Sachem Capital Corp. Completes 20% Investment in Shem Creek Capital LLC to Further Diversify Business Model

Rhea-AI Summary

Sachem Capital Corp. (NYSE American: SACH) has acquired a 20% membership interest in Shem Creek Capital, for $5 million. This strategic move aims to diversify Sachem's business model and expand into asset management. Shem Creek Capital, established in 2008, specializes in commercial real estate finance, focusing on first mortgage loans in the Northeastern United States.

Key points:

• Sachem has the option to acquire an additional 10% stake by 2027
• Sachem has previously invested $47 million with Shem, generating double-digit returns
• The partnership is expected to drive growth and deliver strong risk-adjusted returns for investors

Positive

• Acquisition of 20% stake in Shem Creek Capital for $5 million
• Option to acquire additional 10% stake by 2027
• Previous $47 million investment with Shem generating double-digit returns
• No losses reported on investments with Shem despite challenging economic conditions
• Diversification of Sachem's business model
• Expansion into asset management
• Potential for significant growth and strong risk-adjusted returns

Negative

• None.

Insights

Financial Analyst

This 20% investment in Shem Creek Capital for $5 million marks a significant strategic move for Sachem Capital. The deal's structure, including an option for an additional 10% stake, demonstrates a cautious yet optimistic approach to diversification. With Sachem's existing $47 million investment in Shem generating double-digit returns, this deeper partnership could enhance Sachem's revenue streams. However, investors should note that while the returns are impressive, the real estate market's volatility could pose risks. The move into asset management also signals a shift in Sachem's business model, potentially opening new growth avenues but also introducing new operational challenges.

Real Estate Investment Expert

Sachem's investment in Shem Creek Capital is a strategic play in the commercial real estate finance sector. Shem's focus on value-add multifamily, workforce housing and industrial properties aligns with current market trends, potentially offering Sachem exposure to high-demand segments. The Northeast focus provides geographical diversification for Sachem. However, investors should be aware that the value-add strategy carries inherent risks, especially in a fluctuating interest rate environment. The no-loss track record is impressive, but past performance doesn't guarantee future results. This move could position Sachem well if the commercial real estate market remains robust, but it also increases their exposure to sector-specific downturns.

Risk Management Specialist

While the investment in Shem Creek Capital offers Sachem diversification benefits, it also introduces new risk factors. The option to increase stake to 30% by 2027 provides flexibility but requires careful market timing. The double-digit returns with no losses are noteworthy, but this perfect record may not be sustainable long-term, especially given potential economic headwinds. Sachem's expansion into asset management through this deal adds operational complexity and potential regulatory considerations. Investors should monitor how well Sachem manages this transition and whether the synergies between the firms materialize as expected. The deal's success will largely depend on Shem's continued performance and the broader commercial real estate market conditions.

BRANFORD, Conn., Sept. 11, 2024 (GLOBE NEWSWIRE) -- Sachem Capital Corp. (NYSE American: SACH) announced today it has acquired a 20% membership interest for $5 million in Shem Creek Capital, LLC, the third-party management company of the Shem Creek (“Shem”) private credit funds. Sachem also has the option to acquire up to an additional 10% membership interest in Shem, by early 2027, at a set valuation. Shem, established in 2008, is a commercial real estate finance company with a focus on providing debt capital solutions to local and regional commercial real estate owners in the Northeastern United States. Shem invests primarily in first mortgage loans secured by commercial real estate assets, notably value-add multifamily, workforce housing, and industrial properties.

John Villano, CEO of Sachem Capital Corp., commented: “Over the past four years, Sachem has invested approximately $47 million with Shem, which is currently generating attractive double-digit returns, with no losses to date—a remarkable achievement given the challenging macroeconomic environment during that period. Our long-standing relationship with Shem and its management, the diversification this investment brings to our business model, the expandable nature of the Shem platform, and our expansion into asset management, gives us confidence that this is another value-added opportunity for our shareholders.”

Scott Goldberg, President of Shem Creek Capital, LLC said: “We are very pleased to have closed on this transaction with Sachem Capital and look forward to building upon what has already been a strategic and successful relationship between our two firms. Going forward we believe the synergies between us will foster significant growth for the platform and asset base, ultimately driving strong risk-adjusted returns to our respective investors.”

About Sachem Capital Corp.

Sachem Capital Corp. is a mortgage REIT that specializes in originating, underwriting, funding, servicing, and managing a portfolio of loans secured by first mortgages on real property. It offers short-term (i.e., three years or less) secured, nonbanking loans to real estate investors to fund their acquisition, renovation, development, rehabilitation, or improvement of properties. The Company’s primary underwriting criteria is a conservative loan to value ratio. The properties securing the loans are generally classified as residential or commercial real estate and, typically, are held for resale or investment. Each loan is secured by a first mortgage lien on real estate and is personally guaranteed by the principal(s) of the borrower. The Company also makes opportunistic real estate purchases apart from its lending activities.

Forward Looking Statements

This press release may contain forward-looking statements. All statements other than statements of historical facts contained in this press release, including statements regarding our future results of operations and financial position, strategy and plans, and our expectations for future operations, are forward-looking statements. Such forward-looking statements are subject to several risks, uncertainties and assumptions as described in the Annual Report on Form 10-K for 2023 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2024. Because of these risks, uncertainties and assumptions, any forward-looking events and circumstances discussed in this press release may not occur. You should not rely upon forward-looking statements as predictions of future events. Neither the Company nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. The Company disclaims any duty to update any of these forward-looking statements. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements as well as others made in this press release. You should evaluate all forward-looking statements made by the Company in the context of these risks and uncertainties.

Investors:
Email: investors@sachemcapitalcorp.com

FAQ

What percentage stake did Sachem Capital Corp (SACH) acquire in Shem Creek Capital?

Sachem Capital Corp (SACH) acquired a 20% membership interest in Shem Creek Capital, for $5 million.

How much has Sachem Capital (SACH) previously invested with Shem Creek Capital?

Over the past four years, Sachem Capital (SACH) has invested approximately $47 million with Shem Creek Capital.

What type of returns has Sachem Capital (SACH) generated from its investments with Shem Creek?

Sachem Capital (SACH) has generated attractive double-digit returns from its investments with Shem Creek, with no losses reported to date.

What is the focus of Shem Creek Capital's investments?

Shem Creek Capital primarily invests in first mortgage loans secured by commercial real estate assets, focusing on value-add multifamily, workforce housing, and industrial properties in the Northeastern United States.