing the quality of the
credit being extended by us. Our underwriting procedures also include an
evaluation of the borrower’s experience and commitment to using sustainable
building practices and materials. Our current green building practices program
is entitled “One Green Home at a Time”.
In addition, we have partnered with
the Maryland chapter of the United States Green Building Council to create a
“best practices” handbook for urban investors. We intend to use the resulting
handbook to encourage our borrowers, through training and through differential
pricing, to renovate properties using environmentally sensitive practices. In
addition to reflecting the values of management, we believe that our interest in
socially responsible, environmentally sensitive business practices gives us a
competitive advantage. Specifically, we believe that our sponsorship and
propagation of green building practices and other socially responsible practices
allows us to attract and enjoy repeat business from more sophisticated,
experienced borrowers than would otherwise be the case.
Sustainable
and Socially Responsibly Practices
Our Management endeavors to engage
in sustainable and socially responsible business
practices. Sustainable business practices means using building
materials and practices that are intended to reduce negative impacts on the
environment and on the health and comfort of building occupants. The
basic objectives of sustainability are to reduce consumption of non-renewable
resources, minimize waste, and create healthy, productive
environments.
Socially
responsible business practices, in the context of the business of the
Partnership, means (i) concentrating on renovation of residences in areas where
there is a shortage of quality housing, (ii) requiring borrowers to incorporate
green building practices and materials in renovations, and (iii) encouraging
borrowers to employ neighborhood residents in the renovation.
We
believe that such business practices result in healthier and more prosperous
communities in which the Partnership conducts its lending activities, which in
turn leads to better results for the Partnership.
Operations
We operate from leased office space
located at 100 West Pennsylvania Avenue, Suite 4 Towson, Maryland 21204, that
has a monthly rent of $1,700. We act as a mortgage banker of mortgage loans and
perform the record keeping, loan administration and servicing functions with
regard to our assets and liabilities. For example, our mortgage loan servicing
includes collecting payments, and if necessary, instituting foreclosure
procedures. We also administer our program of selling participation
interests.
Our total assets of $14,698,941 as
of September 30, 2009 consist primarily of mortgage loans and one parcel of
foreclosed real property. In the normal course of business we collect the income
generated by the assets; receive funds from investors; handle the redemption of
participation interests; and maintain and track the receipts, disbursements and
balances on escrow accounts established by our borrowers.
The following table sets forth
certain information relating to our net interest spread for the periods
indicated in the table. The average yield and cost of funds are derived by
dividing interest income or interest expense by the average balance (exclusive
of impaired loans and of unamortized fees and costs) of loans receivable
and the participation interests, respectively, for the periods shown. The
interest categories are at contract rates and exclude the amortization of
related fee income and expense.
29
Period
|
Average
Yield Loan
Portfolio
|
Cost of
Funds
|
Net Interest
Rate
Spread
|
Average Loan
Balance
|
||||||||||||
Nine months ended 9/30/09
|
14.00 | % | 10.31 | % | 3.67 | % | $ | 12,949,045 | ||||||||
Nine months ended 9/30/08
|
11.96 | % | 10.21 | % | 1.64 | % | $ | 9,753,995 | ||||||||
Year ended 12/31/08
|
11.90 | % | 10.18 | % | 1.59 | % | $ | 9,932,647 | ||||||||
Year ended 12/31/07
|
11.38 | % | 11.06 | % | 0.28 | % | $ | 8,509,942 |
Technology
We use an off-site backup service
which has full back-up operability with up-to-date information. We use a
commercial loan processing software known as Nortridge to track our loan
portfolio. Our investment account software was made to our specifications to
allow us to service the holders of our participation interests in an efficient
and timely manner.
Business
Strategy
Our business strategy is to grow and
enhance our profitability by increasing our portfolio of
mortgages. We anticipate that the funds necessary to carry through
with this strategy will come from our lending activities and proceeds of this
offering. We intend to continue managing our assets and maintaining
strict collection procedures for any problem assets in order to increase our
profitability. We expect to realize more operating efficiencies and cost
controls as we invest the proceeds from this and future offerings, as we do not
expect significant additional personnel or facilities will be needed. Despite an
increasing portfolio of loans, we expect to hire only one more
person.
Our loan programs are currently focused
in Baltimore City, Maryland and surrounding areas. Depending upon the amount of
capital raised in this offering we may expand our loan programs to other cities
with similar demographic profiles. We intend to investigate opportunities to
lend in other areas where there is a shortage of affordable housing, such as in
the Eastern Shore of Maryland and in other urban centers in the United States
with comparable housing conditions. If we decide to lend outside our primary
area we intend to conduct that lending through a reputable, experienced person
local to the lender area who has made a significant financial investment in the
Partnership.
Market
Area and Credit Risk Concentration
Our lending activities are concentrated
primarily in Baltimore City, Maryland and surrounding areas. Loans in our local
market areas made up approximately 95% of our total loan portfolio at December
31, 2008. As of December 31, 2008, the average size per property of loans in our
portfolio closed since January 1, 2007 was approximately $118,107.
Competition
We face significant competition both in
making loans and in attracting investor funds. Our competition for loans comes
principally from local (and sometimes smaller) independent loan companies or
individuals. Our competition for investor funds has historically come from
competitors offering uninsured products, such as the mutual fund industry,
securities and brokerage firms and insurance companies, as well as insured money
market accounts and certificates of deposit at commercial banks. While
traditional banks have been reluctant to make loans in our market, and the
mortgage crisis which played a significant role in the current economic downturn
has tightened the credit market even further, we could face competition from
large institutions. We do not believe that this is material to our financial
condition or operations at this point. However, if traditional lenders offering
lower interest rates loosen credit requirements for investment in the
acquisition and rehabilitation of residential properties in low- and
moderate-income neighborhoods, it is possible that we may have difficulty
originating loans that meet our standards or that we will have difficulty
competing with these larger originators, which often enjoy a lower cost of
funds.
30
Non-Performing
Assets
Non-performing assets consist
of impaired loans and real estate owned and held for sale. Loans that are
delinquent for more than 90 days are evaluated for collectability and placed
in impaired status when management determines that future earnings on the
loans may be impaired. While in impaired status, collections on loans, if
any, are recorded as collection of loan principal and no interest is recorded.
Please see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS” for information concerning our non-performing
assets.
Allowance
for Loan Losses
We maintain an allowance for loan
losses to absorb losses from the loan portfolio, which is based on management’s
continuing evaluation of the quality of the loan portfolio, assessment of
current economic conditions, diversification and size of the portfolio, adequacy
of the collateral, past and anticipated loss experience, and the amount
of impaired loans. The allowance is increased by corresponding charges to
provision for loan losses, and by recoveries of loans previously written-off. A
write-off of a loan decreases the allowance. The adequacy of the allowance is
periodically reviewed and adjusted by management based upon past experience, the
value of the underlying collateral for specific loans, known or inherent risks
in the loan portfolio and current economic conditions.
The most common known risk in the
loan portfolio is an impaired loan ( i.e. , the loan is more than
90 days late and the possibility
of collection is remote). If we have specific knowledge or some other reason to
consider a loan impaired, management reviews the loan to determine if an
impairment loss is required. Collections on the loan reduce the balance of the
impaired asset.
If the impaired loan begins
performing again, then it is reclassified as a performing asset and will accrue
interest retroactively from the last date interest had been previously accrued.
If the impaired loan is only partially recovered, or if after all legal remedies
have been exhausted, no recovery, or no additional recovery, is available, then
the un-recoverable portion is written off against the loan loss allowance and
the balance of the loan loss allowance is decreased by the amount of the loan
being written-off. Please
see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS” for information concerning our loan loss
allowances.
We believe that all of the loans 90
days past-due which are still accruing interest are adequately collateralized
(based on recent valuations) and the evaluation of guarantees. We do not
anticipate the loss of principal or accrued interest receivable on these
loans.
Governmental
Regulations
Federal and State
Licensing and Supervision. The nature of our current and
proposed business does not require us to obtain any licenses under any federal
or state law relating to the licensing and regulation of commercial
lenders.
USA PATRIOT
Act. Congress adopted the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 Act (the “Patriot Act”) in 2001 in response to the terrorist attacks that
occurred on September 11, 2001. Under the Patriot Act, certain financial
institutions are required to maintain and prepare additional records and reports
that are designed to assist the government’s efforts to combat terrorism. The
Patriot Act includes sweeping anti-money laundering and financial transparency
laws and required additional regulations, including, among other things,
standards for verifying client identification when opening an account and rules
to promote cooperation among financial institutions, regulators and law
enforcement entities in identifying parties that may be involved in terrorism or
money laundering. The Patriot Act currently has limited application to our
business, in that it requires us to report certain client account information to
the federal Financial Crimes Enforcement Network (“FinCEN”) if and to the extent
requested by FinCEN. In the future, amendments to this law, and/or regulations
promulgated thereunder, may impose additional burdens on us.
Governmental
Monetary and Credit Policies and Economic Controls. The
earnings and growth of the lending industry and ultimately of the Partnership
are affected by the monetary and credit policies of governmental authorities,
including the Board of Governors of the Federal Reserve System (the “FRB”). An
important function of the FRB is to regulate the national supply of credit in
order to control recessionary and inflationary pressures. Among the instruments
of monetary policy used by the FRB to implement these objectives are open market
operations in U.S. Government securities, changes in the federal funds rate,
changes in the discount rate of member bank borrowings, and changes in reserve
requirements against member bank deposits. These means are used in varying
combinations to influence overall growth of bank loans, investments and deposits
and may also affect interest rates charged on loans or paid for deposits. The
monetary policies of the FRB have had a significant effect on the operating
results of lending institutions in the past and are expected to continue to have
such an effect in the future. In view of changing conditions in the national
economy and in the money markets, as well as the effect of actions by monetary
and fiscal authorities, including the FRB, no prediction can be made as to
possible future changes in interest rates or loan demand or their effect on our
business and earnings.
31
Federal
Securities Laws. Following this offering, we will be subject
to certain information reporting and other requirements of the Exchange Act,
including provisions added by the Sarbanes-Oxley Act of 2002 and the regulations
adopted by the SEC thereunder. These laws and regulations impose requirements
and restrictions on us, including, among other things, restrictions on loans to
and other transactions with insiders, rigorous disclosure requirements in the
reports and other documents that we file with the SEC, and other corporate
governance requirements.
Environmental
Laws. Certain environmental regulations may affect our
operations. For example, our ability to foreclose on the real estate
collateralizing our loans may be limited by environmental laws which pertain
primarily to commercial properties that require a current or previous owner or
operator of real property to investigate and clean up hazardous or toxic
substances or chemical releases on the property. In addition, the owner or
operator may be held liable to a governmental entity or to third parties for
property damage, personal injury, and investigation and cleanup costs relating
to the contaminated property. While we would not knowingly make a loan
collateralized by real property that was contaminated, it is possible that the
environmental contamination would not be discovered until after we had made the
loan. Because most properties pledged to secure our loans are relatively old,
they may contain lead paint. We consult with lead paint experts to insure that
all such properties are tested for lead paint before they are occupied by
tenants or purchasers.
Future
Legislation. Periodically, the federal and state legislatures
consider bills with respect to the regulation of financial
institutions. Some of these proposals could significantly change the
regulation of the financial services industry. We cannot predict whether such
proposals will be adopted or their effect on us if they are
adopted.
Although we believe that we are
currently in compliance with statutes and regulations applicable to our
business, there can be no assurance that we will be able to maintain compliance
with existing or future governmental regulations. The failure to
comply with any current or subsequently enacted statutes and regulations could
result in the suspension of our business activities and/or the suspension or
termination of the licenses on which we rely to conduct our business, and such
suspension or termination could have a materially adverse effect on
us. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations, or the expansion of our business into jurisdictions that have
adopted more stringent regulatory requirements than those in which we currently
conduct business could limit our activities in the future or significantly
increase the cost of regulatory compliance. In addition, any change
in our business activities may subject us to federal or state licensing
requirements, regulatory oversight, minimum net worth requirements and other
requirements imposed on licensed and/or regulated lending entities
generally.
Insurance
The
Partnership maintains theft insurance, and comprehensive business and liability
insurance. We are in the process of obtaining director’s and officer’s liability
insurance to cover the acts of our controlling persons, and “key person” life
insurance on the life of Mr. Borinsky. We own one property that
we acquired from a borrower and maintain general liability insurance and
dwelling insurance on the property. Dwelling insurance protects a landlord for
loss of income due to damages to the house.
Personnel
At September 30, 2009, we had three
full-time employees (working more than 30 hours per week) and one part-time
employees (working fewer than 30 hours per week).
Legal
Proceedings
We may at times, in the ordinary
course of business, be a party to legal actions normally associated with a
lending business. Based on the advice of counsel, we believe that none of these
routine matters is likely to have a material adverse impact on our financial
condition or results of operations.
32
Market
Risk Management
Market risk is the risk of loss arising
from adverse changes in the fair value of financial instruments due to changes
in interest rates, exchange rates or equity pricing. Our principal market risk
is interest rate risk that arises from our lending business and the return we
pay on investor Units. Our profitability is dependent on our net interest
income. Interest rate risk can significantly affect net interest income to the
degree that interest bearing liabilities mature or reprice at different
intervals than interest earning assets. We do not utilize derivative financial
or commodity instruments or hedging strategies in our management of interest
rate risk. Our standard promissory note which we use in for Short Term Loans
provides for an upward adjustment to interest if the six-month Treasury Bill
rate goes above a certain threshold.
MANAGEMENT
Management
Team
We are managed by the General
Partner, Bridge GP, LLC. The General Partner’s Board of Directors is comprised
of Craig Fadem, David Holmes, and Steven Rosenblatt. The Managing Member of the
General Partner is BPL Manager, LLC, of which Alan David Borinsky is the sole
member. The affairs and business activities of the General Partner are managed
by Mr. Borinsky, as the sole member of the Managing Member, and are overseen by
the General Partner’s Board of Directors. As the only member of the
Managing Member, Mr. Borinsky has the sole authority to act on behalf of the
General Partner and, therefore, has essentially complete control over our
day-to-day operations. The Managing Member, and, therefore, Mr.
Borinsky, may be removed without cause by a majority vote of the General
Partner’s Board of Directors.
There are no family relationships among
any of the General Partner’s Directors or executive officers.
The following table sets forth the
names, ages and positions of the General Partner’s current Directors and
executive officers:
Name
|
Age
|
Position
with the General Partner
|
||
Alan
David Borinsky
|
55
|
Sole
Member of Managing Member*
|
||
Craig
Fadem
|
58
|
Director
|
||
David
Holmes
|
44
|
Director
|
||
Steven
Rosenblatt
|
44
|
Director
|
|
*
|
Mr.
Borinsky is the sole member of BPL Manager, the Managing Member of the
General Partner
|
Alan David Borinsky served as
the managing member of Bridge LLC, the predecessor of the Partnership, since
2006. Mr. Borinsky graduated from the University of Virginia in 1976
with a degree in economics, received a law degree from the University of
Virginia in 1981, and received a Masters in Laws from New York University in
1983. At the University of Virginia law school he served as articles editor for
the Virginia Tax Review, and at New York University he served as graduate editor
of the Tax Law Review, widely viewed as the most prestigious scholarly
publication in the country on Federal tax issues. From 1986 to 1990 he left the
practice of law to work for real estate developers where his duties included
cold calling leasing prospects, overseeing the financing and construction of
several industrial/office/flex space projects and managing over 500,000 square
feet of commercial space. From 2003 through May 2006, Mr. Borinsky was a member
of the law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
where he served as head of the firm’s tax department and concentrated in real
estate and Federal income taxation. From May 2006 until the present,
Mr. Borinsky was the founding member of founded Bridge LLC, the predecessor of
the Partnership.
Craig Fadem was as an active
member of Bridge LLC, the predecessor of the Partnership since May 2006 and was
elected as a director of the Partnership upon its formation in November
2009. Mr. Fadem graduated magna cum laude in 1973 with a Bachelor of
Science in Chemical Engineering from University of
Missouri — Rolla. From 1985 until 1999 Mr. Fadem
was self employed in the environmental services industry and
co-owner of A&A Environmental Services. In April 1999 the
company was sold to US Liquids, and Mr. Fadem continued to work for them until
September 2002. From September 2002 to May 2006, Mr. Fadem was self employed,
and a partner in 45th Coastal Highway LLC, 140th Coastal Highway LLC, and
Bayview 45 LLC, businesses that designed and developed condominium buildings in
Ocean City, Maryland. From May 2006 until November 2009, Mr. Fadem was
an active member in Bridge LLC, the predecessor of the
Partnership.
David Holmes was as an active
member of Bridge LLC, the predecessor of the Partnership since May 2006 and was
elected as a director of the Partnership upon its formation in November
2009. Mr. Holmes worked for Drexel Burnham Lamber in
the investment banking industry from 1988 until 1992.
From 1992 until 1995, Mr. Holmes was a student at Johns Hopkins
University Carey Business School and earned Masters Degree in Real
Estate. From 1994 until 2005 Mr. Holmes was self employed and
the owner of Real Estate Dimensions and owned and managed over 660
residential units in Baltimore. From January 2005 until the present,
Mr. Holmes was and is self employed and the owner of Blueprint
Concepts, LLC, a real estate development company and developed apartment
projects in Ocean City, Maryland and other real estate projects such as Market
Place at Fells Point and Gateway at Washington Hill both in Baltimore,
Maryland.
33
Steve Rosenblatt was as an
active member of Bridge LLC, the predecessor of the Partnership since May 2006
and was elected as a director of the Partnership upon its formation in November
2009. In 1988, Mr. Rosenblatt earned a B.S.B.A. in marketing from Shippensburg
University of Pennsylvania. From 1995 until the present Mr.
Rosenblatt has been self-employed as a professional appraiser and he is the
owner of Rosenblatt’s Appraisal Service.
Beneficial
Ownership of the General Partner
In November 2009, before the merger
of Bridge LLC and the Partnership, the equity owners of Bridge LLC contributed
all their membership interests of Bridge LLC to the General Partner and became
members of the General Partner. As a result of the merger of Bridge
LLC into the Partnership, the Partnership acquired assets from the General
Partner having a net value of more than $3 million. The following
table sets forth information, as of December 31, 2009, relating to the
beneficial ownership of the General Partner’s equity securities by each person
or group known by us to own beneficially more than five (5%) of the General
Partner’s equity securities.
Title of Class
|
Name
|
Amount and
Nature of
Beneficial
Ownership of
General
Partner
|
Percent of
Class
|
|||||||
Class
A Membership Interest*
|
BPL
Manager, LLC
|
1 | % | 20 | % | |||||
|
Craig
Fadem Family Limited Liability Limited Partnership
|
1 | % | 20 | % | |||||
|
David
Holmes
|
1 | % | 20 | % | |||||
|
Steven
Rosenblatt
|
1 | % | 20 | % | |||||
|
Latitude
26 Investments Limited Liability Limited Partnership
|
1 | % | 20 | % | |||||
Class
B Membership Interest*
|
Alan
David Borinsky
|
1 | % | 100 | % | |||||
Class
C Membership Interest*
|
Alan
David Borinsky
|
18 | % | 19.08 | % | |||||
|
Craig
Fadem Family Limited Liability Limited Partnership
|
19 | % | 20.23 | % | |||||
|
David
Holmes
|
19 | % | 20.23 | % | |||||
|
Steven
Rosenblatt
|
19 | % | 20.23 | % | |||||
|
Latitude
26 Investments Limited Liability Limited Partnership
|
19 | % | 20.23 | % |
*
|
The different
classes relate only to allocations and distributions and not voting of
interests in
the General Partner.
|
Board
Committees
As discussed above, we are managed
by the General Partner. We do not have a Board of Directors, but the
General Partner and the Board of the General Partner play a significant role in
overseeing our operations.
In March 2009, the Board of
Directors of the General Partner created a standing Audit Committee, whose
members are Messrs. Holmes and Fadem (Chairperson). The Audit Committee is
responsible for reviewing our audit policy and program and recommending any
policy changes to the General Partner’s Board of Directors, and for appointing,
replacing, compensating, and overseeing our independent registered public
accounting firm each year. The Audit Committee will meet with the external
auditors, review all of our SEC filings, oversee our internal control structure
and report to the General Partner’s Board of Directors on the findings. The
General Partner’s Board of Directors has not adopted a written charter for the
Audit Committee.
34
Neither we nor the General Partner
is required to have a Nominating Committee or a Compensation
Committee. The owners/members of the General Partner have the right
to elect directors of the General Partner. The Directors determine
the compensation to be paid to the Directors, the Managing Member, officers and
employees of the General Partner. Our Directors, all of whom are
independent, review and approve executive compensation policies and practices,
review the salaries and the bonuses of the officers, including the General
Partner’s Managing Member, and administer our benefit plans. The General
Partner’s Managing Member, through Mr. Borinsky, provides input on the salaries
of all officers and employees of the General Partner.
Director
Independence
The Board of Directors has determined
that Messrs. Fadem, Holmes and Rosenblatt are “independent” as defined in Rule
5605(a)(2) of the listing standards of the NASDAQ Stock Market.
Director
Compensation
The Directors of the General Partner
are not compensated by us or the General Partner for their service as Directors,
and we have no plans to entertain any proposal to pay remuneration to or enter
into any employment arrangement with any of these Directors.
EXECUTIVE
COMPENSATION
The Managing Member of the General
Partner is BPL Manager, LLC, of which Alan David Borinsky is the sole member.
BPL Manager, LLC receives a fee from the Partnership for performing managing
functions. The following table sets forth all remuneration for
services in all capacities awarded to, earned by, or paid to BPL Manager, LLC
during the past two years. We have included Mr. Borinsky in the table
because he is the sole member of BPL Manager, LLC. No other person or entity
received any remuneration for services rendered to the Partnership during the
past two years. We do not maintain any equity or non-equity incentive
compensation, pension or other retirement, or non-qualified deferred
compensation plans for our management team.
SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary
|
All
Other
Compensation
|
Total
|
||||||||||
Alan
David Borinsky,
|
2008
|
$ | 153,750 | — | $ | 153,750 | ||||||||
Sole
Member of BPL Manager, LLC (1)
|
2007
|
120,000 | — | 120,000 |
(1)
|
The
amounts shown reflect the management fee paid to BPL Manager, LLC, the
Managing Member of our General
Partner.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth
information as of January 1, 2010 relating to the beneficial ownership of the
Partnership’s equity securities by (i) each person or group known by us to own
beneficially more than five (5%) of our equity securities; (ii) the Managing
Member and each of the General Partner’s Directors and executive officers; and
(iii) the Managing Member and all of the General Partner’s Directors and
executive officers as a group, and includes all equity interests that may be
acquired within 60 days of January 1, 2010. All of the equity
securities are partnership interests in the Partnership.
35
Title of Class
|
Name and Address
|
Amount and
Nature of Beneficial
Ownership
|
Percent of
Class
|
|||||||
Units
(limited partnership units)
|
Alan
David Borinsky
5508
Kemper Rd
Baltimore,
MD 21210
|
1
Class C
Unit
|
(1)
|
100 | % | |||||
|
Craig
Fadem
111
N. Pompano Beach Blvd.
Unit
1112
Pompano
Beach, FL 33062
|
— | 0 | % | ||||||
|
David
Holmes
308
South Ann Street
Baltimore,
MD 21231
|
— | 0 | % | ||||||
|
Steven
Rosenblatt
9504
Harbor Lights Drive
Berlin,
MD 21811
|
— | 0 | % | ||||||
|
Managing
Member and all Directors and executive officers of our General Partner of
as a group (5 persons)
|
1
Class C
Unit
|
100 | % | ||||||
General
Partnership Interests
|
Bridge
GP, LLC
100
West Pennsylvania Avenue
Suite
4
Towson,
Maryland 21204.
|
1
Unit
|
100 | % |
(1)
|
Mr.
Borinsky is the initial Limited Partner of the Partnership. Upon the
initial sale of a Unit, Mr. Borinsky will contribute this Class C Unit
back to the Partnership.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time, in the ordinary
course of our business, we enter into loan transactions with related persons (as
defined in Item 404 of the SEC’s Regulation S-K), including the General
Partner’s Directors and executive officers, persons who beneficially own more
than 5% of our outstanding equity interests, and the family members and other
affiliates of such persons. All such transactions are consummated on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with other customers. Since January 1,
2008, we and/or Bridge LLC have engaged in the following “related party
transactions” as defined in Item 404(a) of the SEC’s Regulation
S-K:
We have a loan outstanding to South
Broadway Properties, LLC in which Mr. Holmes has a 20% ownership interest and
Mr. Borinsky has a 5% ownership interest. The loan was made November
2, 2009. The largest aggregate amount of principal outstanding since November 2,
2009 was $300,000. The amount outstanding as of December 31, 2009 was
$203,301.24, of which $200,000 is principal and $3,301.24 is accrued interest.
The interest rate on the loan is 13.9%. The amount
outstanding as of January 31, 2010, the amount outstanding is $306,544.58, of
which $300,000 is principal and $6,544.58 is interest. No principal
or interest has been paid since November 2, 2009. This loan is secured by second liens on an apartment in Ocean City, Maryland and
a commercial building in Baltimore, Maryland.
We have a loan outstanding to
Coolfont Tee One, LLC, which is owned by Mark Borinsky, brother of Alan
David Borinsky. The largest aggregate amount of principal outstanding
since January 1, 2008 was 80,000. The amount outstanding as of December 31, 2009
was $80,000, all of which is principal. The interest rate on the loan is 12%. No
principal has been paid since January 1, 2008. The amount of interest paid since
January 1, 2008 is $32,693.34. This loan is secured by unimproved buildable
land.
These loans have been and are being
repaid according to the terms of the original loans.
36
INDEMNIFICATION
OF CONTROL PERSONS
Our Limited Partnership Agreement
provides that the General Partner and its affiliates, including Mr. Borinsky and
the Directors of the General Partner, are entitled to indemnification by the
Partnership for all damages, claims, liabilities, judgments, fines, penalties,
charges, and similar items incurred in connection with defending any threatened,
pending or completed action or suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that the person was
acting for or on behalf of the Partnership unless such liability is finally
found by a court of competent jurisdiction to have resulted primarily from the
indemnified party’s bad faith, gross negligence or intentional misconduct, or
material breach of the Limited Partnership Agreement. Maryland law
prohibits indemnification unless it is shown that the person to be indemnified
(i) acted in good faith, (ii) reasonably believed its actions to be in or not
opposed to the best interests of the Partnership, (iii) did not actually receive
an improper personal benefit in money, property, or services, and (iv) in a
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to these persons, pursuant to the foregoing
provisions or otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
We intend to obtain insurance to
provide coverage to the Directors and officers of the General Partner for their
liability arising in the course of their duties, in order to limit our potential
exposure for indemnification.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established market for
any of our equity securities, including the Units, and we do not expect that one
will develop in the foreseeable future. We anticipate that transactions in our
equity securities will be infrequent and privately negotiated by the buyer and
seller in each case.
As of December 31, 2009 the General
Partner held all outstanding general partnership interests in the Partnership
and Mr. Borinsky held one Class C Unit as the initial limited
partner. Upon the first sale of a Unit under this offering, Mr.
Borinsky will contribute his Unit back to the Partnership.
DESCRIPTION
OF THE UNITS
We are offering up to 88,000 Units,
which constitute limited partnership interests in the Partnership, comprised of
three separate classes: Class A Units; Class B Units; and Class C
Units. The classes differ based on their Non-Redemption Periods and
the annual rates at which dividends will accrue on those Units. At
the time of investment, you will choose whether you wish to invest in Class A
Units, Class B Units or Class C Units, or any combination of the
foregoing.
The Units are issued in book entry only
form. We do not intend to issue the Units in certificated form. The record of
beneficial ownership of the Units will be maintained and updated by us through
the establishment and maintenance of accounts. You must purchase a minimum of
ten Units for $5,000. IRAs or employee retirement plans must purchase a minimum
of twenty Units for $10,000. We reserve the right to waive this minimum and
accept a lesser amount from any investor. In fact, we intend to allow purchases
of as little as $500 in Units if the purchases are made by a custodian for a
minor family member ( i.e. , for a member of the
purchaser’s family who is under 18 years old).
Cumulative
Cash Dividends; Annual Rate
Each Unit will entitle its holder to
receive, out of funds legally available therefor, monthly cash dividends when,
as and if declared by the General Partner. The dividend rate
applicable to a Unit will depend on its Class, as follows:
Class
|
Non-Redemption
Period
|
Annual
Cumulative
Dividend
Rate
|
||||
Class
A Unit
|
5
years
|
9.0 | % | |||
Class
B Unit
|
3
years
|
7.0 | % | |||
Class
C Unit
|
18
months
|
5.0 | % |
Dividends
are cumulative and will accrue (based on the liquidation amount of $500 per
Unit) on a daily basis from the original issuance date, whether or not earned or
declared and whether or not there are net assets or profits of the Partnership
legally available for the payment of such dividends. Dividends will
be computed on the basis of a 360-day year of twelve 30-day
months. Dividends, if declared, will be paid to you by check mailed
on or about the first day of the month following the month in which a Unit is
issued to your address as it appears in our register. Provided that
the Partnership, in the sole discretion of the General Partner, has funds
available for dividends, the General Partner currently intends to begin paying
dividends immediately. The General Partner may use the proceeds of
this offering to make distributions of the dividends. For more
information regarding the use of proceeds of this offering, see the section of
this prospectus entitled “USE OF PROCEEDS”.
37
If the General Partner decides to
declare a dividend and funds are not available, in the discretion of the General
Partner, to make dividends in full, then dividends will be made on a pro rata
basis among the holders of Units.
Priority
of Dividends and Other Distributions
With respect to dividends, the Class
A Units, Class B Units, and Class C Units will rank equally and without
preference as among each other, and will rank senior only in right of payment to
the general partnership interests. Any funds remaining after the
payment of cash dividends to the holders of Units will be distributed to the
General Partners. Dividends will be (i) prior and in preference to
any declaration or payment of any dividend on the general partnership interests
(other than a dividend payable in additional general partnership interests) or
on any other class or series of partnership interests ranking junior to the
Units with respect to dividends, (ii) pari passu with any other
equity securities of the Partnership the terms of which provide that they rank
pari passu with the
Units with respect to dividends, and (iii) subject to the rights of any equity
securities of the Partnership the terms of which provide that they rank senior
to the Units with respect to dividends. The Partnership’s Limited
Partnership Agreement does not currently permit the issuance of any equity
security ranking pari
passu with or senior to the Units with respect to the payment of
dividends.
Upon
the dissolution and winding up of the Partnership, the Partnership’s Limited
Partnership Agreement provides that the assets of the Partnership will be sold
or liquidated and the proceeds will be used to (i) first, to pay the expenses of
liquidation, (ii) second, to pay all creditors of the Partnership (including
Partners to whom the Partnership owes money other than accrued but undeclared
and unpaid dividends), (iii) third, to satisfy all debts, liabilities or
obligations of the Partnership due to its creditors, (iv) fourth, to the Limited
Partners in proportion to the positive balances in their respective capital
accounts, which will take into account their aggregate investment in the Units
plus the unpaid dividends that have accrued on those Units, and (v) thereafter,
to the General Partners.
Redemption
by Investor at End of Non-Redemption Period
The Partnership will provide each
holder of a Unit with a notice prior to the expiration of the Non-Redemption
Period of that Unit. This notice will advise the holder of the
pending expiration and will give the holder the opportunity to withdraw from the
Partnership by exercising an option to require the Partnership to redeem the
Unit. The holder will have 30 days from the end of the applicable
Non-Redemption Period to exercise that option by notifying the Partnership in
writing of that exercise. If the holder timely exercises the option,
then the Partnership will have 90 days from the expiration of the Non-Redemption
Period to redeem the Unit from the holder. The price to be paid for a
Unit upon redemption will equal the Unit’s liquidation amount plus all unpaid
distributions that have accrued to, but not including, the date on which the
Non-Redemption Period expires.
If you do not timely exercise your
put option, then the Non-Redemption Period applicable to your Unit will renew
and you will continue as a Limited Partner. In this case,
distributions will continue to accrue at the annual rate applicable to the Class
of your Unit.
Redemption
by Partnership
We may call your Units for redemption
at any time without penalty or premium by written notice to you. We will give
you a written notice at least seven days prior to the date set for redemption of
any Units held by you. The redemption price will be equal to the amount of your
initial investment paid for your Units, plus your cumulative annual return to
the date of redemption. The redemption price will be paid to you by check mailed
to your address as it appears in our register.
DESCRIPTION
OF THE LIMITED PARTNERSHIP AGREEMENT
The following is a summary of the
material provisions of our Limited Partnership Agreement not summarized
elsewhere in this prospectus, a copy of the Limited Partnership Agreement as an
attachment to this prospectus.
Organization
We are organized as a limited
partnership under the Maryland Revised Uniform Limited Partnership Act (referred
to in this prospectus as the “Partnership Act”). The General Partner is Bridge
GP, LLC. Our Limited Partners are Alan David Borinsky, as the initial limited
partner, and the duly admitted Class A Limited Partners, Class B Limited
Partners, and Class C Limited Partners.
38
Capital
Contributions
In November 2009 before the merger of
Bridge LLC and the Partnership, the equity owners of Bridge LLC contributed all
their membership interests of Bridge LLC to the General Partner and became
members of the General Partner. As a result of the merger of Bridge LLC into the
Partnership, the Partnership acquired assets from the General Partner having a
net value of more than $3 million. The General Partner is not required to make
any further capital contributions to the Partnership, but, it has the right to
do so. Each Limited Partner will contribute to the Partnership the amount of
his/her investment for the purchase of Units. Limited Partners are not obligated
to make any further capital contributions to the Partnership.
Allocations
The Limited Partners will be allocated
net income equal to their non-liquidating distributions that are based upon
their accrued return. The balance of the net income will be allocated to the
General Partner.
Limited
Liability of the General Partner
The General Partner, any affiliate
of the General Partner, any officer, director, stockholder, member, partner,
employee, agent or assign of the General Partner, or any of its affiliates, who
was, at the time of the act or omission in question, such a person or entity
(collectively to referred to in this prospectus as the “Related Persons”), shall
not be liable, responsible or accountable, whether directly or indirectly, in
contract, tort or otherwise, to the Partnership, any other person in which the
Partnership has a direct or indirect interest or any Limited Partner for any
damages asserted against, suffered or incurred by the Partnership, any other
person or entity in which the Partnership has a direct or indirect interest or
any Partner (or any of their respective Affiliates) arising out of, relating to
or in connection with any act or failure to act pursuant to the Partnership
Agreement or otherwise with respect to: the management or conduct of the
business and affairs of the Partnership; the offer and sale of Units in the
Partnership; and the management or conduct of the business and affairs of any
Related Person insofar as such business or affairs relate to the Partnership,
any other person or entity in which the Partnership has a direct or indirect
interest or to any Partner in its capacity as such, including, without
limitation, all activities in the conduct of other business engaged in by it (or
them) which might involve a conflict of interest vis-a-vis the Partnership, any
other person or entity in which the Partnership has a direct or indirect
interest or any Partner (or any of their respective Affiliates) or in which any
Related Person realizes a profit or has an interest, except for any such damages
that are finally found by a court of competent jurisdiction to have resulted
primarily from the bad faith, gross negligence or intentional misconduct of, or
material breach of the Partnership Agreement or knowing violation of law by the
General Partner or Related Persons.
Neither the General Partner nor any
other Related Person shall be personally liable for the return of the capital
contributions of any Limited Partner or any portion thereof or interest thereon,
and such return shall be made solely from available Partnership assets, if
any.
Limited
Liability of the Limited Partners
The liability of each Limited Partner
is limited to the amount that he/she is obligated to contribute to us for the
purchase of his/her Units plus any undistributed distributions.
Management
The Partnership will be managed
exclusively by the General Partner. The Limited Partners will have no part of
management of the Partnership, and have no authority or right in their capacity
as Limited Partners to act on behalf of the Partnership in connection with any
matter.
The General Partner has the power and
authority to acquire, hold, manage, own, sell, transfer, convey, assign,
exchange, pledge or otherwise dispose of the Partnership’s investments made or
other property held by the Partnership. In its discretion, the General Partner
may invest temporarily in bonds, bank certificates of deposits or money market
funds.
The General Partner shall not do any
act in contravention of any applicable law or regulation or any provision of the
Partnership Agreement or possess Partnership property for other than a
Partnership purpose.
Conflicts
of Interest
The General Partner and any other
Related Person may engage for its or their own accounts and for the accounts of
others, in other business ventures and activities of every nature and
description whether such ventures are competitive with the business of the
Partnership. Neither the Partnership nor any Limited Partner shall have any
rights or obligations in and to such independent ventures and activities or the
income or profits derived therefrom. While the General Partner intends to avoid
situations involving conflicts of interest, there may be situations in which the
interests of the Partnership may conflict with the interests of the General
Partner or any other Related Person and such situations will not, in any case or
in the aggregate, be deemed a breach of the Partnership Agreement or any duty
owed by the General Partner or such Related Person to the Partnership or to any
Limited Partner.
39
Neither the General Partner nor any
other Related Person shall be obligated to disclose or refer to the Partnership
any particular investment opportunity, whether or not any such opportunity is of
a character which could be taken by the Partnership.
Admission
of New Limited Partners
The Partnership may admit Limited
Partners in the General Partner’s discretion. A new Limited Partner must agree
to be bound by the terms and provisions of the Partnership Agreement and shall
be deemed to have done so by virtue of the acceptance of its subscription. Upon
admission the new Limited Partner shall have all the rights and duties of a
Limited Partner in the Partnership.
Books
and Records
The Partnership will maintain books and
records in such manner as is utilized in preparing the Partnership’s United
States federal information tax return in compliance with § 6031 of the Internal
Revenue Code (the “Code”), and such other records as may be required in
connection with the preparation and filing of the Partnership’s required United
States federal, state and local income tax returns or other tax returns or
reports of foreign jurisdictions.
All such books and records will be made
available at the principal office of the Partnership and will be open to the
reasonable inspection and examination of the Limited Partners or their duly
authorized representatives during normal business hours upon five business days’
prior written notice.
Restrictions
on Transfers of Limited Partnership Units
Except with the express written consent
of the General Partner, which may be withheld in its discretion, a Limited
Partner may not assign, sell, transfer, pledge, hypothecate or otherwise dispose
of any of the attributes of the Limited Partner’s interest, except by last will
and testament or by operation of law. Any assignment, sale, transfer, pledge,
hypothecation or other disposition made in violation of the Partnership
Agreement shall be void and of no effect.
In addition to requiring the written
consent of the General Partner, any purported disposition of a Limited Partner’s
interest shall be subject to the satisfaction of the following conditions: the
General Partner shall have been given at least twenty business days prior
written notice of such desired disposition specifying the name and address of
the proposed assignee and the terms and conditions of the proposed disposition;
the assigning Limited Partner or assignee shall undertake to pay all expenses
incurred by the Partnership or the General Partner on behalf of the Partnership
in connection with the proposed disposition; the Partnership shall receive from
the assignee such documents, instruments and certificates set forth in the
Partnership Agreement and as may be requested by the General Partner, including
an opinion of counsel regarding such disposition; and such disposition would not
pose a material risk that the Partnership will be treated as a “publicly traded
partnership” within the meaning of § 7704 of the Code and the regulations
promulgated thereunder or make the Partnership ineligible for “safe harbor”
treatment under § 7704 of the Code and the regulations promulgated
thereunder.
Restrictions
on Assignment and Withdrawal of General Partnership Units
The General Partner does not have the
right to assign, pledge or otherwise transfer its interest as the general
partner of the Partnership, and the General Partner does not have the right to
withdraw from the Partnership, without the consent of Limited Partners with at
least 66-2/3% of the aggregate Units held by all of the Limited Partners. In the
event of such an assignment or other transfer of all of its interest as a
general partner of the Partnership, the General Partner’s assignee or transferee
will be substituted in its place as general partner of the Partnership and the
General Partner will withdraw as a general partner of the
Partnership.
Termination
of the Partnership
The Partnership’s existence can be
terminated by, among other events, the following events: the failure to continue
the business of the Partnership following the bankruptcy, dissolution,
liquidation, withdrawal or removal of the General Partner (collectively referred
to in this prospectus as a “Disabling Event”) if the Limited Partners holding a
majority of the Units held by all of the Limited Partners do not consent in
writing within 180
days of the Disabling Event to continue the Partnership and appoint a successor
general partner; a determination by the General Partner to terminate the
Partnership made in its sole discretion; a determination by the Limited Partners
with at least 80% of the aggregate Units held by all of the Limited Partners; or
the entry of a decree of judicial dissolution pursuant to the Partnership
Act.
40
Amendments
to the Limited Partnership Agreement
As set forth in Section 14.1 of the
Partnership Agreement, the amendment or modification of the following provisions
require the written consent of the General Partner and Limited Partners with at
least 66-2/3% of the aggregate Units held by all of the Limited Partners: the
term of the of Partnership; liability of the General Partner; limited liability
of the Limited Partners; capital contributions and capital calls; capital
accounts; allocations to capital accounts; tax allocations; non-liquidating
distributions; distributions in redemption of a Limited Partner’s interest;
final distribution; management by General Partner; other activities of the
General Partner and Related Persons; partnership expenses; indemnification of
General Partner; event of termination; winding-up; distributions in cash or in
kind or a winding-up; time for liquidation; effect of bankruptcy, etc. of
General Partner; amendments; grant of power of attorney; and payment in U.S.
dollars.
The General Partner has the authority
to amend or modify the Partnership Agreement without any vote or other action by
the other partners, to satisfy any requirements, conditions, guidelines,
directives, orders, rulings or regulations of any governmental authority, or as
otherwise required by applicable law. The General Partner also has the authority
to amend or modify this Agreement without any vote or other action by the other
partners: (a) to reflect the admission of substitute, additional or successor
partners and transfers of Units pursuant to this Agreement; (b) to qualify or
continue the Partnership as a limited partnership (or a partnership in which the
Limited Partners have limited liability) in all jurisdictions in which the
Partnership conducts or plans to conduct business; (c) to change the name of the
Partnership; (d) to cure any ambiguity or correct or supplement any provisions
herein contained which may be incomplete or inconsistent with any other
provision herein contained; or (e) to correct any typographical errors contained
herein.
All other sections of the Partnership
Agreement (and all defined terms as used therein) may be modified or amended
only with the written consent of the General Partner and the Limited Partners
with more than 50% of the aggregate Units held by all of the Limited
Partners.
Power
of Attorney
Each Limited Partner grants to the
General Partner a power of attorney to, among other things, execute and file
documents required for our qualification, continuance or dissolution and the
amendment of the Partnership Agreement.
Meetings
The Partnership will not hold annual
meetings unless the Limited Partners holding 20% of the aggregate Units held by
all of the Limited Partners petitions the General Partner for a
meeting.
ERISA
CONSIDERATIONS
The following is a summary of the
material non-tax considerations associated with an investment in the Partnership
by a qualified plan, Keogh Plan or an IRA (a “benefit plan”). This summary is
based on provisions of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and the Code, as amended through the date of this prospectus,
and relevant regulations and opinions issued by the Department of Labor (“DOL”).
No assurance can be given that legislative or administrative changes or court
decisions may not be forthcoming which would significantly modify the statements
expressed herein. Any changes may or may not apply to transactions entered into
prior to the date of their enactment.
Fiduciaries
Under ERISA
A fiduciary of a pension, profit
sharing or other employee benefit plan subject to Title I of ERISA should
consider whether an investment in the Units is consistent with his or her
fiduciary responsibilities under ERISA. In particular, the fiduciary
requirements under Part 4 of Title I of ERISA require the discharge of duties
solely in the interest of, and for the exclusive purpose of providing benefits
to, the ERISA plan’s participants and beneficiaries. A fiduciary is required to
perform the fiduciary’s duties with the skill, prudence, and diligence of a
prudent man acting in like capacity, to diversify investments so as to minimize
the risk of large losses unless it is clearly prudent not to do so, and to act
in accordance with the ERISA plan’s governing documents, provided that the
documents are consistent with ERISA.
41
Fiduciaries with respect to an ERISA
plan include any persons who have any power of control, management, or
disposition over the funds or other property of the ERISA plan. An investment
professional who knows, or ought to know, that his or her advice will serve as
one of the primary bases for the ERISA plan’s investment decisions may be a
fiduciary of the ERISA plan, as may any other person with special knowledge or
influence with respect to an ERISA plan’s investment or administrative
activities.
While the beneficial “owner” or
“account holder” of an IRA is treated as a fiduciary of the IRA under the Code,
IRAs generally are not subject to ERISA’s fiduciary duty rules, although they
are subject to the Code’s prohibited transaction rules explained below. Also,
certain qualified plans of sole proprietors or partnerships in which at all
times (before and after the investment) the only participant(s) is/are the sole
proprietor and his or her spouse or the partners and their spouses, and certain
qualified plans of corporations in which at all times (before and after the
investment) the only participant(s) is/are an individual and/or his or her
spouse who own(s) 100% of the corporation’s stock, are generally not subject to
ERISA’s fiduciary standards, although they also are subject to the Code’s
prohibited transaction rules explained below.
A person subject to ERISA’s fiduciary
rules with respect to an ERISA plan should consider those rules in the context
of the particular circumstances of the ERISA plan before authorizing an
investment of a portion of the ERISA plan’s assets in Units.
Fiduciaries of an ERISA plan that
permits a participant to exercise independent control over the investments of
his individual account in accordance with Section 404(c) of ERISA (a
“self-directed investment” arrangement) generally will not be liable for any
investment loss or for any breach of the prudence or diversification obligations
that results from the participant’s exercise of such control, and the
participant is not deemed to be a fiduciary subject to the general ERISA
fiduciary obligations described above merely by virtue of his exercise of such
control. Liability can, however, be imposed upon the fiduciary of an ERISA plan
for losses resulting from a participant’s direction of the investment of assets
in his individual account into a particular investment option under the ERISA
plan if the fiduciary acted imprudently in offering, or continuing to offer, the
investment under the ERISA plan.
The fiduciary of an IRA or a qualified
retirement plan not subject to Title I of ERISA because it is a governmental or
church plan or because it does not cover common law employees should consider
that such an IRA or non-ERISA Plan may only make investments that are authorized
by the appropriate governing documents and under applicable state
law.
Prohibited
Transactions Under ERISA and the Code
Any fiduciary of an ERISA plan or a
person making an investment decision for a non-ERISA Plan or an IRA should
consider the prohibited transaction provisions of Section 4975 of the Code and
Section 406 of ERISA when making their investment decisions. These rules
prohibit such plans from engaging in certain transactions involving “plan
assets” with parties that are “disqualified persons” described in Section
4975(e)(2) of the Code or “parties in interest” described in Section 3(14) of
ERISA, each of which are referred to as “disqualified
persons”.
“Prohibited transactions” include, but
are not limited to, any direct or indirect transfer or use of a qualified plan’s
or IRA’s assets to or for the benefit of a disqualified person, any act by a
fiduciary that involves the use of a qualified plan’s assets in the fiduciary’s
individual interest or for the fiduciary’s own account, and any receipt by a
fiduciary of consideration for his or her own personal account from any party
dealing with a qualified plan. Under ERISA, a disqualified person that engaged
in a prohibited transaction will be made to disgorge any profits made in
connection with the transaction and will be required to compensate any ERISA
plan that was a party to the prohibited transaction for any losses sustained by
the ERISA plan. Section 4975 of the Code imposes excise taxes on a disqualified
person that engages in a prohibited transaction with an ERISA plan or a
non-ERISA plan or an IRA subject to Section 4975 of the Code. If the
disqualified person who
engages in the transaction is the individual on behalf of whom the IRA is
maintained (or his beneficiary), the IRA may lose its tax exempt status and the
assets will be deemed to be distributed to such individual in a taxable
transaction.
In order to avoid the occurrence of a
prohibited transaction under Section 4975 of the Code and/or Section 406 of
ERISA, Units may not be purchased by an ERISA plan, an IRA, or a non-ERISA plan
subject to Section 4975 of the Code, as to which the Managing Member of the
General Partner, or any of its affiliates, have investment discretion with
respect to the assets used to purchase the Units, or with respect to which they
have regularly given individualized investment advice that serves as the primary
basis for the investment decisions made with respect to such assets.
Additionally, fiduciaries of, and other disqualified persons with respect to, an
ERISA Plan, an IRA, or a non-ERISA plan subject to Section 4975 of the Code,
should be alert to the potential for prohibited transactions to occur in the
context of a particular plan’s or IRA’s decision to purchase
Units.
42
None of the Managing Member of the
General Partner, the General Partner nor the Partnership shall have any
liability or responsibility to any benefit plan that is a Limited Partner or any
other Limited Partner, including any Limited Partner that is a tax exempt
entity, for any tax, penalty or other sanction or costs or damages arising as a
result of there being a prohibited transaction or as a result of Partnership
assets being deemed plan assets of the Limited Partner under the Code or ERISA
or other applicable law.
“Plan
Assets”
If our assets were determined under
ERISA or the Code to be “plan assets”:
|
·
|
the
prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving our
assets;
|
|
·
|
persons
who exercise any authority or control over our assets, or who provide
investment advice to us, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that
acquires the Units, and transactions involving our assets undertaken at
their direction or pursuant to their advice might violate their fiduciary
responsibilities under ERISA, especially with regard to conflicts of
interest;
|
|
·
|
a
fiduciary exercising his investment discretion over the assets of an ERISA
plan to cause it to acquire or hold the Units could be liable under Part 4
of Title I of ERISA for transactions we enter into that do not conform to
ERISA standards of prudence and fiduciary responsibility;
and
|
|
·
|
certain
transactions that we might enter into in the ordinary course of our
business and operations might constitute “prohibited transactions” under
ERISA and the Code.
|
An ERISA plan’s fiduciaries might,
under certain circumstances, be subject to liability for actions taken by the
Managing Member of the General Partner or its affiliates, and certain of the
transactions described in this prospectus in which we might engage, including
certain transactions with affiliates, may constitute prohibited transactions
under the Code and ERISA with respect to such ERISA plan, even if their
acquisition of Units did not originally constitute a prohibited
transaction.
Under ERISA and applicable DOL
regulations governing the determination of what constitutes assets of an ERISA
plan in the context of investment securities such as Units, an undivided
interest in the underlying assets of a collective investment entity such as the
Partnership will be treated as “plan assets” of “Benefit Plan Investors” (as
that term is defined under ERISA) if (i) the securities are not publicly
offered, (ii) 25% or more of the total value of each class of equity securities
of the entity is owned by Benefit Plan Investors, (iii) the interests of the
Benefit Plan Investors are “equity interests”, and (iv) the entity is not an
“operating company”. In order for securities to be treated as “publicly
offered”, they have to be either (a) part of a class of securities registered
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 or (b) sold
as part of an offering registered under the Securities Act of 1933, and must
also meet certain other requirements, including a requirement that they be
“freely transferable”.
Units will be sold as part of an
offering registered under the Securities Act of 1933. However, we believed that
the restrictions on transferability of Units (see “Restrictions on Transfers of
Limited Partnership Units”) prevent the Units from being
“freely transferable” for purposes of the DOL’s regulations. Consequently, in
order to ensure that our assets will not constitute “plan assets” of Limited
Partners which are ERISA plans, the Managing Member of the General Partner will
take such steps as are necessary to ensure that ownership of Units by Benefit
Plan Investors is at all times less than 25% of the total value of outstanding
Units. In calculating this limit, the Managing Member of the General Partner
shall, as provided in the DOL’s regulations, disregard the value of any Units
held by a person (other than a Benefit Plan Investor) who has discretionary
authority or control with respect to our assets, or any person who provides
investment advice for a fee (direct or indirect) with respect to our assets, or
any affiliate of any such a person. However, neither we nor the Managing Member
of the General Partner nor the Sole Member of the Managing Member shall have any
liability or responsibility to any tax exempt entity Limited Partner or any
other Limited Partner for any tax, penalty or other sanction or costs or damages
arising as a result of partnership assets being deemed plan assets of a tax
exempt entity Limited Partner under the Code or ERISA or other applicable
law.
Other
ERISA Considerations
In addition to the above
considerations in connection with the “plan assets” issue, a decision to cause a
benefit plan to acquire Units should involve consideration, among other factors,
of whether:
|
·
|
the
investment is in accordance with the documents and instruments governing
the benefit plan;
|
43
|
·
|
the
purchase is prudent in light of the diversification of assets requirement
and the potential difficulties that may exist in liquidating
Units;
|
|
·
|
the
investment will provide sufficient cash distributions in light of the
benefit plan’s required benefit payments or other
distributions;
|
|
·
|
the
evaluation of the investment has properly taken into account the potential
costs of determining and paying any amounts of federal income tax that may
be owed on UBTI derived from the
Partnership;
|
|
·
|
in
the case of an ERISA plan, the investment (or, in the case of a
self-directed individual account arrangement under Section 404(c) of ERISA
and regulations promulgated thereunder, the decision to offer the
investment to participants in the ERISA plan) is made solely in the
interests of the ERISA plan’s participants;
and
|
|
·
|
the
fair market value of Units will be sufficiently ascertainable, and with
sufficient frequency, to enable the benefit plan to value its assets in
accordance with the rules and policies applicable to the benefit
plan.
|
Prospective ERISA plan investors
should note that, with respect to the diversification of assets requirement, the
legislative history of ERISA and a DOL advisory opinion indicate that the
determination of whether the assets of an ERISA plan that has invested in an
entity such as the Partnership are sufficiently diversified may be made by
looking through the ERISA plan’s interest in the entity to the underlying
portfolio of assets owned by the entity.
The fiduciaries of each benefit plan
proposing to invest in the Partnership may be required to make certain
representations, including, but not limited to, a representation that they have
been informed of and understand the Partnership’s investment objectives,
policies, and strategies, and that the decision to invest assets in the
Partnership is consistent with the provisions of ERISA that require
diversification of plan assets and impose other fiduciary responsibilities.
Additionally, each benefit plan will be required to represent that to the best
of its knowledge neither the Partnership nor any of its affiliates is a party in
interest or disqualified person, as defined in Section 3(14) of ERISA and
Section 4975(e)(2) of the Code, with respect to such benefit
plan.
DETERMINATION
OF OFFERING PRICE
The offering price of the Units was
arbitrarily determined by the General Partner and was based upon consideration
of various factors including the availability and demand for such investments.
The price of the Units does not bear any relationship to our assets, book value,
net worth or other economic or recognized criteria of value. In no event should
the offering price of the Units be regarded as an indicator of any future market
price of the Units.
PLAN
OF DISTRIBUTION
We are offering, on a continuous
basis, up to 88,000 Units. Generally, we will require a minimum investment of
ten Units, or $5,000, but we reserve the right to waive this subscription
minimum and accept a lesser amount from any investor. In fact, we may allow
purchases of as little as one Unit, or $500, if the purchasers are custodians
acting for a minor family member. IRAs and employee benefit plans may also
purchase Units. We also require a minimum investment of ten Units, or $5,000, by
IRAs and employee benefits plans.
There is no minimum number of Units
that must be sold under this offering. No escrow accounts will be utilized. The
proceeds from the sale of any Units will be paid directly to us for our use
without restrictions. The Units will be issued in book entry form and,
accordingly, you will not be issued a physical certificate.
We filed a Registration Statement on
Form S-1 (File No. 333-163556) with the SEC, of which this prospectus is a part,
to register our offering of the Units. We have also filed, or intend to file, a
registration statement and amendments with each of the states that we intend to
offer Units to register offers and sales of the Units in those
states. We may not offer or sell the Units until the registration
statement and all amendments thereto are declared effective by the SEC and until
the related registration statement and amendments filed with each of the
foregoing states are declared effective by those states.
The Units will be offered and sold
in certain states by Alan David Borinsky, the sole member of the Managing Member
of the General Partner. In the future, subject to compliance with all applicable
issuer-agent registration requirements, some of our other associated persons may
also offer and sell the Units. The activities of Mr. Borinsky and any other
associated person as issuer agents are restricted to transactions with respect
to the securities of the Partnership. None of these associated persons will
receive special compensation in connection with their activities in offering and
selling the Units. Our associated persons who offer and sell the Units will rely
on Rule 3a4-1 under the Exchange Act, as an exemption from registration as a
broker-dealer.
44
We may reject any order, in whole or
in part, for any reason. Your order is irrevocable upon receipt by us. In the
event your order is not accepted, we will promptly refund your funds, without
deduction of any costs and without interest. We expect that orders, if rejected,
will be refunded within two business days after receipt. Once your order has
been accepted, the applicable funds will be promptly deposited in our account.
We will send a receipt to you as soon as practicable after acceptance of your
order. You will not know at the time of placing an order whether we will be
successful in completing the sale of any or all of the debt securities being
offered. We reserve the right to withdraw or cancel the offering at any
time.
We do not know whether our officers
and Directors will purchase any of the Units. All sales, past and future, to
officers, Directors, affiliates or associates are done on the same terms and
conditions as Units sold to other persons. However, resales and certain other
transfers of Units by persons who are deemed to be “affiliates” of BPL (as
defined in Rule 405 under the Securities Act) may be limited. Generally, our
affiliates may sell their Units only pursuant to an effective registration
statement covering such resales, pursuant to Rule 144 under the Securities Act,
or pursuant to another exemption from registration.
EXPERTS
Our financial statements appearing
in this prospectus have been included in reliance on the report of the
independent registered public accounting firm of Stegman & Company. Their
report is included in the financial statements appearing in this prospectus and
is included by us in reliance upon that report given upon the authority of that
firm as experts in accounting and auditing.
LEGAL
MATTERS
Certain matters with respect to the
Units offered by this prospectus were passed upon for us by our legal counsel,
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore,
Maryland.
45
ADDITIONAL
INFORMATION
We filed with the SEC a registration
statement on Form S-1 to register the Units to be issued in this offering. This
prospectus is part of that registration statement, as amended. As allowed by the
SEC’s rules, this prospectus does not contain all of the information you can
find in the registration statement or the exhibits to that registration
statement. For further information with respect to us and the Units, we refer
you to the registration statement, all amendments thereto, and the exhibits that
were filed therewith, which may be viewed at the SEC’s website, www.sec.gov, or inspected without charge at the
SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, on
official business days during the hours of 10:00 a.m. and 3:00 p.m. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Copies of all or any part of the registration
statement, as amended, may be downloaded from the SEC’s website or obtained from
the SEC upon payment of the prescribed fee.
Following this offering, we will be
subject to the information requirements of the Exchange Act, which means we are
required to file annual, quarterly and other reports and other information with
the SEC. Our SEC filings will be available to the public over the Internet at
the SEC’s website. You may also read and copy any document we file with the SEC
at its Public Reference Room.
46
INDEX
TO FINANCIAL STATEMENTS
Page
|
||
Fiscal
Years Ended December 31, 2008 and 2007
|
||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Balance
Sheets as of December 31, 2008 and 2007
|
F-3
|
|
Statements
of Operations for the Years Ended December 31, 2008 and
2007
|
F-4
|
|
Statements
of Changes in Members’ Equity for the Years Ended December 31, 2008 and
2007
|
F-5
|
|
Statements
of Cash Flows for the Years Ended December 31, 2008 and
2007
|
F-6
|
|
Notes
to Financial Statements
|
F-8
|
|
Nine
Months Ended September 30, 2009 and 2008
|
||
Balance
Sheet as of September 30, 2009 (unaudited)
|
F-16
|
|
Statements
of Operations for the Nine Months Ended September 30, 2009 and 2008
(unaudited)
|
F-17
|
|
Statements
of Changes in Members’ Equity for the Nine Months Ended September 30, 2009
and 2008 (unaudited)
|
F-18
|
|
Statements
of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
(unaudited)
|
F-19
|
|
Notes
to Unaudited Financial Statements
|
F-20
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Members of
Bridge
Private Lending, LLC
We have
audited the accompanying balance sheets of Bridge Private Lending, LLC (the
“Company”) as of December 31, 2008 and 2007, and the related statements of
operations, changes in members’ equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bridge Private Lending, LLC as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/
Stegman and Company
Baltimore,
Maryland
January
29, 2010
F-2
BRIDGE
PRIVATE LENDING, LLC
BALANCE
SHEETS
DECEMBER
31, 2008 AND 2007
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 27,083 | $ | 84,666 | ||||
Loans
receivable, less allowance for loan losses of (2008) $318,203 and
(2007) $200,000
|
10,637,093 | 7,291,733 | ||||||
Accrued
interest receivable
|
273,375 | 253,986 | ||||||
Equity
investments
|
270,000 | 325,989 | ||||||
Property
and equipment - net
|
9,921 | 11,409 | ||||||
Real
estate acquired through foreclosure
|
1,127,131 | - | ||||||
Other
assets:
|
||||||||
Other
receivables
|
- | 323,558 | ||||||
Other
assets
|
58,361 | 1,024 | ||||||
Total
other assets
|
58,361 | 324,582 | ||||||
TOTAL
ASSETS
|
$ | 12,402,964 | $ | 8,292,365 | ||||
LIABILITIES
AND MEMBERS’ EQUITY
|
||||||||
LIABILITIES:
|
||||||||
Notes
payable
|
$ | 2,817,183 | $ | 1,799,808 | ||||
Participation
loans
|
4,165,566 | 2,369,900 | ||||||
Other
loans payable
|
659,700 | - | ||||||
Accounts
payable and accrued expenses
|
115,467 | 35,368 | ||||||
Total
liabilities
|
7,757,916 | 4,205,076 | ||||||
MEMBERS’
EQUITY
|
4,645,048 | 4,087,289 | ||||||
TOTAL
LIABILITIES AND MEMBERS’ EQUITY
|
$ | 12,402,964 | $ | 8,292,365 |
See
accompanying notes to financial statements.
F-3
BRIDGE
PRIVATE LENDING, LLC
STATEMENTS
OF OPERATIONS
FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
INTEREST
INCOME:
|
||||||||
Interest
and fees on loans
|
$ | 1,604,330 | $ | 1,250,208 | ||||
Interest
on equity investments
|
2,778 | 2,305 | ||||||
Total
interest income
|
1,607,108 | 1,252,513 | ||||||
INTEREST
EXPENSE - Interest on notes payable
|
663,767 | 548,796 | ||||||
NET
INTEREST INCOME
|
943,341 | 703,717 | ||||||
PROVISION
FOR LOAN LOSSES
|
164,964 | 1,578,225 | ||||||
NET
INTEREST INCOME (LOSS) AFTER PROVISION
|
||||||||
FOR
LOAN LOSSES
|
778,377 | (874,508 | ) | |||||
NON-INTEREST
INCOME:
|
||||||||
Fees
|
41,567 | 26,284 | ||||||
Other
|
57,077 | 2,124 | ||||||
Total
non-interest income
|
98,644 | 28,408 | ||||||
NON-INTEREST
EXPENSE:
|
||||||||
Salaries
and wages
|
261,302 | 136,964 | ||||||
Professional
fees
|
86,753 | 51,051 | ||||||
Mortgage
broker fees
|
36,187 | 8,975 | ||||||
Commissions
|
11,702 | - | ||||||
Telephone,
postage and office supplies
|
25,992 | 35,934 | ||||||
Marketing
|
14,573 | 7,155 | ||||||
Business
travel and meals
|
5,575 | 5,273 | ||||||
Consulting
|
13,650 | - | ||||||
Rent
and other occupancy
|
21,660 | 14,506 | ||||||
Bank
charges
|
6,612 | 2,895 | ||||||
Write-downs
of real estate acquired through foreclosure
|
29,447 | - | ||||||
Other
|
32,516 | 576 | ||||||
Total
non-interest expense
|
545,969 | 263,329 | ||||||
NET
INCOME (LOSS)
|
$ | 331,052 | $ | (1,109,429 | ) |
See
accompanying notes to financial statements.
F-4
BRIDGE
PRIVATE LENDING, LLC
STATEMENTS
OF CHANGES IN MEMBERS’ EQUITY
FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007
MEMBERS’
EQUITY AT JANUARY 1, 2007
|
$ | 278,156 | ||
TRANSFER
OF MEMBERS’ LOANS TO EQUITY
|
4,641,515 | |||
CONTRIBUTIONS
|
1,437,967 | |||
DISTRIBUTIONS
|
(1,160,920 | ) | ||
NET
LOSS
|
(1,109,429 | ) | ||
MEMBERS’
EQUITY AT DECEMBER 31, 2007
|
4,087,289 | |||
CONTRIBUTIONS
|
2,210,811 | |||
DISTRIBUTIONS
|
(1,984,104 | ) | ||
NET
INCOME
|
331,052 | |||
MEMBERS’
EQUITY AT DECEMBER 31, 2008
|
$ | 4,645,048 |
See
accompanying notes to financial statements.
F-5
BRIDGE
PRIVATE LENDING, LLC
STATEMENTS
OF CASH FLOWS
FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007
2008
|
2007
|
|||||||
CASH
FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | 331,052 | $ | (1,109,429 | ) | |||
Adjustments
to reconcile net income to net cash from operating
activities:
|
||||||||
Depreciation
|
3,660 | - | ||||||
Provision
for loan losses
|
164,964 | 1,578,225 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Other
assets
|
266,221 | (571,485 | ) | |||||
Interest
receivable
|
(19,389 | ) | - | |||||
Accounts
payable and accrued expenses
|
80,099 | 35,368 | ||||||
Net
cash provided by (used in) operating activities
|
826,607 | (67,321 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
(Increase)
in loans receivable
|
(4,538,979 | ) | (2,235,609 | ) | ||||
Payments
related to real estate acquired through foreclosure (purchases and
improvements)
|
(127,923 | ) | - | |||||
Write-downs
of other real estate owned
|
29,447 | - | ||||||
Purchase
of equity investments
|
- | (350,000 | ) | |||||
Purchase
of property and equipment
|
(2,172 | ) | (11,409 | ) | ||||
Return
on equity investments
|
55,989 | 24,011 | ||||||
Net
cash used in investing activities
|
(4,583,638 | ) | (2,573,007 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from investor notes
|
1,392,646 | 299,808 | ||||||
Principal
payments on investor notes
|
(375,271 | ) | - | |||||
Proceeds
from other loans payable
|
1,677,200 | - | ||||||
Principal
payment on other loans payable
|
(1,017,500 | ) | - | |||||
Proceeds
from participation loans
|
2,519,284 | 2,290,000 | ||||||
Principal
payments on participation notes
|
(723,618 | ) | (1,100,100 | ) | ||||
Proceeds
from members’ loans
|
- | 1,467,037 | ||||||
Principal
payments on members’ loans
|
- | (560,126 | ) | |||||
Contributions
from members
|
2,210,811 | 1,437,967 | ||||||
Distributions
to members
|
(1,984,104 | ) | (1,160,920 | ) | ||||
Net
cash provided by financing activities
|
3,699,448 | 2,673,666 |
F-6
Bridge
Private Lending, LLC
Statements
of Cash Flows (Continued)
For the
Years Ended December 31, 2008 and 2007
2008
|
2007
|
|||||||
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
$ | (57,583 | ) | $ | 33,338 | |||
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
84,666 | 51,328 | ||||||
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 27,083 | $ | 84,666 | ||||
Supplemental
cash flows information:
|
||||||||
Interest
paid
|
$ | 642,045 | $ | 516,699 | ||||
Transfer
of loans to real estate acquired through foreclosure
|
$ | 1,023,655 | $ | - | ||||
Transfer
of members’ loans payable to equity
|
$ | - | $ | 4,641,515 |
See
accompanying notes to financial statements.
F-7
BRIDGE
PRIVATE LENDING, LLC
NOTES TO
FINANCIAL STATEMENTS
FOR THE
YEARS ENDED DECEMBER 31, 2008 AND 2007
1. SUMMARY
OF SIGNIFICANT POLICIES
Nature of Operations
Bridge Private Lending, LLC (the
“Company”) is a limited liability company organized in April 2006, pursuant to
articles of organization filed with the State of Florida. Its primary
business is financing the purchase and rehabilitation of single family dwellings
and row houses located in low and moderate income neighborhoods throughout the
Baltimore, Maryland metropolitan areas. The loans are secured by
first liens or subordinate liens on real estate.
Use of Estimates in Preparing Financial
Statements
In preparing financial statements in
conformity with U.S. generally accepted accounting principles, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of
cash flows, highly liquid investments with original maturities of three months
or less are classified as cash and cash equivalents.
Loans Receivable
Loans receivable are stated as unpaid
principal balance net of any discounts, premiums, unamortized deferred fees and
payments in process, less the allowance for loan losses.
Interest income from loans receivable
is recognized using the interest method whereby interest income is recognized
based upon the effective rate based upon outstanding principal. Loan origination
fees received from borrowers are recognized in income when the loan is
originated, which is not materially different than the effective yield
method. Loan premiums and discounts are also amortized into interest
income under the same method.
Under the provisions of Statement
of Financial Accounting Standards (“SFAS”) No. 114, Accounting by Creditors for
Impairment of a Loan, a loan is considered impaired if it is probable
that the Company will not collect all principal and interest payments according
to the loan’s contractual terms. The impairment of the loan is measured at the
present value of the expected cash flows using the loan’s effective interest
rate, or the loan’s observable market price, or the fair value of the collateral
if repayment is expected to be provided by the collateral. Generally,
the Company’s impairment of loans is measured by reference to the fair value of
the collateral. Interest income generally is not recognized on
specific impaired loans unless the likelihood of further loss is remote.
Interest payments received on such loans are applied as a reduction of the loans
principal balance. Interest income on the other impaired loans is
recognized only to the extent of interest payments received.
Loan origination costs incurred in
its direct lending activities are recognized immediately as a reduction to
interest income.
F-8
Allowance for Loan Losses
The allowance for loan losses is
increased for charges to income and decreased for charge-offs (net of
recoveries). Management’s periodic evaluation of the adequacy of the allowance
is based on the Company’s past loan loss experience, known or inherent risks in
the portfolio, adverse situations which may affect the borrower’s ability to
repay, the estimated value of underlying collateral and current economic
conditions. It is reasonably possible that the Company’s allowance for loan
losses could change in the near term.
The allowance for loan losses is the
result of an estimation done pursuant to SFAS No. 5, Accounting for Contingencies,
or SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. The allowance consists of a
specifically allocated component and a general unallocated
component.
The specific allowances are
established in cases in which management has identified significant conditions
or circumstances related to a loan that leads management to believe the
probability that a loss may be incurred in an amount different from the amount
determined by general allowance calculation described below.
Loans that are delinquent for more
than three months are evaluated for collectibility and placed in impaired
status when management determines that future earnings on that loan may be
impaired. While in impaired status, collections on loans, if any, are
recorded as collection of loan principal and no interest is
recorded. Loans deemed uncollectible are charged against, while
recoveries are credited to, the allowance. Management adjusts the
level of the allowance through the provision for loan losses, which is recorded
as a current period operating expense.
Property and Equipment
Property and equipment are stated at
cost and depreciated over the estimated useful lives of three to 30 years,
primarily using the straight-line method for financial statement
purposes.
Real Estate Acquired through
Foreclosure
Real estate acquired through
foreclosure represents property acquired by foreclosure, deed in lieu of
foreclosure or purchase and is initially recorded at the lower of cost or
estimated fair value less cost to sell at the date of
acquisition. Estimated fair value is generally based upon listing
prices for neighboring properties as reported by third party pricing models,
adjusted for the estimated value of improvements pertaining specifically to the
subject property. The difference between cost and estimated fair
value at the time of foreclosure is charged to the allowance for loan
losses. Subsequent impairment of value is charged to
operations. Costs relating to the improvements of the property that
significantly increase the fair value of the asset are
capitalized. Holding costs are charged to expense as
incurred.
Gains or losses recognized from
subsequent disposal of real estate acquired through foreclosure will be measured
by the difference between the sales proceeds and the carrying value of the asset
at the time of disposal.
Advertising
Advertising costs are expensed as
incurred. Advertising expense was $4,857 and $1,338 for the years
ended December 31, 2008 and 2007, respectively.
Income Taxes
The Company is treated as a
partnership for income tax purposes, and accordingly, items of income and loss
are taxed to the members. Therefore, no provision for income taxes is
necessary in the financial statements.
2. FAIR
VALUE MEASUREMENTS
Effective January 1, 20008, the Company
adopted the FASB’s guidance on the accounting for fair value measurements which
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. In accordance with the FASB’s literature, the
Company must apply this guidance whenever other standards require (or permit)
assets or liabilities to be measured at fair value but it does not expand the
use of fair value in any new circumstances. In this standard, the
FASB clarifies the principle that fair value should be based on the assumptions
that market participants would use when pricing the asset or
liability. In support of this principle, the FASB’s guidance
establishes a fair value hierarch that prioritizes the information used to
develop those assumptions. The fair value hierarchy is as
follows:
F-9
Level 1
Inputs – Unadjusted quoted prices in active markets for identical assets or
liabilities that the entity has the ability to access at the measurement
date.
Level 2
Inputs – Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These
might include quoted prices for similar assets and liabilities in active
markets, and inputs other than quoted prices that are observable for the asset
or liability, such as interest rates and yield curves that are observable at
commonly quoted intervals.
Level 3
Inputs – Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity’s own assumptions about the assumptions that
market participants would use in pricing the assets or liabilities.
The value of real estate acquired
through foreclosure is determined at the time of foreclosure and generally is
based upon the lower of cost or net realizable value (as determined by third
party real estate appraisals) less the estimated cost of
disposal. Also at the time of foreclosure, the excess (if any) of the
carrying value of the underlying loan receivable over the net realizable value
is charged-off before transferring the remaining balance from loan receivable
into real estate acquired through foreclosure.
On a nonrecurring basis, the Company
may be required to measure certain assets at fair value in accordance with
generally accepted accounting principles. These adjustments usually
result from application of lower-of-cost-or-market accounting or write-downs of
specific assets.
The following table includes the
assets measured at fair value on a nonrecurring basis as of December 31,
2008:
Significant
|
Significant
|
|||||||||||||||
Carrying
|
Other
|
Other
|
||||||||||||||
Value
|
Quoted
|
Observable
|
Unobservable
|
|||||||||||||
(Fair
|
Prices
|
Inputs
|
Inputs
|
|||||||||||||
Value)
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Equity
investments
|
$ | 270,000 | $ | - | $ | 270,000 | $ | - | ||||||||
Real
estate acquired through foreclosure
|
1,127,131 | - | 1,127,131 | - | ||||||||||||
Total
assets measured on a non-recurring basis at fair value
|
$ | 1,397,131 | $ | - | $ | 1,397,131 | $ | - |
The Company discloses fair value
information about financial instruments, for which it is practicable to estimate
the value, whether or not such financial instruments are recognized on the
balance sheet. Fair value is the amount at which a financial
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation, and is best evidenced by a quoted
market price, if one exists.
Quoted market prices, where
available, are shown as estimates of fair market values. Because no
quoted market prices are available for a significant part of the Company’s
financial instruments, the fair values of such instruments have been derived
based on the amount and timing of future cash flows and estimated discount
rates.
Present value techniques used in
estimating the fair value of many of the Company’s financial instruments are
significantly affected by the assumptions used. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate cash
settlement of the instrument. Additionally, the accompanying
estimates of fair values are only representative of the fair values of the
individual financial assets and liabilities and should not be considered an
indication of the fair value of the Company.
F-10
The following disclosure of estimated
fair values of the Company’s financial instruments at December 31, 2008 are made
in accordance with the requirements of FASB literature on fair value and are as
follows:
Carrying
|
Estimated
|
|||||||
Amount
|
Fair Value
|
|||||||
Financial
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 27,083 | $ | 27,083 | ||||
Loans
receivable, net of allowance
|
10,637,093 | 10,637,093 | ||||||
Equity
investments
|
270,000 | 270,000 | ||||||
Real
estate acquired through foreclosure
|
1,127,131 | 1,127,131 | ||||||
Accrued
interest receivable and other assets
|
331,736 | 331,736 | ||||||
Financial
liabilities:
|
||||||||
Notes
payable
|
2,817,183 | 2,817,183 | ||||||
Participation
loans
|
4,165,566 | 4,165,566 | ||||||
Other
loans payable
|
659,700 | 659,700 | ||||||
Accounts
payable and accrued expenses
|
115,467 | 115,467 |
The following methods and assumptions
were used to estimate the fair value of each category of financial instruments
for which it is practicable to estimate that value:
Cash and cash equivalents -The
carrying amount approximated the fair value.
Loans - The carrying amount
approximated the fair value considering the short-term nature and its expected
collection.
Accrued interest receivable –
The carrying amount approximated the value of accrued interest, considering the
short-term nature and its expected repayment.
Other assets – The carrying
amount approximated the fair value.
Notes payable, participation loans
and other loans payable – The carrying amount approximated the fair value
considering the short-term nature and its expected repayment.
Accounts payable and accrued
expenses – The carrying amount approximated the fair value considering
their short-term nature and expected payment.
3. EQUITY
INVESTMENTS
The Company has invested funds in a
condominium conversion project located in Arlington, Virginia. The
Company owns twenty percent of the project and the investment is accounted for
under the equity method of accounting.
4. LOANS
RECEIVABLE
Loans Receivable by Collateral
Type
The Company’s loans receivable
portfolio at December 31 consists of the following loans:
F-11
Primary Collateral Type
|
2008
|
2007
|
||||||
Residential
investment property first trust
|
$ | 9,989,744 | $ | 6,589,382 | ||||
Residential
investment property second trust
|
375,00 | 357,351 | ||||||
Land
loans
|
545,000 | 545,000 | ||||||
Unsecured
loans
|
45,552 | - | ||||||
Total
loans receivable, gross
|
10,955,296 | 7,491,733 | ||||||
Allowance
for loan losses
|
(318,203 | ) | (200,000 | ) | ||||
Total
loans receivable, net
|
$ | 10,637,093 | $ | 7,291,733 |
As of December 31, 2008 and 2007, a
significant majority of the Company’s loans are composed of residential
investment loans secured by first trusts. The remainder of the loans
are land and second trust secured investment property loans which were
originated prior to December 31, 2007, upon the Company’s
origination. The Company does not intend to invest in land and second
trust secured loans in the future.
At December 31, 2008, the Company had
outstanding balances to a single group of borrowers under a related partnership
in the aggregate amount of $1,635,807, which represented 15% of loans
outstanding at that date. All of these loans are secured by first
mortgages on real estate located in Baltimore City,
Maryland. Management believes that this concentration is adequately
collateralized based on current market value evaluations.
The Company has granted loans to
certain members’ affiliated parties. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The
aggregate dollar amount of these loans was $80,000 and $96,325 at December 31,
2008 and 2007, respectively. During 2008, repayments totaled $16,325
and there were no additional advances. During 2007, $16,325 of new
loans were made and there were no repayments.
5. ALLOWANCE
FOR LOAN LOSSES
Analysis of Loan Loss
Reserves
Analysis of the allowance for loan
loss is as follows:
Year Ended December 31
|
||||||||
2008
|
2007
|
|||||||
Beginning
balance
|
$ | 200,000 | $ | - | ||||
Provision
for loan losses
|
164,964 | 1,578,225 | ||||||
Loans
charged off (net of recoveries)
|
(46,761 | ) | (1,378,225 | ) | ||||
Ending
balance
|
$ | 318,203 | $ | 200,000 |
Loans in impaired status
totaled $1,113,697 and $-0- at December 31, 2008 and 2007,
respectively.
At December 31, 2008 and 2007, the
Company had loans of $2,426,051 and $1,911,255, respectively, which were more
than 90 days late and for which the Company continues to accrue interest.
Management believes that these loans are adequately collateralized and that both
the principal and the related accrued interest are collectible.
F-12
Information
with respect to impaired loans at December 31, 2008 and 2007 and for the years
then ended is as follows:
December 31
|
||||||||
2008
|
2007
|
|||||||
Total
recorded investment in impaired loans
|
||||||||
at
the end of the period
|
$ | 1,113,697 | $ | - | ||||
Amount
of that recorded investment for which there is
|
||||||||
a
related allowance for loan losses
|
1,113,697 | - | ||||||
Amount
of that recorded investment for which there is
|
||||||||
no
related allowance for loan losses
|
- | - | ||||||
Amount
of related allowance for loan losses associated
|
||||||||
with
such investment
|
243,697 | - | ||||||
Amount
of allowance for credit losses associated with
|
||||||||
other
than impaired loans
|
74,506 | 200,000 | ||||||
The
average recorded investment in impaired loans
|
||||||||
during
the period
|
1,083,350 | - | ||||||
The
related amount of interest income recognized within
|
||||||||
that
period when the loans were impaired
|
- | - | ||||||
The
amount of income recognized using a cash basis during
|
||||||||
the
time within that period that the loan was impaired
|
- | - |
6. PROPERTY
AND EQUIPMENT
Property
and equipment consists of the following as of December 31:
2008
|
2007
|
|||||||
Furniture
and equipment
|
$ | 9,878 | $ | 6,321 | ||||
Computer
hardware and software
|
3,703 | 5,088 | ||||||
Total
property and equipment – cost
|
13,581 | 11,409 | ||||||
Less
accumulated depreciation
|
3,660 | - | ||||||
Property
and equipment, net
|
$ | 9,921 | $ | 11,409 |
Depreciation expense related to
property and equipment for the years ended December 31, 2008 and 2007, totaled
$3,660 and $-0-, respectively.
7. REAL
ESTATE ACQUIRED THROUGH FORECLOSURE
At December 31, 2008, real estate
acquired through foreclosure consisted of six renovated residential and
residential rental properties which totaled $1,127,131. The Company
held no real estate acquired through foreclosure owned as of December 31,
2007.
8. NOTES
AND LOANS PAYABLE
The Company has notes payable to
numerous investors which totaled $2,817,183 and $1,799,808 as of December 31,
2008 and 2007, respectively, with variable interest rates which ranged from 8%
to 13.5% during 2008 and 2007. At December 31, 2008, $1,800,957 of
these loans is unsecured while the remaining balance is secured by the
assignment of certain loans receivable. At December 31, 2007,
$1,715,808 of these loans was unsecured while the remaining balance was secured
by the assignment of certain loans receivable. Notes payable to
certain members’ affiliated parties, included in total notes payable, were
$30,000 at 10% and $100,000 at 12% at December 31, 2008 and 2007,
respectively. As of December 31, 2008, the related party note payable
is scheduled to mature within one year while $1,500,000 is scheduled to mature
in April, 2011.
F-13
Principal maturities of total notes
payable at December 31, 2008 are as follows:
2009
|
$ | 1,317,183 | ||
2010
|
- | |||
2011
|
1,500,000 | |||
$ | 2,817,183 |
During 2008, the Company entered into a
line of credit facility with Hopkins Federal Savings Bank with available credit
of up to $1,000,000. Borrowings outstanding under this line of credit
totaled $659,700 at December 31, 2008, with fixed interest rate at
9.50%. This line matured in January 2010 but we extended it for two
additional years at a reduced interest rate of 8.5% per annum. This
line is secured by the assignment of certain mortgages and personally guaranteed
by Mr. Borinsky.
The Company also holds participation
loans payable to numerous investors which totaled $4,165,566 and $2,369,900 as
of December 31, 2008 and 2007, respectively, with variable interest rates which
ranged from 10% to 12% during 2008 and 2007. Such loans are secured
by the assignment of interest in certain specific and general pools of loans
receivable. All such loans as of December 31, 2008 are contractually
scheduled to mature within one year.
9. RELATED
PARTY TRANSACTIONS
The following related party
transactions exist as of the dates shown below:
2008
|
2007
|
|||||||
Management
fees incurred to managing member
|
$ | 153,750 | $ | 120,000 | ||||
Interest
expense incurred on members’ loan payable
|
- | 178,385 | ||||||
Interest
expense incurred on notes payable to certain members’ affiliated
parties
|
14,328 | 30,939 |
10. NON-LOAN
COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company rents its office
facilities in Towson, Maryland on a month-to-month basis under an operating
lease agreement which calls for monthly rent of $1,500. The Company
has the right to terminate the lease agreement provided that a thirty day
written notice is provided to the landlord.
Total rent expense under operating
leases totaled $18,000 and $14,506 for the years ended December 31, 2008
and 2007, respectively.
Guarantee Obligation
As part of a settlement agreement for
a loan the Company had previously granted, the Company received interest in a
limited liability company (“LLC”) in April, 2008. There is no value
in the LLC, and therefore, no investment value has been recorded by the
Company. As part of the settlement, the Company entered into a
guarantee obligation for the origination of a loan that the LLC would hold with
a third party lender. The guarantee is an unconditional guarantee of
payment and performance and not a guarantee of collection, and remains in effect
until the loan is paid in full. The loan is set to mature on April 1,
2010. The guarantee is limited to 25% of amount of predevelopment
expenses previously advanced by the lender, not to exceed $163,000, and to 25%
of the interest advances made after March 31, 2009 and before the maturity of
the loan, not to exceed $180,000. The guarantee also calls for
payment of legal fees and other costs of collections incurred by the lender,
unless certain conditions as directed by the lender are timely
satisfied. Such conditions include payment to the lender of the
recourse amount in immediately available funds; as directed and elected by
lender, the conveyance to the lender of title to the collateral by all persons
owing any interest in the property, or assignment to the lender by borrower,
owner, grantor, and guarantors of all membership interest in the LLC; and full
payment of all real estate taxes and assessments against the property that are
due and payable at the time of delivery of the deed. As of December
31, 2008, the Company’s exposure under this guarantee amounted to approximately
$20,000.
F-14
11. LOAN
PARTICIPATION AND OFF BALANCE SHEET LOAN COMMITMENTS
Credit commitments are agreements
to make loans to borrowers in the ordinary course of business. The Company does
not have such agreements. However, the Company does make
line-of-credit type loans, which enable borrowers to draw down on their approved
loans as needed. At December 31, 2008, the Company had $4,679,561 in loans of
this type. Loans of this type had unused or unfunded approved amount of
$1,003,057 at that date.
12.
SUBSEQUENT
EVENTS
In November 2009, Bridge Private
Lending LLC (Bridge LLC) was merged into Bridge Private Lending LP
(Partnership). The Partnership is therefore the successor to the
business conducted by Bridge LLC. The conversion of member’s equity
of Bridge LLC, the predecessor, into membership interests of Bridge Private
Lending LP, the successor, had no accounting implications over the predecessor
financial statements prior to as well as subsequent to the date of the
merger.
F-15
BRIDGE
PRIVATE LENDING, LLC
BALANCE
SHEET
AS OF
SEPTEMBER 30, 2009
(Unaudited)
September 30,
2009
|
||||
ASSETS
|
||||
Cash
and cash equivalents
|
$ | 84,172 | ||
Loans
receivable
|
14,175,252 | |||
Less:
Allowance for loan losses
|
(340,397 | ) | ||
Loans
receivable, net
|
13,834,855 | |||
Accrued
interest receivable
|
285,135 | |||
Equity
investments - net
|
105,000 | |||
Property
and equipment - net
|
31,922 | |||
Real
estate acquired through foreclosure
|
289,386 | |||
Other
assets
|
68,471 | |||
Total
Assets
|
$ | 14,698,941 | ||
LIABILITIES
|
||||
Notes
payable
|
$ | 2,948,199 | ||
Participation
loans
|
6,259,037 | |||
Other
loans payable
|
1,680,698 | |||
Accounts
payable and accrued expenses
|
88,959 | |||
Total
Liabilities
|
10,976,893 | |||
MEMBERS’
EQUITY
|
3,722,048 | |||
Total
Liabilities and Members’ Equity
|
$ | 14,698,941 |
See
accompanying notes to financial statements.
F-16
STATEMENTS
OF OPERATIONS
FOR THE
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
Nine Months Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
INTEREST
INCOME:
|
||||||||
Interest
and fees on loans
|
$ | 1,651,754 | $ | 1,228,226 | ||||
Interest
on investments
|
55 | 1,676 | ||||||
Total
interest income
|
1,651,809 | 1,229,902 | ||||||
INTEREST
EXPENSE:
|
||||||||
Interest
on notes payable
|
730,739 | 477,968 | ||||||
Net
interest income
|
921,070 | 751,934 | ||||||
Provision
for loan losses
|
123,000 | 41,149 | ||||||
Net
interest income after provision for loan
losses
|
798,070 | 710,785 | ||||||
NON-INTEREST
INCOME:
|
||||||||
Fees
|
129,103 | 12,492 | ||||||
Gain
on sale of loans
|
58,223 | - | ||||||
Loss
on sale of real estate acquired through foreclosure
|
(4,212 | ) | - | |||||
Other
|
55,446 | 30,592 | ||||||
Total
non-interest income
|
238,560 | 43,084 | ||||||
NON-INTEREST
EXPENSES:
|
||||||||
Salaries
and wages
|
197,797 | 174,744 | ||||||
Professional
fees
|
130,750 | 44,514 | ||||||
Mortgage
broker fees
|
(10 | ) | 35,042 | |||||
Commissions
|
- | 6,702 | ||||||
Telephone,
postage and office supplies
|
25,694 | 19,482 | ||||||
Marketing
|
91,146 | 9,252 | ||||||
Business
travel and meals
|
7,641 | 3,748 | ||||||
Consulting
|
46,610 | 13,650 | ||||||
Rent
and other occupancy
|
28,148 | 17,460 | ||||||
Other
real estate owned expense
|
203 | - | ||||||
Valuation
reserve - equity investment
|
75,000 | - | ||||||
Inspection
fees
|
8,903 | - | ||||||
Loan
costs
|
90,499 | 2,500 | ||||||
Contributions
|
5,250 | 1,500 | ||||||
Bank
charges
|
5,422 | 4,016 | ||||||
Other
|
15,137 | 21,761 | ||||||
Total
non-interest expenses
|
728,190 | 354,371 | ||||||
NET
INCOME
|
$ | 308,440 | $ | 399,498 |
See
accompanying notes to financial statements.
F-17
STATEMENTS
OF CHANGES IN MEMBERS’ EQUITY
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
MEMBERS’
EQUITY AT JANUARY 1, 2008
|
$ | 4,087,289 | ||
CONTRIBUTIONS
|
1,886,812 | |||
DISTRIBUTIONS
|
(1,769,785 | ) | ||
NET
INCOME
|
399,498 | |||
MEMBERS’
EQUITY AT SEPTEMBER 30, 2008
|
$ | 4,603,814 | ||
MEMBERS’
EQUITY AT JANUARY 1, 2009
|
$ | 4,645,047 | ||
CONTRIBUTIONS
|
78,800 | |||
DISTRIBUTIONS
|
(1,310,239 | ) | ||
NET
INCOME
|
308,440 | |||
MEMBERS’
EQUITY AT SEPTEMBER 30, 2009
|
$ | 3,722,048 |
See
accompanying notes to financial statements.
F-18
STATEMENTS
OF CASH FLOWS
FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
2009
|
2008
|
|||||||
Cash
Flows From Operating Activities:
|
||||||||
Net
Income
|
$ | 308,440 | $ | 399,498 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
13,860 | 3,660 | ||||||
Provisions
for loan losses
|
123,000 | 41,149 | ||||||
Valuation
reserve - equity investment
|
75,000 | - | ||||||
Gain
on sale of loans
|
(58,223 | ) | - | |||||
Loss
on sale of real estate acquired through foreclosure
|
4,212 | - | ||||||
Net
(increase) decrease in accrued interest receivable
|
(11,760 | ) | 52,275 | |||||
Net
(increase) decrease in other assets
|
(10,110 | ) | 106,099 | |||||
Net
(decrease) increase in accounts payable and accrued
expenses
|
(26,509 | ) | 49,081 | |||||
Net
cash provided by operating activities
|
417,910 | 651,762 | ||||||
Cash
Flows From Investing Activities:
|
||||||||
Increase
in loans receivable, net
|
(3,262,540 | ) | (3,624,403 | ) | ||||
Proceeds
from sale of real estate acquired through foreclosure
|
836,876 | - | ||||||
Payments
related to real estate acquire through foreclosure
|
(3,342 | ) | (34,449 | ) | ||||
Purchase
of equity investment
|
(180,000 | ) | - | |||||
(Purchase)
sale of property and equipment, net
|
(35,861 | ) | 1,531 | |||||
Return
on equity investments
|
270,000 | 95,489 | ||||||
Net
cash used in investing activities
|
(2,374,867 | ) | (3,561,832 | ) | ||||
Cash
Flows From Financing Activities:
|
||||||||
Proceeds
from notes payable
|
361,016 | 1,164,478 | ||||||
Principal
payments on notes payable
|
(230,000 | ) | (350,271 | ) | ||||
Proceeds
from other loans payable
|
1,582,091 | 1,449,950 | ||||||
Principal
payment on other loans payable
|
(561,094 | ) | (979,000 | ) | ||||
Proceeds
from participation loans
|
2,404,754 | 2,461,856 | ||||||
Principal
payments on participation loans
|
(311,282 | ) | (689,900 | ) | ||||
Contributions
from members
|
78,800 | 1,886,812 | ||||||
Distributions
to members
|
(1,310,239 | ) | (1,769,785 | ) | ||||
Net
cash provided by financing activities
|
2,014,046 | 3,174,140 | ||||||
Net
increase in cash and cash equivalents
|
57,089 | 264,070 | ||||||
Cash
and cash equivalents at beginning of year
|
27,083 | 84,666 | ||||||
Cash
and cash equivalents at end of year
|
$ | 84,172 | $ | 348,736 | ||||
Supplemental
information:
|
||||||||
Interest
paid
|
$ | 676,831 | $ | 736,702 | ||||
Transfer
of loans to real estate acquired through foreclosure
|
$ | - | $ | 1,028,655 |
See
accompanying notes to financial statements.
F-19
NOTES
TO FINANCIAL STATEMENTS
AS
OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)
1. SUMMARY
OF SIGNIFICANT POLICIES
Nature of Operations
Bridge Private Lending, LLC (the
“Company”) is a limited liability company organized in April 2006, pursuant to
Articles of Organization filed with the State of Florida. Its primary
business is financing the purchase and rehabilitation of single family dwellings
and row houses located in low and moderate income neighborhoods throughout the
Baltimore, Maryland metropolitan area. The loans are secured by first
liens or subordinate liens on real estate.
Basis of Presentation
In preparing financial statements in
conformity with accounting principles generally accepted in the United States of
America and detailed in the Financial Accounting Standards Board ("FASB")
Accounting Codification ("Codification"), management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenue and expenses during the reporting
period. Actual results could differ from those estimates. Events
occurring after the date of the financial statements through February 4, 2010
were considered in the preparation of the financial statements.
Cash and Cash Equivalents
For purposes of the statements of
cash flows, highly liquid investments with original maturities of three months
or less are classified as cash and cash equivalents.
Loans Receivable
Loans receivable are stated as unpaid
principal balance net of any discounts, premiums, unamortized deferred fees and
payments in process, less the allowance for loan losses.
Interest income from loans receivable
is recognized using the interest method whereby interest income is recognized
based upon the effective rate based upon outstanding principal. Loan origination
fees and certain direct loan origination costs are deferred and amortized as a
yield adjustment over the contractual loan terms. Loan premiums and
discounts are also amortized into interest income under the same
method.
Under the FASB's guidance for
accounting by creditors for the impairment of a loan, a loan is considered
impaired if it is probable that the Company will not collect all principal and
interest payments according to the loan’s contractual terms. The impairment of
the loan is measured at the present value of the expected cash flows using the
loan’s effective interest rate, or the loan’s observable market price, or the
fair value of the collateral if repayment is expected to be provided by the
collateral. Generally, the Company’s impairment of loans is measured
by reference to the fair value of the collateral. Interest income
generally is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are applied as
a reduction of the loans principal balance. Interest income on the
other impaired loans is recognized only to the extent of interest payments
received.
Allowance for Loan Losses
The allowance for loan losses is
increased for charges to income and decreased for charge-offs (net of
recoveries). Management’s periodic evaluation of the adequacy of the allowance
is based on the Company’s past loan loss experience, known or inherent risks in
the portfolio, adverse situations which may affect the borrower’s ability to
repay, the estimated value of underlying collateral and current economic
conditions. It is reasonably possible that the Company’s allowance for loan
losses could change in the near term.
The allowance for loan losses is the
result of an estimation in accordance with FASB guidance. The allowance consists of a
specifically allocated component and a general unallocated
component.
F-20
The specific allowances are
established in cases in which management has identified significant conditions
or circumstances related to a loan that leads management to believe the
probability that a loss may be incurred in an amount different from the amount
determined by general allowance calculation described below.
Loans that are delinquent for more
than three months are evaluated for collectibility and placed in impaired
status when management determines that future earnings on that loan may be
impaired. While impaired, collections on loans, if any, are recorded as
collection of loan principal and no interest is recorded. Loans
deemed uncollectible are charged against, while recoveries are credited to, the
allowance. Management adjusts the level of the allowance through the
provision for loan losses, which is recorded as a current period operating
expense.
Property and Equipment
Property and equipment are stated at
cost and depreciated over the estimated useful lives of three to 30 years,
primarily using the straight-line method for financial statement
purposes.
Real Estate Acquired Through
Foreclosure
Real estate acquired through
foreclosure represents property acquired by foreclosure, deed in lieu of
foreclosure or purchase and is initially recorded at the lower of cost or fair
value less cost to sell at the date of acquisition. The difference
between cost and fair value at the time of foreclosure is charged to the
allowance for loan losses. Subsequent impairment of value is charged
to operations. Costs relating to the improvements of the property
that significantly increase the fair value of the asset are
capitalized. Holding costs are charged to expense as
incurred.
Gains or losses recognized from
subsequent disposal of real estate acquired through foreclosure will be measured
by the difference between the sales proceeds and the carrying value of the asset
at the time of disposal.
Advertising
Advertising costs are expensed as
incurred. Advertising expense was $91,146 for the nine month period
ended September 30, 2009 compared to $9,252 for the same period in
2008.
Income Taxes
The Company is treated as a
partnership for income tax purposes, and accordingly, items of income and loss
are taxed to the members. Therefore, no provision for income taxes is
necessary in the financial statements.
2. FAIR
VALUE MEASUREMENTS
Effective
January 1, 2008, the Company adopted the FASB’s guidance on the accounting for
fair value measurements which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. In accordance with the FASB’s
literature, the Company must apply this guidance whenever other standards
require (or permit) assets or liabilities to be measured at fair value but it
does not expand the use of fair value in any new circumstances. In this
standard, the FASB clarifies the principle that fair value should be based on
the assumptions that market participants would use when pricing the asset or
liability. In support of this principle, the FASB’s guidance establishes a fair
value hierarchy that prioritizes the information used to develop those
assumptions. The fair value hierarchy is as follows:
Level
1 inputs – Unadjusted quoted prices in active markets for identical assets or
liabilities that the entity has the ability to access at the measurement
date.
Level 2
inputs - Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These might include
quoted prices for similar assets and liabilities in active markets, and inputs
other than quoted prices that are observable for the asset or liability, such as
interest rates and yield curves that are observable at commonly quoted
intervals.
Level 3
inputs - Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entity’s own assumptions about the assumptions that
market participants would use in pricing the assets or
liabilities.
F-21
Loans
The
Company does not record loans at fair value on a recurring basis, however, from
time to time, a loan is considered impaired and, if appropriate, a specific
allowance for credit loss is established. Loans for which it is
probable that payment of interest and principal will not be made in accordance
with the contractual terms of the loan are considered impaired. Once
a loan is identified as individually impaired, management measures impairment in
accordance with FASB’s guidance for accounting by creditors for the impairment
of a loan. The fair value of impaired loans is estimated using one of several
methods, including the collateral value, market value of similar debt,
enterprise value, liquidation value and discounted cash flows. Those
impaired loans not requiring a specific allowance represent loans for which the
fair value of expected repayments or collateral exceed the recorded investment
in such loans. At September 30, 2009, all of the impaired loans were
evaluated based upon the fair value of the collateral. In accordance
with FASB’s guidance, impaired loans where an allowance is established based on
the fair value of collateral require classification in the fair value
hierarchy. When the fair value of the collateral is based on an
observable market price or a current appraised value, the Company measures and
records the loan as nonrecurring Level 2. When an appraised value is
not available or management determines the fair value of the collateral is
further impaired below the appraised value and there is no observable market
price, the Company measures and records the loan as nonrecurring Level
3.
The value
of real estate acquired through foreclosure is determined at the time of
foreclosure and generally is based upon the lower of cost or net realizable
value (as determined by third party real estate appraisals) less the estimated
cost of disposal. Also at the time of foreclosure, the excess (if
any) of the carrying value of the underlying loan receivable over the net
realizable value is charged-off before transferring the remaining balance from
loan receivable into real estate acquired through foreclosure.
On a
nonrecurring basis, the Company may be required to measure certain assets at
fair value in accordance with generally accepted accounting
principles. These adjustments usually result from application of
lower-of-cost-or-market accounting or write-downs of specific
assets.
The
following table includes the assets measured at fair value on a nonrecurring
basis as of September 30, 2009:
Carrying
Value (Fair
Value)
|
Quoted
Prices
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant Other
Unobservable
inputs
(Level 3)
|
|||||||||||||
Impaired
Loans
|
$ | 395,400 | $ | - | $ | 395,400 | $ | - | ||||||||
Equity
Investment
|
105,000 | 105,000 | ||||||||||||||
Real
estate acquired through foreclosure
|
289,386 | - | 289,386 | - | ||||||||||||
Total
assets measured on a non-recurring basis at fair value
|
$ | 789,786 | $ | - | $ | 789,786 | $ | - |
The
Company discloses fair value information about financial instruments, for which
it is practicable to estimate the value, whether or not such financial
instruments are recognized on the balance sheet. Fair value is the
amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced sale or liquidation,
and is best evidenced by a quoted market price, if one exists.
Quoted
market prices, where available, are shown as estimates of fair market values.
Because no quoted market prices are available for a significant part of the
Company's financial instruments, the fair values of such instruments have been
derived based on the amount and timing of future cash flows and estimated
discount rates.
Present
value techniques used in estimating the fair value of many of the Company's
financial instruments are significantly affected by the assumptions used. In
that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate cash settlement of the instrument. Additionally, the accompanying
estimates of fair values are only representative of the fair values of the
individual financial assets and liabilities and should not be considered an
indication of the fair value of the Company.
F-22
The
following disclosure of estimated fair values of the Company's financial
instruments at September 30, 2009 are made in accordance with the requirements
of FASB literature on fair value and are as follows:
September 30, 2009
|
||||||||
Carrying
Amount
|
Estimated Fair
Value
|
|||||||
Financial
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 84,172 | $ | 84,172 | ||||
Loans
receivable, net
|
13,834,855 | 13,834,855 | ||||||
Equity
investments
|
105,000 | 105,000 | ||||||
Real
estate acquired through foreclosure
|
289,386 | 289,386 | ||||||
Accrued
interest receivable and other assets
|
385,528 | 385,528 | ||||||
Financial
Liabilities
|
||||||||
Notes
payable
|
2,948,199 | 2,948,199 | ||||||
Participation
loans
|
6,259,037 | 6,259,037 | ||||||
Other
loans payable
|
1,680,698 | 1,680,698 | ||||||
Accounts
payable and accrued expenses
|
88,959 | 88,959 |
The
following methods and assumptions were used to estimate the fair value of each
category of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents. The
carrying amount approximated the fair value.
Loans. The carrying
amount approximated the fair value considering the short-term nature and its
expected collection.
Accrued interest receivable.
The carrying amount approximated the fair value of accrued interest, considering
the short-term nature of the receivable and its expected
collection.
Other assets. The carrying
amount approximated the fair value.
Notes payable, participation loans
and other loans payable. The carrying amount approximated the fair value
considering the short-term nature and its expected repayment.
Accounts payable and accrued
expenses. The carrying amount approximated the fair value considering
their short-term nature and expected payment.
3. EQUITY
INVESTMENTS
As of
December 31, 2008, the Company had invested funds in a condominium conversion
project located in Arlington, Virginia. The Company owned twenty
percent of the project and the investment was accounted for under the equity
method of accounting. As of September 30, 2009, this equity
investment was fully repaid.
F-23
In
addition, the Company contributed funds into three investors as part of a loan
consolidation secured by several properties. This investments is a first-out
claim on the assets of the entities and there will be a 50% residual interest
after the investment is paid. During the third quarter of 2009, the Company
determined that there was a more than temporary decline in the fair value of the
equity investment, due to decline in the properties’ collateral.
Therefore, as of September 30, 2009, the Company compared the fair value of
similar properties to the value of the equity investment, resulting in a $75,000
valuation reserve. The estimated value of this investment as of September
30, 2009 is $105,000.
4. LOANS
RECEIVABLE
Loans Receivable by Collateral
Type
The
Company’s loans receivable portfolio consists of the following
loans:
September 30,
|
||||
Primary Collateral Type
|
2009
|
|||
Residential
investment property first trust
|
$ | 13,812,888 | ||
Residential
investment property second trust
|
412,900 | |||
Land
loans
|
80,000 | |||
Unsecured
loans
|
27,464 | |||
Total
loans receivable, gross
|
14,333,252 | |||
Deferred
Fees
|
(158,000 | ) | ||
Allowance
for loan losses
|
(340,397 | ) | ||
Total
loans receivable, net
|
$ | 13,834,855 |
At September 30, 2009, the Company had
outstanding loan balances to a single group of borrowers under a related
partnership in the
aggregate amount of $2,448,320, which represented 17% of loans outstanding at
that date. All of these loans are secured by first mortgages on real
estate located in Baltimore City, Maryland. Management believes that
this concentration is adequately collateralized based on current market value
evaluations.
The Company has granted loans to
certain members’ affiliated parties. Related party loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than the normal risk of collectibility. The
aggregate dollar amount of these loans was $230,000 at September 30,
2009. There were no additional advances or repayments during
2009.
5. ALLOWANCE
FOR LOAN LOSSES
Analysis of Loan Loss
Reserves
Analysis
of the allowance for loan loss is as follows:
September 30,
|
September 30,
|
|||||||
2009
|
2008
|
|||||||
Beginning
balance
|
$ | 318,203 | $ | 200,000 | ||||
Provision
for loan losses
|
123,000 | 41,149 | ||||||
Loans
charged off (net of recoveries)
|
(100,806 | ) | - | |||||
Ending
balance
|
$ | 340,397 | $ | 241,149 |
Loans in impaired status
totaled $395,400 at September 30, 2009.
At September 30, 2009, the Company
had loans of $3,805,125 which were more than 90 days late and for which the
Company continues to accrue interest. Management believes that these loans are
adequately collateralized and that both the principal and the related accrued
interest are collectible.
F-24
Information with respect to impaired
loans is as follows:
September 30,
|
||||
2009
|
||||
Total
recorded investment in impaired loans
|
$ | 395,400 | ||
Amount
of that recorded investment for which there is a related allowance for
loan losses
|
395,400 | |||
Amount
of that recorded investment for which there is no related allowance for
loan losses
|
- | |||
Amount
of related allowance for loan losses associated with such
investment
|
228,207 | |||
Amount
of allowance for loan losses associated with other than impaired
loans
|
112,190 | |||
Average
recorded investment in impaired loans*
|
754,549 | |||
*Average
of September 30, 2009 and December 31, 2008
|
No income had been accrued or
collected on these impaired loans while they had been classified as impaired
during the nine month periods ended September 30, 2009 and 2008.
6. PROPERTY
AND EQUIPMENT
Property and equipment consists of the
following:
September 30,
|
||||
2009
|
||||
Furniture
and equipment
|
$ | 10,079 | ||
Automobile
|
35,660 | |||
Computer
hardware and software
|
3,703 | |||
Total
property and equipment – cost
|
49,442 | |||
Less:
accumulated depreciation
|
(17,520 | ) | ||
Property
and equipment, net
|
$ | 31,922 |
Depreciation expense related to
property and equipment for the three and nine month periods ended September 30,
2009 totaled $13,860 and $12,030, respectively, compared to $3,660 and $3,660
for the same periods in 2008.
7. REAL
ESTATE ACQUIRED THROUGH FORECLOSURE
At September 30, 2009 real estate
acquired through foreclosure consisted of one renovated residential rental
property which totaled $289,386.
8. NOTES
AND LOANS PAYABLE
The Company has notes payable to
numerous investors which totaled $2,948,199 as of September 30, 2009 with
variable interest rates which ranged from 8% to 13.5%. At September
30, 2009, $1,500,000 of these notes is unsecured while the remaining balance is
secured by the assignment of certain loans receivable. There was no
related party notes payable as of September 30, 2009.
F-25
Principal maturities of total notes
payable at September 30, 2009 are as follows:
2009
|
$ | 1,448,199 | ||
2010
|
- | |||
2011
|
1,500,000 | |||
$ | 2,948,199 |
During 2008, the Company entered into a
line of credit facility with Hopkins FSB with available credit of up to
$1,000,000. Borrowings outstanding under this line of credit totaled
$441,500 at September 30, 2009, with fixed interest rate at
9.50%. This line matured in January 2010 but we extended it for two
additional years at a reduced interest rate of 8.5% per annum. This
line is secured by the assignment of certain mortgages and personally guaranteed
by Mr. Borinsky.
In 2009, the Company borrowed
$1,207,500 from PSC Bridge, LLC with interest payable at the rate of 15% per
annum. The loan matures on July 10, 2010 and can be further
extended at the General Partner’s discretion. The loan is secured by
the assignment of certain mortgages that are held by the Company on outstanding
loans and is guaranteed by the Company and David Borinsky. The
company paid this loan by $250,000 in December 2009 and the interest rate, as of
January 2010, is 14% per annum. The loan is secured by the assignment of certain
mortgages that were held by us on outstanding loans and is guaranteed by the
Partnership and Alan David Borinsky.
Also in 2009, the Company borrowed
$31,698, interest-free, from Ford Motor Credit to finance the purchase of an
automobile for business purposes.
The Company also holds participation
loans payable to numerous investors which totaled $6,259,037 as of September 30,
2009 with variable interest rates which ranged from 10% to 12% during
2009. Such loans are secured by the assignment of interest in certain
specific and general pools of loans receivable. All such loans as of
September 30, 2009 are contractually scheduled to mature within one
year.
9. RELATED
PARTY TRANSACTIONS
The following related party
transactions exist for the nine month periods shown below:
September 30,
|
||||||||
2009
|
2008
|
|||||||
Management
fees incurred to managing member
|
$ | 41,250 | $ | 41,250 | ||||
Interest
expense incurred on notes payable to certain members’ affiliated
parties
|
- | 12,396 |
10. NON-LOAN
COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company rents its office
facilities in Towson, Maryland on a month-to-month basis under an operating
lease agreement which calls for monthly rent of $1,500, which was increased to
$1,700 per month effective September 2009. The Company has the right
to terminate the lease agreement provided that a thirty day written notice is
provided to the landlord.
Total rent expense under operating
leases totaled $13,700 and $13,500 for the nine month periods ended September
30, 2009 and 2008, respectively.
F-26
Guarantee Obligation
As part of a settlement agreement for a
loan the Company had previously granted, the Company received interest in a
limited liability company ("LLC") in April, 2008. There is no value
in the LLC, and therefore, no investment value has been recorded by the
Company. As part of the settlement, the Company entered into a
guarantee obligation for the origination of a loan that the LLC would hold with
a third party lender. The guarantee is an unconditional guarantee of
payment and performance and not a guarantee of collection, and remains in effect
until the loan is paid in full. The loan is set to mature on April 1,
2010. The guarantee is limited to 25% of amount of predevelopment
expenses previously advanced by the lender, not to exceed $163,000, and to 25%
of the interest advances made after March 31, 2009 and before the maturity of
the loan, not to exceed $180,000. The guarantee also calls for
payment of legal fees and other costs of collections incurred by the lender,
unless certain conditions as directed by the lender are timely
satisfied. Such conditions include payment to the lender of the
recourse amount in immediately available funds; as directed and elected by
lender, the conveyance to the lender of title to the collateral by all persons
owing any interest in the property, or assignment to the lender by borrower,
owner, grantor and guarantors of all membership interest in the LLC; and full
payment of all real estate taxes and assessments against the property that are
due and payable at the time of delivery of the deed. As of September
30, 2009, the Company's exposure under this guarantee amounted to approximately
$20,000.
11. LOAN
PARTICIPATION AND OFF BALANCE SHEET LOAN COMMITMENTS
Credit commitments are agreements to
make loans to borrowers in the ordinary course of business. The Company does not
have such agreements. However, the Company does make line-of-credit
type loans, which enable borrowers to draw down on their approved loans as
needed. At September 30, 2009, the Company had $11.4 million in loans of this
type. Loans of this type had unused or unfunded approved amount of $928,486 at
that date.
12. SUBSEQUENT
EVENTS
In November 2009, Bridge Private
Lending LLC (Bridge LLC) was merged into Bridge Private Lending LP
(Partnership). The Partnership is therefore the successor to the
business conducted by Bridge LLC. The conversion of member’s equity
of Bridge LLC, the predecessor, into membership interests of Bridge Private
Lending LP, the successor, had no accounting implications over the predecessor
financial statements prior to as well as subsequent to the date of the
merger.
F-27
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
The following table itemizes the
expenses incurred by Bridge Private Lending, LP (the “Partnership”) in
connection with the offering of the securities being registered hereby. All
amounts shown except “Registration Fee — Securities and Exchange
Commission” are estimates.
Registration
Fee – Securities and Exchange Commission
|
$
|
2,456
|
||
Accounting
Fees and Expenses
|
60,000
|
|||
Legal
Fees and Expenses
|
250,000
|
|||
Printing
Fees and Expenses
|
50,000
|
|||
State
Blue Sky Filing Fees
|
50,000
|
|||
Miscellaneous
|
10,000
|
|||
Total
|
$
|
422,456
|
Item
14. Indemnification of Directors and Officers.
Under the Partnership Act a limited
partnership has the power, except in the case of action or failure to act by a
partner which constitutes willful misconduct or recklessness, and subject to the
standards and restrictions, if any, set forth in its partnership agreement, to
indemnify and hold harmless any partner, employee, or agent of the limited
partnership from and against any and all claims and demands
whatsoever.
The Partnership Agreement provides that
the Partnership will indemnify and hold harmless, to the maximum extent
permitted by applicable law, the General Partner, any affiliate of the General
Partner, and any officer, director, stockholder, member, partner, employee,
agent or assign of the General Partner, from and against any and all damages,
disbursements, suits, claims, liabilities, obligations, judgments, fines,
penalties, charges, amounts paid in settlement, costs and expenses (including,
without limitation, attorneys’ fees and expenses) arising out of or related to
litigation and interest on any of the foregoing, including, without limitation,
such damages incurred in investigating, preparing or defending any action,
claim, suit, inquiry, proceeding, investigation or appeal taken from any of the
foregoing by or before any court or other governmental authority, that arise out
of, relate to or are in connection with the Partnership Agreement or the
management or conduct of the business or affairs of the General Partner, the
Partnership, any other entity in which the Partnership has a direct or indirect
interest or any of their respective affiliates, except for any such damages that
are finally found by a court of competent jurisdiction to have resulted
primarily from the bad faith, gross negligence or intentional misconduct of, or
material breach of the Partnership Agreement or knowing violation of law by, the
person seeking indemnification.
Item
15. Recent Sales of Unregistered Securities.
The Partnership is the successor of the
business of Bridge Private Lending, LLC (“Bridge LLC”). The following
information relates to sales by Bridge LLC of securities without registration
pursuant to the Securities Act of 1933, as amended (the “Securities Act”),
within the past three years.
Pursuant to a private placement, Bridge
LLC sold unregistered participation interests in its portfolio of outstanding
loans. These securities were issued in transactions exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and
Securities Act Rule 506. In 2006, Bridge LLC entered into subscription
agreements with three accredited investors for participation interests totaling
approximately $1,180,000. In 2007, Bridge LLC entered into subscription
agreements with ten accredited investors for participation interests totaling
approximately $2,505,000. In 2008, Bridge LLC entered into subscription
agreements with twenty accredited investors for participation interests totaling
approximately $2,794,000. In 2009, Bridge LLC entered into subscription
agreements with thirteen accredited investors for participation interests
totaling approximately $2,720,000.
Item
16. Exhibits and Financial Statement Schedules.
The exhibits filed with this
Registration Statement are listed in the Exhibit Index which immediately follows
the signatures hereto and which is incorporated herein by
reference.
II-1
Item
17. Undertakings.
a.
|
The
undersigned registrant hereby
undertakes:
|
1.
|
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration
statement:
|
i.
|
To
include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
|
ii.
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20% change in the maximum aggregate offering price
set forth in the “Calculation of Registration Fee” table in the effective
registration statement.
|
iii.
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration
statement;
|
A. – C.
N/A
2.
|
That,
for the purpose of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
|
3.
|
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
|
4.
|
N/A
|
5.
|
That,
for the purpose of determining liability under the Securities Act of 1933
to any purchaser:
|
i.
|
N/A
|
ii.
|
If
the registrant is subject to Rule 430C, each prospectus filed pursuant to
Rule 424(b) as part of a registration statement relating to an offering,
other than registration statements relying on Rule 430B or other than
prospectuses filed in reliance on Rule 430A, shall be deemed to be part of
and included in the registration statement as of the date it is first used
after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by
reference into the registration statement or prospectus that is part of
the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that
was made in the registration statement or prospectus that was part of the
registration statement or made in any such document immediately prior to
such date of first use.
|
6.
|
That,
for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities: The undersigned registrant undertakes that in a primary
offering of securities of the undersigned registrant pursuant to this
registration statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be
considered to offer or sell such securities to such
purchaser:
|
II-2
i.
|
Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule
424;
|
ii.
|
Any
free writing prospectus relating to the offering prepared by or on behalf
of the undersigned registrant or used or referred to by the undersigned
registrant;
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned registrant or its
securities provided by or on behalf of the undersigned registrant;
and
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
|
b. – g.
N/A
h.
|
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to Directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions or otherwise, the registrant has been
advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a Manager, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such Manager, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
|
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on Form S-1 and has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Baltimore, State of
Maryland, February 12, 2010.
BRIDGE
PRIVATE LENDING, LP
|
|||
By:
|
Bridge GP, LLC
|
||
General
Partner
|
|||
By:
|
BPL Manager, LLC
|
||
Managing
Member
|
|||
By:
|
/s/ Alan David
Borinsky
|
||
Alan
David Borinsky
|
|||
Sole
Member
|
II-3
Pursuant to the requirements of the
Securities Act of 1933, this registration statement has been signed by the
following persons in their capacities as directors of Bridge GP, LLC on February
12, 2010.
/s/
Craig Fadem*
|
/s/ David Holmes*
|
|
Craig.
Fadem
|
David
Holmes
|
|
Director,
Board of Directors of Bridge GP, LLC
|
Director,
Board of Directors of Bridge GP, LLC
|
|
/s/ Steven Rosenblatt*
|
||
Steven
Rosenblatt
|
||
Director,
Board of Directors of Bridge GP, LLC
|
* By:
|
/s/ Alan David
Borinsky
|
Attorney-in-Fact
|
II-4
EXHIBIT
INDEX
Exhibit No.
|
Description
|
|
3.1(i)
|
Certificate
of Limited Partnership*
|
|
3.1(ii)
|
First
Amended and Restated Limited Partnership Agreement (filed
herewith)
|
|
5.1
|
Opinion
of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC (filed
herewith)
|
|
23.1
|
Consent
of Stegman & Company, Independent Registered Public Accounting Firm
(filed herewith)
|
|
23.2
|
Consent
of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC (contained
in Exhibit 5.1)
|
|
24
|
|
Power
of Attorney*
|
* Previously
filed.
II-5