UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
☐ |
TRANSITION REPORT PURSUANT |
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-55601
REDWOOD MORTGAGE INVESTORS IX, LLC
(Exact name of registrant as specified in its charter)
Delaware |
|
26-3541068 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
177 Bovet Road, Suite 520, San Mateo, CA |
|
94402 |
(Address of principal executive offices) |
|
(Zip Code) |
(650) 365-5341
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).☒ YES ☐ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☒ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO
Securities registered pursuant to Section 12(b) of the Act: None
Part I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
REDWOOD MORTGAGE INVESTORS IX, LLC
March 31, 2019 (unaudited) and December 31, 2018 (audited)
|
|
2019 |
|
|
2018 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
7,859,242 |
|
|
$ |
10,674,953 |
|
Loans |
|
|
|
|
|
|
|
|
Principal |
|
|
66,416,481 |
|
|
|
62,115,713 |
|
Advances |
|
|
23,395 |
|
|
|
21,041 |
|
Accrued interest |
|
|
558,382 |
|
|
|
473,966 |
|
Loan balances secured by deeds of trust |
|
|
66,998,258 |
|
|
|
62,610,720 |
|
Total assets |
|
$ |
74,857,500 |
|
|
$ |
73,285,673 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities - Accounts payable and accrued liabilities |
|
$ |
24,284 |
|
|
$ |
9,321 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investors in applicant status |
|
|
1,499,263 |
|
|
|
651,500 |
|
|
|
|
|
|
|
|
|
|
Members’ capital, net |
|
|
77,628,139 |
|
|
|
76,804,195 |
|
Receivable from manager (formation loan) |
|
|
(4,294,186 |
) |
|
|
(4,179,343 |
) |
Members’ capital, net, less formation loan |
|
|
73,333,953 |
|
|
|
72,624,852 |
|
Total liabilities, investors in applicant status and members’ capital |
|
$ |
74,857,500 |
|
|
$ |
73,285,673 |
|
The accompanying notes are an integral part of these financial statements.
2
REDWOOD MORTGAGE INVESTORS IX, LLC
For the Three Months Ended March 31, 2019 and 2018 (unaudited)
|
|
2019 |
|
|
2018 |
|
||
Revenues, net |
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1,360,992 |
|
|
$ |
1,177,732 |
|
Late fees |
|
|
16,985 |
|
|
|
4,711 |
|
Total revenues |
|
|
1,377,977 |
|
|
|
1,182,443 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
|
|
|
|
|
|
Mortgage servicing fees |
|
|
38,646 |
|
|
|
35,184 |
|
Asset management fees, net (Note 3) |
|
|
— |
|
|
|
— |
|
Costs from Redwood Mortgage Corp., net (Note 3) |
|
|
— |
|
|
|
— |
|
Professional services, net (Note 3) |
|
|
147,317 |
|
|
|
4,685 |
|
Other |
|
|
3,356 |
|
|
|
85 |
|
Total operations expense |
|
|
189,319 |
|
|
|
39,954 |
|
Net income |
|
$ |
1,188,658 |
|
|
$ |
1,142,489 |
|
Members (99%) |
|
|
1,176,771 |
|
|
|
1,131,064 |
|
Manager (1%) |
|
|
11,887 |
|
|
|
11,425 |
|
|
|
$ |
1,188,658 |
|
|
$ |
1,142,489 |
|
The accompanying notes are an integral part of these financial statements.
3
REDWOOD MORTGAGE INVESTORS IX, LLC
Statement of Changes in Members’ Capital
For the Three Months Ended March 31, 2019 (unaudited)
|
|
|
|
|
|
Members' Capital, net |
|
|||||||||||||
|
|
Investors In Applicant Status |
|
|
Members’ Capital |
|
|
Manager’s Capital |
|
|
Unallocated Organization and Offering Expenses |
|
|
Members’ Capital, net |
|
|||||
Balance at December 31, 2018 |
|
$ |
651,500 |
|
|
$ |
79,198,453 |
|
|
$ |
125,200 |
|
|
$ |
(2,519,458 |
) |
|
$ |
76,804,195 |
|
Contributions on application |
|
|
2,112,263 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions admitted to members' capital |
|
|
(1,271,500 |
) |
|
|
1,271,500 |
|
|
|
1,272 |
|
|
|
— |
|
|
|
1,272,772 |
|
Premiums paid on application by RMC |
|
|
7,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income |
|
|
— |
|
|
|
1,176,771 |
|
|
|
11,887 |
|
|
|
— |
|
|
|
1,188,658 |
|
Earnings distributed to members |
|
|
— |
|
|
|
(1,111,007 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,111,007 |
) |
Earnings distributed used in DRIP |
|
|
— |
|
|
|
602,896 |
|
|
|
— |
|
|
|
— |
|
|
|
602,896 |
|
Members’ redemptions |
|
|
— |
|
|
|
(1,092,396 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,092,396 |
) |
Organization and offering expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(93,239 |
) |
|
|
(93,239 |
) |
Organization and offering expenses allocated |
|
|
— |
|
|
|
(80,808 |
) |
|
|
— |
|
|
|
80,808 |
|
|
|
— |
|
Organization and offering expenses repaid by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
36,845 |
|
|
|
36,845 |
|
Early withdrawal penalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
19,415 |
|
|
|
19,415 |
|
Balance at March 31, 2019 |
|
$ |
1,499,263 |
|
|
$ |
79,965,409 |
|
|
$ |
138,359 |
|
|
$ |
(2,475,629 |
) |
|
$ |
77,628,139 |
|
For the Three Months Ended March 31, 2018 (unaudited)
|
|
|
|
|
|
Members' Capital, net |
|
|||||||||||||
|
|
Investors In Applicant Status |
|
|
Members’ Capital |
|
|
Manager’s Capital |
|
|
Unallocated Organization and Offering Expenses |
|
|
Members’ Capital, net |
|
|||||
Balance at December 31, 2017 |
|
$ |
3,270,312 |
|
|
$ |
66,450,424 |
|
|
$ |
102,902 |
|
|
$ |
(2,335,325 |
) |
|
$ |
64,218,001 |
|
Contributions on application |
|
|
4,313,438 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Contributions admitted to members' capital |
|
|
(3,193,207 |
) |
|
|
3,193,207 |
|
|
|
3,200 |
|
|
|
— |
|
|
|
3,196,407 |
|
Premiums paid on application by RMC |
|
|
31,920 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Premiums admitted to members' capital |
|
|
(7,105 |
) |
|
|
7,105 |
|
|
|
— |
|
|
|
— |
|
|
|
7,105 |
|
Net income |
|
|
— |
|
|
|
1,131,064 |
|
|
|
11,425 |
|
|
|
— |
|
|
|
1,142,489 |
|
Earnings distributed to members |
|
|
— |
|
|
|
(1,090,347 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,090,347 |
) |
Earnings distributed used in DRIP |
|
|
— |
|
|
|
598,278 |
|
|
|
— |
|
|
|
— |
|
|
|
598,278 |
|
Members’ redemptions |
|
|
— |
|
|
|
(403,400 |
) |
|
|
— |
|
|
|
— |
|
|
|
(403,400 |
) |
Organization and offering expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(143,694 |
) |
|
|
(143,694 |
) |
Organization and offering expenses allocated |
|
|
— |
|
|
|
(70,208 |
) |
|
|
— |
|
|
|
70,208 |
|
|
|
— |
|
Organization and offering expenses repaid by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,193 |
|
|
|
12,193 |
|
Early withdrawal penalties |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
696 |
|
|
|
696 |
|
Balance at March 31, 2018 |
|
$ |
4,415,358 |
|
|
$ |
69,816,123 |
|
|
$ |
117,527 |
|
|
$ |
(2,395,922 |
) |
|
$ |
67,537,728 |
|
The accompanying notes are an integral part of these financial statements.
4
REDWOOD MORTGAGE INVESTORS IX, LLC
For the Three Months Ended March 31, 2019 and 2018 (unaudited)
|
|
2019 |
|
|
2018 |
|
||
Operations |
|
|
|
|
|
|
|
|
Interest received |
|
$ |
1,274,865 |
|
|
$ |
1,161,061 |
|
Other loan income |
|
|
17,135 |
|
|
|
4,711 |
|
Loan administrative fee reimbursed |
|
|
— |
|
|
|
3,130 |
|
Operations expense |
|
|
(174,539 |
) |
|
|
(2,453 |
) |
Total cash provided by operations |
|
|
1,117,461 |
|
|
|
1,166,449 |
|
Investing – loan principal/advances |
|
|
|
|
|
|
|
|
Principal collected on loans |
|
|
11,889,592 |
|
|
|
12,739,617 |
|
Loans originated |
|
|
(16,327,000 |
) |
|
|
(9,946,500 |
) |
Loans sold to non-affiliate, net |
|
|
143,000 |
|
|
|
— |
|
Loans transferred from affiliates |
|
|
— |
|
|
|
(5,889,819 |
) |
Advances made on loans |
|
|
(7,003 |
) |
|
|
(2,648 |
) |
Total cash used in investing |
|
|
(4,301,411 |
) |
|
|
(3,099,350 |
) |
Financing – members’ capital |
|
|
|
|
|
|
|
|
Contributions by members, net |
|
|
|
|
|
|
|
|
Contributions by members |
|
|
2,120,568 |
|
|
|
4,348,762 |
|
Organization and offering expenses paid, net |
|
|
(56,394 |
) |
|
|
(131,500 |
) |
Formation loan funding |
|
|
(140,928 |
) |
|
|
(357,794 |
) |
Total cash provided by members, net |
|
|
1,923,246 |
|
|
|
3,859,468 |
|
Distributions to members |
|
|
|
|
|
|
|
|
Earnings distributed |
|
|
(508,111 |
) |
|
|
(492,069 |
) |
Redemptions |
|
|
(1,046,896 |
) |
|
|
(403,400 |
) |
Cash distributions to members |
|
|
(1,555,007 |
) |
|
|
(895,469 |
) |
Total cash provided by financing |
|
|
368,239 |
|
|
|
2,963,999 |
|
Net (decrease) increase in cash |
|
|
(2,815,711 |
) |
|
|
1,031,098 |
|
Cash, beginning of period |
|
|
10,674,953 |
|
|
|
8,509,852 |
|
Cash, March 31, |
|
$ |
7,859,242 |
|
|
$ |
9,540,950 |
|
Non-cash financing activity of $45,500 in early withdrawal penalties which reduced redemptions during the three months ended March 31, 2019 included in the table above.
Reconciliation of net income to total cash provided by operations
|
|
2019 |
|
|
2018 |
|
||
Net income |
|
$ |
1,188,658 |
|
|
$ |
1,142,489 |
|
Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accrued interest |
|
|
(86,127 |
) |
|
|
(16,672 |
) |
Loan administrative fees reimbursed |
|
|
— |
|
|
|
3,130 |
|
Accounts payable and accrued liabilities |
|
|
14,930 |
|
|
|
35,754 |
|
Other |
|
|
— |
|
|
|
1,748 |
|
Total adjustments |
|
|
(71,197 |
) |
|
|
23,960 |
|
Total cash provided by operations |
|
$ |
1,117,461 |
|
|
$ |
1,166,449 |
|
The accompanying notes are an integral part of these financial statements.
5
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
NOTE 1 – ORGANIZATION AND GENERAL
In the opinion of the Redwood Mortgage Corp. (RMC or the manager), the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the company’s Form 10-K for the fiscal year December 31, 2018 filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operations results to be expected for the full year.
Redwood Mortgage Investors IX, LLC (RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust.
The company is externally managed by Redwood Mortgage Corp (“RMC” or “the manager”). The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for the company to conduct its business as the company has no employees of its own. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC.
The rights, duties and powers of the members and manager of the company are governed by the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”), the Delaware Limited Liability Company Act and the California Revised Uniform Limited Liability Company Act.
The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the Operating Agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions.
The company’s primary investment objectives are to:
|
• |
yield a favorable rate of return from the company’s business of making and/or investing in loans; |
|
• |
preserve and protect the company’s capital by making and/or investing in loans secured by California real estate, preferably income-producing properties geographically situated in the San Francisco Bay Area and the coastal metropolitan regions of Southern California; and, |
|
• |
generate and distribute cash flow from these mortgage lending and investing activities. |
The ongoing sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:
|
• |
sale of members’ units net of reimbursement to RMC of organization and offering expenses (“O&O expenses”) and net of amounts advanced for the formation loan to RMC, including units sold by reinvestment of distributions; |
|
• |
payments from RMC on the outstanding balance of the formation loan; |
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan payoffs; |
|
• |
loan sales to unaffiliated 3rd parties and loan transfers by executed assignment to affiliated mortgage funds; and, |
|
• |
a line of credit, if obtained. |
Net income and losses are allocated monthly among the members according to their respective capital accounts after one percent (1%) of the profits and losses are allocated to the manager. RMC’s allocated one percent (1%) of the profits and losses was $11,887 and $11,425 for the three months ended March 31, 2019 and 2018, respectively. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Investors should not expect the company to provide tax benefits of the type commonly associated with limited liability company tax shelter investments. Federal and state income taxes are the obligation of the members, if and when taxes apply, other than the annual California franchise tax and the California LLC cash receipts taxes paid by the company.
Members representing a majority of the outstanding units may, without the concurrence of the managers, vote to: (i) dissolve the company, (ii) amend the Operating Agreement, subject to certain limitations, (iii) approve or disapprove the sale of all or substantially all of the assets of the company or (iv) remove or replace one or all of the managers. Where there is only one manager, a majority in interest of the members is required to elect a new manager to continue the company business after a manager ceases to be a manager due to its withdrawal.
6
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. Cash available for distribution means cash flow from operations (excluding repayments for loan principal and other capital transaction proceeds) less amounts set aside for creation or restoration of reserves. The manager may withhold from cash available for distribution otherwise distributable to the members with respect to any period the respective amounts of O&O expenses allocated to the members’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts of organization and offering expenses policy. The amount otherwise distributable, less the respective amounts of organization and offering expenses allocated to members, is the net distribution. Per the terms of the company’s Operating Agreement, cash available for distribution allocated to the members is allocated among the members in proportion to their percentage interests (except with respect to differences in the amounts of organization and offering expenses allocated to the respective members during the applicable period) and in proportion to the number of days during the applicable month that they owned such percentage interests.
See Note 3 (Manager and Other Related Parties) to the financial statements for a detailed discussion on the allocation of O&O to members’ accounts.
Cash available for distributions allocable to members, other than those participating in the distribution reinvestment plan (DRIP) and the manager, is distributed at the end of each calendar month. Cash available for distribution allocable to members who participate in the DRIP is used to purchase additional units at the end of each calendar month. The manager’s allocable share of cash available for distribution is also distributed not more frequently than with cash distributions to members.
To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year profits, which takes into account the difference between the forecasted and actual results in the year and the requirement to maintain a cash reserve. At March 31, 2019 year to date earnings (estimated) allocated to members’ accounts was $1,191,815 and net income available to members (actual) was $1,176,771. The cumulative difference between earnings allocated to members’ account and net income available to members of $39,497 is expected to be offset by future earning in excess of net distributions in 2019.
The company’s net income, cash available for distribution, and net-distribution rate fluctuates depending on:
|
• |
loan origination volume and the balance of capital available to lend; |
|
• |
the current and future interest rates negotiated with borrowers; |
|
• |
the timing and amount of gains received from loan sales, if any; |
|
• |
payment of fees and cost reimbursements to RMC; |
|
• |
the amount and timing of other operating expenses, including expenses for professional services; |
|
• |
financial support, if any, from RMC; and |
|
• |
payments from RMC on the outstanding balance of the formation loan. |
Financial Support from RMC
Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:
|
• |
charging less than the maximum allowable fees; |
|
• |
not requesting reimbursement of qualifying costs attributable to the company (“Costs from RMC”) on the Statements of Income); and/or, |
|
• |
absorbing some, and in certain periods, all of the company’s direct expenses, such as professional fees. |
Such fee and cost-reimbursement waivers and the absorption of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the Operating Agreement has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45% when applicable) for periods prior to February 28, 2018.
In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. In April 2018, the company commenced paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) beginning in the third quarter of 2019, and to similarly commence collection of the cost reimbursements from RMC in 2020.
7
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Distribution reinvestment plan (DRIP)
Members may elect to participate in the DRIP with written notice to the manager provided that the registration statement for the DRIP is effective at the time.
Liquidity and unit redemption program
There are substantial restrictions on transferability of units, and there is no established public trading and/or secondary market for the units and none is expected to develop. In order to provide liquidity to members, the company’s Operating Agreement includes a unit redemption program, whereby beginning one year from the date of purchase of the units, a member may redeem all or part of their units, subject to certain limitations.
The price paid for redeemed units is based on the lesser of the purchase price paid by the redeeming member or the member’s capital account balance as of the date of each redemption payment. Redemption value is calculated based on the period from date of purchase as follows:
|
• |
after one year, 92% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after two years, 94% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after three years, 96% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after four years, 98% of the purchase price or of the capital account balance, whichever is less; |
|
• |
after five years, 100% of the purchase price or of the capital account balance, whichever is less. |
The company redeems units quarterly, subject to certain limitations as provided for in the Operating Agreement. The maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. For redemption requests requiring more than one quarter to fully redeem, the percentage discount amount that, if any, applies when the redemption payments begin continues to apply throughout the redemption period and applies to all units covered by such redemption request regardless of when the final redemption payment is made.
The company has not established a cash reserve from which to fund redemptions. The company’s capacity to redeem units upon request is limited by the availability of cash and the company’s cash flow. As provided in the Operating Agreement, the company will not, in any calendar year, redeem more than five percent (5%) of the weighted average number of units outstanding during the twelve-month period immediately prior to the date of the redemption. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement.
Contributed capital
The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members.
Manager’s interest
If a manager is removed, withdrawn or terminated, the company will pay to the manager all amounts then accrued and owing to the manager. Additionally, the company will terminate the manager’s interest in the company’s profits, losses, distributions and capital by payment of an amount in cash equal to the then-present fair value of such interest. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered.
Unit sales
In June 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continued until April 30, 2019.
As of March 31, 2019, the gross proceeds from sales of units from inception (October, 2009) approximated $87,816,000– $39,407,000 units under previous registration statements and approximately $48,409,000 under the June 2016 registration statement/prospectus. Of the gross proceeds, approximately $9,256,000 were from members under our DRIP. In April 2019, gross proceeds from sales of units approximated $680,000.
8
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
The company used the gross proceeds from the sale of the units to:
|
• |
make additional loans; |
|
• |
fund working capital reserves; |
|
• |
pay RMC up to 4.5% of proceeds from sale of units for organization and offering expenses; and |
|
• |
fund a formation loan to RMC at up to 7% of proceeds from sale of units. |
The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 terminated as of April 30, 2019.
On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019.
Unit sales – commissions paid to broker-dealers/formation loan
Commissions for unit sales were previously paid to broker-dealers (B/D sales commissions) by RMC and were not paid directly by the company out of offering proceeds. Instead, the company advanced to RMC, from offering proceeds, amounts sufficient to pay the B/D sales commissions and premiums paid to investors up to seven percent (7%) of offering proceeds. The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” As of March 31, 2019, the company had made such advances of $5,580,839, of which $4,294,186 remains outstanding on the formation loan. Advances under the formation loan terminated upon the termination of the primary offering of units on April 30, 2019.
RMC is required to make annual payments on the formation loan in the amount of one tenth of the principal balance outstanding at December 31 of the prior year.
Term of the company
The term of the company will continue until 2028, unless sooner terminated as provided in the Operating Agreement.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Management estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates.
Fair value estimates
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact.
9
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
|
• |
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the company has the ability to access at the measurement date. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
• |
Level 2 inputs are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly in active markets and quoted prices for identical assets or liabilities that are not active, and inputs other than quoted prices that are observable or inputs derived from or corroborated by market data. |
|
• |
Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs reflect the company’s own assumptions about the assumptions market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances and may include the company’s own data. |
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace; and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g., as-is, when-completed or for land when-entitled); and determining the unit of value (e.g., as a series of individual unit sales or as a bulk disposition).
Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types.
Cash and cash equivalents
The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At March 31, 2019, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating.
Performing loans are carried at amortized costs which is generally equal to the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower.
For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Late fees are recognized in the period received.
10
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal.
If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal.
In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired.
From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized.
Allowance for loan losses
Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate.
For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value.
Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed.
The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible.
At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses.
Real estate owned (REO)
Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing.
Recently issued accounting pronouncements
-Accounting and Financial reporting for Expected Credit Losses
11
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020.
RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral. The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position.
NOTE 3 – MANAGER AND OTHER RELATED PARTIES
RMC is entitled to 1% of the profits and losses of the company. See Note 1 (Organization and General).
Manager financial support (RMC support)
RMC support provided, as detailed below, totaled approximately $462,000 and $605,000 for the three months ended March 31, 2019 and 2018, respectively. Loan administrative fees, mortgage servicing fees, and asset management fees which could have been collected increased during the three months ended March 31, 2019 compared to the same period in 2018 due to increased loan and capital balances. As a result, the amount of support in the form of waived fees for loan administrative and asset management fees increased during the same period as RMC, in its sole discretion, elected to waive collection of such fees. Costs from RMC decreased for the three months ended March 31, 2019 compared to the same period in 2018, due to a decrease in allocable payroll and consulting fee expenses incurred by RMC during the three months period ended March 31, 2019 as compared to the same period in 2018. Beginning April 1, 2018, RMI IX paid all direct operating expenses (i.e., professional services and other direct operating expenses) resulting in an increase in professional services and other expense in 2019. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s professional services and other direct expenses. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2019 are presented in the following table.
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
Chargeable/reimbursable |
|
$ |
163,270 |
|
|
$ |
38,646 |
|
|
$ |
119,187 |
|
|
$ |
179,656 |
|
|
$ |
147,317 |
|
|
$ |
3,356 |
|
|
$ |
651,432 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(163,270 |
) |
|
|
— |
|
|
|
(119,187 |
) |
|
|
(179,656 |
) |
|
|
— |
|
|
|
— |
|
|
|
(462,113 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total RMC support |
|
|
(163,270 |
) |
|
|
— |
|
|
|
(119,187 |
) |
|
|
(179,656 |
) |
|
|
— |
|
|
|
— |
|
|
|
(462,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
38,646 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
147,317 |
|
|
$ |
3,356 |
|
|
$ |
189,319 |
|
12
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2018 are presented in the following table.
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|||||||||||||||||
|
|
Loan Admin Fees |
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fee (as Revised) |
|
|
Costs from RMC |
|
|
Professional Services |
|
|
Other |
|
|
Total |
|
|||||||
Chargeable/reimbursable |
|
$ |
158,363 |
|
|
$ |
35,184 |
|
|
$ |
104,955 |
|
|
$ |
184,149 |
|
|
$ |
147,837 |
|
|
$ |
14,332 |
|
|
$ |
644,820 |
|
RMC support |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Waived |
|
|
(158,363 |
) |
|
|
— |
|
|
|
(104,955 |
) |
|
|
(184,149 |
) |
|
|
— |
|
|
|
— |
|
|
|
(447,467 |
) |
Expenses absorbed by RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(143,152 |
) |
|
|
(14,247 |
) |
|
|
(157,399 |
) |
Total RMC support |
|
|
(158,363 |
) |
|
|
— |
|
|
|
(104,955 |
) |
|
|
(184,149 |
) |
|
|
(143,152 |
) |
|
|
(14,247 |
) |
|
|
(604,866 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charged |
|
$ |
— |
|
|
$ |
35,184 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,685 |
|
|
$ |
85 |
|
|
$ |
39,954 |
|
Loan administrative fees
RMC is entitled to receive a loan administrative fee in an amount up to one percent (1%) of the principal amount of each new loan originated or acquired on the company’s behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees would be payable by the company upon the closing or acquisition of each loan. Since August 2015, RMC, at its sole discretion, waived and continues to waive, the loan administrative fees.
Mortgage servicing fees
RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of the unpaid principal balance of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company.
Asset management fees
RMC is entitled to receive a monthly asset management fee for managing the company’s portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves.
In April 2018, the calculation of the asset management fees was adjusted to conform to the specifically applicable provisions of the Operating Agreement, accordingly the 2018 dollar amounts in the table above have been updated. The previously disclosed asset management fees were $127,844 for the three months ended March 31, 2018. This update had no effect on net income or total operating expenses, as all asset management fees were waived in 2018.
Costs from RMC
RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g., postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g., RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g., by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds.
RMC, at its sole discretion, has elected to waive reimbursement for operating expenses in the quarters ended March 31, 2019 and 2018.
13
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses. Prior to April 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services (and other operating expenses directly incurred by the company).
Commissions and fees are paid by the borrowers to RMC.
Brokerage commissions, loan originations
For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 1.5% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company.
Other fees
RMC receives fees for processing, notary, document preparation, credit investigation, reconveyance and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company.
In the ordinary course of business, performing loans may be transferred by executed assignment, in-part or in-full, between the affiliated mortgage funds at par. During the three months ended March 31, 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, transferred to the company two performing loans in-full at par value, which approximates fair value, of approximately $5,890,000. The company paid cash for the loans and the affiliated mortgage fund has no continuing obligation or involvement on the loans. No loans were transferred during the three months ended March 31, 2019.
Formation loan
Formation loan transactions are presented in the following table.
|
|
For the three months ended |
|
|
Since Inception |
|
||
Balance, beginning of period |
|
$ |
4,179,343 |
|
|
$ |
— |
|
Formation loan advances to RMC |
|
|
140,928 |
|
|
|
5,580,838 |
|
Payments received from RMC |
|
|
— |
|
|
|
(1,199,716 |
) |
Early withdrawal penalties applied |
|
|
(26,085 |
) |
|
|
(86,936 |
) |
Balance, March 31, 2019 |
|
$ |
4,294,186 |
|
|
$ |
4,294,186 |
|
Subscription proceeds since inception |
|
|
|
|
|
$ |
79,702,750 |
|
Formation loan advance rate |
|
|
|
|
|
|
7 |
% |
The future minimum payments on the formation loan, net of early withdrawal penalties, as of March 31, 2019 are presented in the following table.
2019 |
|
$ |
391,849 |
|
2020 |
|
|
417,934 |
|
2021 |
|
|
417,934 |
|
2022 |
|
|
417,934 |
|
2023 |
|
|
417,934 |
|
Thereafter |
|
|
2,230,601 |
|
Total |
|
$ |
4,294,186 |
|
RMC is required to make annual payments on the formation loan, net of early withdrawal penalties, of one tenth of the principal balance outstanding at December 31 of the prior year. The formation loan is forgiven if the manager is removed and RMC is no longer
14
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
receiving payments for services rendered. The primary source of repayment of the formation loan are loan brokerage commissions earned by RMC.
The table below presents the company’s unit redemptions for the three months ended March 31, 2019 and 2018.
|
|
2019 |
|
|
2018 |
|
||
Capital redemptions-without penalty |
|
$ |
367,396 |
|
|
$ |
316,050 |
|
Capital redemptions-subject to penalty |
|
|
725,000 |
|
|
|
87,350 |
|
Total |
|
$ |
1,092,396 |
|
|
$ |
403,400 |
|
Reimbursement and allocation of organization and offering expenses
The manager is reimbursed for, or the company may pay directly, organization and offering expenses (or O&O expenses) incurred in connection with the organization of the company or offering of the units including, without limitation, attorneys’ fees, accounting fees, printing costs and other selling expenses (other than sales commissions) in a total amount not exceeding 4.5% of the original purchase price of all units (other than DRIP units) sold in all offerings (hereafter, the “maximum O&O expenses”), and the manager pays any O&O expenses in excess of the maximum O&O expenses. For each calendar quarter or portion thereof after December 31, 2015, that a member holds units (other than DRIP units) and for a maximum of forty (40) such quarters, a portion of the O&O expenses borne by the company is allocated to and debited from that member’s capital account in an annual amount equal to 0.45% of the member’s original purchase price for those units, in equal quarterly installments of 0.1125% each commencing with the later of the first calendar quarter of 2016 or the first full calendar quarter after a member’s purchase of units, and continuing through the quarter in which such units are redeemed. If at any time the aggregate O&O expenses actually paid or reimbursed by the company since inception are less than the maximum O&O expenses, the company shall first reimburse the manager for any O&O expenses previously borne by it so long as it does not result in the company bearing more than the maximum O&O expenses, and any savings thereafter remaining shall be equitably allocated among (and serve to reduce any subsequent such cost allocations to) those members who have not yet received forty (40) quarterly allocations of O&O expenses, as determined in the good faith judgment of the manager.
Unallocated O&O expenses with respect to a member’s units that remain upon redemption of such units shall be repaid to the company by RMC.
Unallocated O&O transactions are summarized in the following table.
|
|
2019 |
|
|
Since Inception |
|
||
Balance, January 1 |
|
$ |
2,519,458 |
|
|
$ |
— |
|
O&O expenses reimbursed to RMC |
|
|
93,239 |
|
|
|
3,579,760 |
|
Early withdrawal penalties applied (1) |
|
|
(19,415 |
) |
|
|
(60,290 |
) |
O&O expenses allocated(2) |
|
|
(80,808 |
) |
|
|
(767,164 |
) |
O&O expenses repaid to Members' Capital by RMC(3) |
|
|
(36,845 |
) |
|
|
(276,677 |
) |
Balance, March 31 |
|
$ |
2,475,629 |
|
|
$ |
2,475,629 |
|
|
(1) |
Early withdrawal penalties collected are applied to the next installment of principal due under the formation loan and to reduce the amount owed to RMC for O&O expenses. The amounts credited will be determined by the ratio between the amount of the formation loan and the amount of offering costs incurred by the company. |
|
(2) |
Beginning in 2016, O&O expenses reimbursed to RMC by RMI IX are allocated to members’ capital accounts over 40 quarters. |
|
(3) |
RMC is obligated under the Operating Agreement to repay the company for unallocated O&O expenses attributed to units redeemed prior to the 40 quarterly allocations. RMC estimated its future obligations to repay unallocated O&O expenses on scheduled redemptions as of March 31, 2019, to be approximately $30,030. |
NOTE 4 – LOANS
Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of March 31, 2019, 83 of the company’s 85 loans (representing 99% of the aggregate principal of the company’s loan portfolio) have a loan term of five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment penalty provision. As of March 31, 2019, 60 loans outstanding (representing 60% of the aggregate principal balance of the
15
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with the principal balance due at maturity.
Secured loans unpaid principal balance (principal)
Secured loan transactions are summarized in the following table for the three months ended March 31, 2019.
|
|
2019 |
|
|
Principal, beginning of period |
|
$ |
62,115,713 |
|
Loans originated |
|
|
16,327,000 |
|
Loans sold to non-affiliate |
|
|
(136,640 |
) |
Principal payments received |
|
|
(11,889,592 |
) |
Principal, March 31, 2019 |
|
$ |
66,416,481 |
|
During the three months ended March 31, 2019, the company renewed no loans. See Note 3 (Manager and Other Related Parties) for a description of loans transferred by executed assignments between affiliates. The company originates loans with the intent to hold the loans until maturity. From time to time the company may sell certain loans. Loans are classified as held-for-sale once a decision has been made to sell loans and loans held-for-sale have been identified.
At March 31, 2019 and 2018 the company held no loans classified as held-for-sale.
On March 28, 2019 and March 29, 2019, RMI IX and two separate borrowers executed and notarized loan documents for $200,000 and $1,285,000, respectively, and RMI IX received the corresponding deeds of trust. The loans were funded on April 2, 2019 and April 4, 2019, respectively.
In March 2019, one loan with a principal balance of $136,640, that had been designated as impaired and in non-accrual status, was sold to an unaffiliated third party which specializes in the resolution of such loans. The loan was sold for $143,000, of which $1,711 was recognized as interest income, with $10,791 in foregone interest.
16
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Secured loans had the characteristics presented in the following table.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
Number of secured loans |
|
|
85 |
|
|
|
83 |
|
Secured loans – principal |
|
$ |
66,416,481 |
|
|
$ |
62,115,713 |
|
Secured loans – lowest interest rate (fixed) |
|
|
7.0 |
% |
|
|
7.0 |
% |
Secured loans – highest interest rate (fixed) |
|
|
10.5 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
Average secured loan – principal |
|
$ |
781,370 |
|
|
$ |
748,382 |
|
Average principal as percent of total principal |
|
|
1.2 |
% |
|
|
1.2 |
% |
Average principal as percent of members’ capital, net |
|
|
1.0 |
% |
|
|
1.0 |
% |
Average principal as percent of total assets |
|
|
1.0 |
% |
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
Largest secured loan – principal |
|
$ |
4,000,000 |
|
|
$ |
4,000,000 |
|
Largest principal as percent of total principal |
|
|
6.0 |
% |
|
|
6.4 |
% |
Largest principal as percent of members’ capital, net |
|
|
5.2 |
% |
|
|
5.2 |
% |
Largest principal as percent of total assets |
|
|
5.3 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
Smallest secured loan – principal |
|
$ |
64,444 |
|
|
$ |
74,390 |
|
Smallest principal as percent of total principal |
|
|
0.1 |
% |
|
|
0.1 |
% |
Smallest principal as percent of members’ capital, net |
|
|
0.1 |
% |
|
|
0.1 |
% |
Smallest principal as percent of total assets |
|
|
0.1 |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
|
|
Number of California counties where security is located |
|
|
18 |
|
|
|
15 |
|
Largest percentage of principal in one California county |
|
|
20.5 |
% |
|
|
25.0 |
% |
|
|
|
|
|
|
|
|
|
Number of secured loans with filed notice of default |
|
|
2 |
|
|
|
2 |
|
Secured loans in foreclosure – principal |
|
$ |
2,237,176 |
|
|
$ |
565,685 |
|
|
|
|
|
|
|
|
|
|
Number of secured loans with an interest reserve |
|
|
— |
|
|
|
— |
|
Interest reserves |
|
$ |
— |
|
|
$ |
— |
|
As of March 31, 2019, the company’s largest loan with principal of $4,000,000 represents 6.0% of outstanding secured loans and 5.3% of company assets. The loan is secured by a multifamily residence located in San Francisco County, bears an interest rate of 8.90% and matures on September 1, 2021. As of March 31, 2019, the company had 2 loans with filed notices of default. As of March 31, 2019, the company had no construction loans outstanding, had no rehabilitation loans outstanding, and had no commitments to fund construction or rehabilitation loans.
Borrower payments are deposited into a bank trust account maintained by RMC and are subsequently disbursed to the company after an appropriate holding period, to ensure the funds are collected. At March 31, 2019, the trust account held a balance of $50,839, consisting of borrower payments, all of which was disbursed on or before April 15, 2019.
17
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Secured loans had the lien positions presented in the following table.
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||||||||||||||||||
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
||||||
First trust deeds |
|
|
43 |
|
|
$ |
33,670,707 |
|
|
|
51 |
% |
|
|
41 |
|
|
$ |
29,699,888 |
|
|
|
48 |
% |
Second trust deeds |
|
|
42 |
|
|
|
32,745,774 |
|
|
|
49 |
|
|
|
42 |
|
|
|
32,415,825 |
|
|
|
52 |
|
Total principal, secured loans |
|
|
85 |
|
|
|
66,416,481 |
|
|
|
100 |
% |
|
|
83 |
|
|
|
62,115,713 |
|
|
|
100 |
% |
Liens due other lenders at loan closing |
|
|
|
|
|
|
72,198,788 |
|
|
|
|
|
|
|
|
|
|
|
65,941,118 |
|
|
|
|
|
Total debt |
|
|
|
|
|
$ |
138,615,269 |
|
|
|
|
|
|
|
|
|
|
$ |
128,056,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appraised property value at loan closing |
|
|
|
|
|
$ |
260,199,000 |
|
|
|
|
|
|
|
|
|
|
$ |
240,307,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total debt to appraised values (LTV) at loan closing(1) |
|
|
|
|
|
|
55.2 |
% |
|
|
|
|
|
|
|
|
|
|
54.5 |
% |
|
|
|
|
|
(1) |
Based on appraised values and liens due other lenders at loan closing. The weighted-average loan-to-value (LTV) computation above does not take into account subsequent increases or decreases in property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders. |
Property type
Secured loans summarized by property type are presented in the following table.
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||||||||||||||||||
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
||||||
Single family(2) |
|
|
59 |
|
|
$ |
40,265,988 |
|
|
|
61 |
% |
|
|
60 |
|
|
$ |
42,967,253 |
|
|
|
69 |
% |
Multi-family |
|
|
9 |
|
|
|
8,946,916 |
|
|
|
13 |
|
|
|
8 |
|
|
|
8,210,970 |
|
|
|
13 |
|
Commercial |
|
|
16 |
|
|
|
15,353,577 |
|
|
|
23 |
|
|
|
15 |
|
|
|
10,937,490 |
|
|
|
18 |
|
Land |
|
|
1 |
|
|
|
1,850,000 |
|
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total principal, secured loans |
|
|
85 |
|
|
$ |
66,416,481 |
|
|
|
100 |
% |
|
|
83 |
|
|
|
62,115,713 |
|
|
|
100 |
% |
|
(2) |
Single family property type as of March 31, 2019 consists of 10 loans with principal of $6,081,808 that are owner occupied and 49 loans with principal of $34,184,180 that are non-owner occupied. At December 31, 2018, single family property consisted of 14 loans with principal of $11,398,869 that are owner occupied and 46 loans with principal of $31,568,384 that are non-owner occupied. |
18
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Distribution of loans within California
The distribution of secured loans by counties is presented in the following table.
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||||||||||
|
|
Principal |
|
|
Percent |
|
|
Principal |
|
|
Percent |
|
||||
San Francisco Bay Area(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Mateo |
|
$ |
11,577,654 |
|
|
|
17.4 |
% |
|
$ |
9,619,609 |
|
|
|
15.5 |
% |
Santa Clara |
|
|
10,143,664 |
|
|
|
15.3 |
|
|
|
11,756,695 |
|
|
|
18.9 |
|
Alameda |
|
|
5,940,248 |
|
|
|
8.9 |
|
|
|
7,306,779 |
|
|
|
11.8 |
|
San Francisco |
|
|
5,651,862 |
|
|
|
8.5 |
|
|
|
5,238,008 |
|
|
|
8.4 |
|
Sonoma |
|
|
1,298,378 |
|
|
|
2.0 |
|
|
|
1,300,000 |
|
|
|
2.1 |
|
Marin |
|
|
1,073,977 |
|
|
|
1.6 |
|
|
|
575,000 |
|
|
|
0.9 |
|
Contra Costa |
|
|
605,583 |
|
|
|
0.9 |
|
|
|
725,771 |
|
|
|
1.2 |
|
Solano |
|
|
600,000 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
|
36,891,366 |
|
|
|
55.5 |
|
|
|
36,521,862 |
|
|
|
58.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Northern California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sutter |
|
|
3,815,000 |
|
|
|
5.7 |
|
|
|
— |
|
|
|
— |
|
Sacramento |
|
|
2,062,300 |
|
|
|
3.1 |
|
|
|
822,500 |
|
|
|
1.3 |
|
Placer |
|
|
635,887 |
|
|
|
1.0 |
|
|
|
637,354 |
|
|
|
1.0 |
|
Monterey |
|
|
321,916 |
|
|
|
0.5 |
|
|
|
322,716 |
|
|
|
0.5 |
|
|
|
|
6,835,103 |
|
|
|
10.3 |
|
|
|
1,782,570 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northern California Total |
|
|
43,726,469 |
|
|
|
65.8 |
|
|
|
38,304,432 |
|
|
|
61.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles & Coastal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Angeles |
|
|
13,628,274 |
|
|
|
20.5 |
|
|
|
15,514,789 |
|
|
|
25.0 |
|
San Diego |
|
|
5,366,218 |
|
|
|
8.1 |
|
|
|
5,563,635 |
|
|
|
9.0 |
|
Orange |
|
|
1,165,520 |
|
|
|
1.7 |
|
|
|
1,177,446 |
|
|
|
1.9 |
|
Santa Barbara |
|
|
500,000 |
|
|
|
0.8 |
|
|
|
— |
|
|
|
— |
|
|
|
|
20,660,012 |
|
|
|
31.1 |
|
|
|
22,255,870 |
|
|
|
35.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Southern California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Bernardino |
|
|
1,200,000 |
|
|
|
1.8 |
|
|
|
1,200,000 |
|
|
|
1.9 |
|
Riverside |
|
|
830,000 |
|
|
|
1.3 |
|
|
|
355,411 |
|
|
|
0.6 |
|
|
|
|
2,030,000 |
|
|
|
3.1 |
|
|
|
1,555,411 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern California Total |
|
|
22,690,012 |
|
|
|
34.2 |
|
|
|
23,811,281 |
|
|
|
38.4 |
|
Total principal, secured loans |
|
$ |
66,416,481 |
|
|
|
100.0 |
% |
|
$ |
62,115,713 |
|
|
|
100.0 |
% |
|
(3) |
Includes Silicon Valley |
19
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Secured loans are scheduled to mature as presented in the following table as of March 31, 2019.
|
|
Loans |
|
|
Principal |
|
|
Percent |
|
|||
2019(4) |
|
|
25 |
|
|
$ |
23,392,278 |
|
|
|
35 |
% |
2020 |
|
|
28 |
|
|
|
21,399,550 |
|
|
|
33 |
|
2021 |
|
|
19 |
|
|
|
17,426,916 |
|
|
|
26 |
|
2022 |
|
|
6 |
|
|
|
2,001,123 |
|
|
|
3 |
|
2023 |
|
|
3 |
|
|
|
835,808 |
|
|
|
1 |
|
Thereafter |
|
|
2 |
|
|
|
914,473 |
|
|
|
1 |
|
Total future maturities |
|
|
83 |
|
|
|
65,970,148 |
|
|
|
99 |
|
Matured as of March 31, 2019 |
|
|
2 |
|
|
|
446,333 |
|
|
|
1 |
|
Total principal, secured loans |
|
|
85 |
|
|
$ |
66,416,481 |
|
|
|
100 |
% |
|
(4) |
Loans scheduled to mature in 2019 from April 1 to December 31. |
Two loans with an aggregate principal balance of $446,333 were past maturity at March 31, 2019. The loans were designated as impaired and were 58 and 89 days delinquent, respectively, at March 31, 2019.
Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.
Delinquency
Secured loans summarized by payment delinquency are presented in the following table.
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||||||||||
|
|
Loans |
|
|
Principal |
|
|
Loans |
|
|
Principal |
|
||||
Past Due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30-89 days |
|
|
6 |
|
|
$ |
1,937,339 |
|
|
|
5 |
|
|
$ |
3,828,975 |
|
90-179 days |
|
|
1 |
|
|
|
1,808,789 |
|
|
|
— |
|
|
|
— |
|
180 or more days |
|
|
1 |
|
|
|
428,387 |
|
|
|
2 |
|
|
|
565,685 |
|
Total past due |
|
|
8 |
|
|
|
4,174,515 |
|
|
|
7 |
|
|
|
4,394,660 |
|
Current |
|
|
77 |
|
|
|
62,241,966 |
|
|
|
76 |
|
|
|
57,721,053 |
|
Total principal, secured loans |
|
|
85 |
|
|
$ |
66,416,481 |
|
|
|
83 |
|
|
$ |
62,115,713 |
|
Loans in non-accrual status
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
Number of loans |
|
$ |
2 |
|
|
$ |
2 |
|
Principal |
|
|
2,237,176 |
|
|
|
565,685 |
|
Advances |
|
|
14,760 |
|
|
|
10,688 |
|
Accrued Interest |
|
|
93,384 |
|
|
|
19,831 |
|
Total recorded investment |
|
$ |
2,345,320 |
|
|
$ |
596,204 |
|
Foregone interest |
|
$ |
26,417 |
|
|
$ |
33,410 |
|
At March 31, 2019, and December 31, 2018 no loans were 90 or more days delinquent and not in non-accrual status.
20
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
Impaired loans/allowance for loan losses
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
Principal |
|
$ |
2,874,277 |
|
|
$ |
3,841,148 |
|
Recorded investment(5) |
|
|
3,005,658 |
|
|
|
3,950,157 |
|
Impaired loans without allowance |
|
|
3,005,658 |
|
|
|
3,950,157 |
|
Impaired loans with allowance |
|
|
— |
|
|
|
— |
|
Allowance for loan losses, impaired loans |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Number of loans |
|
|
5 |
|
|
|
6 |
|
(5) Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes.
Five and six loans were designated as impaired at March 31, 2019 and at December 31, 2018, respectively. No allowance for loan losses has been recorded as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for all amounts owing.
Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the three months ended March 31, 2019 and the year ended December 31, 2018.
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
Average recorded investment |
|
$ |
3,477,908 |
|
|
$ |
2,050,897 |
|
Interest income recognized |
|
|
38,421 |
|
|
|
23,848 |
|
Interest income received in cash |
|
|
21,670 |
|
|
|
21,670 |
|
Modifications and troubled debt restructurings
No loan payment modifications were made during three months ended March 31, 2019, and no modifications were in effect at March 31, 2019 and December 31, 2018.
Fair Value
The company does not record its performing loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. As in 2018, when certain performing loans were sold, at an immaterial gain (net of expenses), the sale occurred in the same reporting period as when they would have been classified as held-for-sale. Therefore, the recorded amount of the preforming loan (i.e., the loan balance) is deemed to approximate fair value as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including foregone interest, if any).
Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis when the net realizable value of the real property collateral is determined to be less than the loan balance. No impaired loans were measured at fair value on a non-recurring basis at and for the periods ended March 31, 2019 or December 31, 2018.
Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed quarterly for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. The fair value of loan balances secured by deeds of trust is deemed to approximate the recorded amount (per the financial statements) as our loans:
|
• |
are of shorter terms at origination than commercial real estate loans by institutional lenders; |
|
• |
are written without a prepayment penalty causing uncertainty/a lack of predictability as to the expected duration of the loan; and |
|
• |
have limited marketability and are not yet sellable into an established secondary market. |
Secured loans, designated impaired (Level 2) - Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the
21
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 2 inputs).
The following methods and assumptions are used to determine the fair value of the collateral securing a loan.
Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built.
If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals.
Multi-family residential – Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities and year built.
Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.
Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals.
Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.
Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal.
NOTE 5 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS
Commitments
At March 31, 2019, scheduled redemptions of members' capital equaled $1,039,402, all of which is scheduled for payment in 2019.
The company is obligated, per the Operating Agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales (excluding member’s capital from DRIP). Unit sales to other than members of record or their successors terminated April 30, 2019.
Legal proceedings
In the normal course of its business, the company may become involved in legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect the debt owed under the promissory notes, to enforce the provisions of the deeds of trust, to protect its interest in the real property subject to the deeds of trust and to
22
REDWOOD MORTGAGE INVESTORS IX, LLC
Notes to Financial Statements
March 31, 2019 (unaudited)
resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions, in and of themselves, typically would be of any material financial impact to the net income or balance sheet of the company. As of the date hereof, the company is not involved in any legal proceedings other than those that would be considered part of the normal course of business.
NOTE 6 – SUBSEQUENT EVENTS
On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to the members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019.
23
The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto, which are included in Item 1 of this report on Form 10-Q, as well as the audited financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (or SEC). The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operations results to be expected for the full year.
Forward-Looking Statements
Certain statements in this Report on Form 10-Q which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding the company’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements, which are based on various assumptions (some of which are beyond our control), may be identified by reference to a future period or periods or by use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” “possible” or similar terms or variations on those terms or the negative of those terms. Forward-looking statements include statements regarding trends in the California real estate market; future interest rates and economic conditions and their effect on the company and its assets; estimates as to the allowance for loan losses; forecasts of future sales and redemptions of units, forecasts of future funding of loans; loan payoffs and the possibility of future loan sales (and the gain thereon, net of expenses) to third parties, if any; forecasts of future financial support by the manager including the eventual elimination of financial support; future fluctuations in the net distribution rate; and beliefs relating to how the company will be affected by current economic conditions and trends in the financial and credit markets. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, the following:
|
• |
changes in economic conditions, interest rates, and/or changes in California real estate markets; |
|
• |
the impact of competition and competitive pricing for mortgage loans; |
|
• |
the manager’s ability to make and arrange for loans that fit our investment criteria; |
|
• |
whether we will have any future loan sales to unaffiliated third parties, and if we do, the gain, net of expenses, and the volume/timing of loan sales to unaffiliated third parties, which to date have provided only immaterial gains to us; |
|
• |
the timing and dollar amount of the decreasing financial support from the manager and the corresponding impact on the net distribution rate to members; |
|
• |
the concentration of credit risks to which we are exposed; |
|
• |
increases in payment delinquencies and defaults on our mortgage loans; and |
|
• |
changes in government regulation and legislative actions affecting our business. |
All forward-looking statements and reasons why results may differ included in this Form 10-Q are made as of the date hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.
Overview
Redwood Mortgage Investors IX, LLC (we, RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment loans secured by California real estate, primarily through first and second deeds of trust. The company is externally managed. Redwood Mortgage Corp. (RMC, the manager or management) is the manager of the company.
Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, reimbursements to RMC of O&O expenses, and unit redemptions. The cash flow, if any, in excess of these uses is reinvested in new loans.
Redemptions are made once a quarter, on the last business day of the quarter. The unit redemption program is ongoing and available to members beginning one year after the purchase of the units. The maximum number of units that may be redeemed in any year and the maximum amount of redemption available in any period to members are subject to certain limitations including, but limited to, the company will not:
24
|
• |
in any calendar quarter, redeem more than 1.25%, of the weighted average number of units outstanding during the twelve (12) month period immediately prior to the date of the redemption. |
In addition, the manager may, in its sole discretion, further limit the percentage of the total members’ units that may be redeemed or may adjust the timing of scheduled redemptions (including deferring withdrawals indefinitely), to the extent that such redemption would cause the company to be treated as a “publicly traded partnership” within the meaning of Section 7704 of the Code or any Treasury Regulations promulgated thereunder (determined without reference to Code Section 469(i)).
In the event that redemption requests in excess of the foregoing limitations are received by the managers, such redemption requests will be honored in the following order of priority:
|
• |
first, to redemptions upon the death of a member; and |
|
• |
next, to other redemption requests until all other requests for redemption have been met. |
All redemption requests shall be honored on a pro rata basis, based on the amount of redemption requests received in the preceding quarter plus unfulfilled redemption requests that the company was unable to honor in prior quarter(s).
See Note 1 (Organization and General) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for additional detail on the organization and operations of RMI IX which detail is incorporated by this reference into this Item 2. For a detailed presentation of the company activities for which related parties are compensated and related transactions, including the formation loan to RMC, See Note 1 (Organization and General) and Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report, which presentation is incorporated by this reference into this Item 2.
Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:
|
• |
charging less than the maximum allowable fees; |
|
• |
not requesting reimbursement of qualifying costs attributable to the company (“Costs from RMC”) on the Statements of Income); and/or, |
|
• |
absorbing some, and in certain periods, all of the company’s direct expenses, such as professional fees. |
Such fee and cost-reimbursement waivers and the absorption of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the Operating Agreement has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45%, annually when applicable) for periods prior to February 28, 2018.
In March 2018, RMC communicated to the members planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. In April 2018, the company commenced paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) beginning in the third quarter of 2019, and to similarly commence collection of the cost reimbursements from RMC in 2020.
Critical Accounting Policies
See Note 2 (Summary of Significant Accounting Policies) to the financial statements included in Part I, Item 1 of this report on Form 10-Q for a detailed presentation of critical accounting policies which presentation is incorporated by this reference into this Item 2.
Results of Operations
General economic conditions – California
Our mortgage loans are secured by California real estate, primarily through first and second deeds of trust. Our loan investment activity and the value of the real estate securing our loans is impacted significantly by economic activity and employment conditions in the state. Wells Fargo’s Economics Group periodically provides timely, relevant information and analysis in its commentary and reports regarding California’s employment and economic conditions. Highlights from a recently issued report from Wells Fargo Securities Economic Group is presented below.
In the publication “California Sees Solid Job Growth in March” dated April 19, 2019:
25
“California’s latest employment data show considerable improvement. Employers added 24,500 new jobs in March, following an increase of 20,900 jobs the prior month. February’s gain was revised up from an initially reported gain of just 14,600 jobs. With the latest gain, payrolls have risen by an average of 17,100 jobs per month through the first three months of the year, or a 1.1% annual rate, which is well behind the 23,200 jobs per month or 1.6% pace in 2018. California’s unemployment rate has also risen to 4.3%, after hitting a low of 4.1% in July and remaining there for six months.”
“The moderation in nonfarm payroll growth has mostly been confined to a handful of industries. Construction employment has declined slightly during the first three months of this year, although employment bounced back solidly in March. The wildfires that hit late last year may have led to a pause in building in parts of the state, and unusually wet weather earlier this year may have also restrained building activity. Wholesale trade and the trucking and warehousing industries are another weak spot. By contrast, employment remains strong in the tech sector, where hiring has actually gained momentum since the start of this year.
“The split between the performance of California’s tech sector and the trade sector is playing out in the geography of job gains. Areas most closely tied to the tech sector are accounting for a growing proportion of California’s job gains, while those more closely tied to trade are languishing. The San Francisco Bay Area has accounted for 60.6% of the state’s jobs so far this year, up from 26.9% in 2018. Hiring has also held up well in San Diego and Western Los Angeles, which are home to bustling tech sectors focusing on communications and digital entertainment.”
“The L.A. metro division lost 1,300 jobs in March, marking the second decline in the past three months. Anaheim added just 800 jobs in March following a loss of 400 jobs the prior month, which was the fourth drop in the past seven months. The Inland Empire added 2,200 jobs in March, ending a string of four consecutive drops that had wiped out 5,900 jobs. Employment in the Ventura County and Thousand Oaks area rose by just 200 jobs in March, following like-sized drops in both January and February. In all, greater Los Angeles added just 1,900 jobs in March and 2,000 jobs so far this year. By contrast, Southern California added 99,000 jobs in 2018, or 8,250 a month. As we noted last month, the soft patch in job growth in Southern California coincides with the slowdown in international trade. Container volume through the Port of Los Angeles and Port of Long Beach has slowed over the past year, particularly in the last few months. The culprit is likely the continued uncertainty surround trade negotiations with China and the tariffs on imported goods and retaliatory tariffs on U.S. exports. Foreign direct investment has also slowed somewhat, which has weighed on housing. Southern California’s technology and entertainment sectors are still going strong, however, which is bolstering activity in downtown and western LA.”
26
The table below shows key performance indicators at and for the three months ended March 31.
|
|
2019 |
|
|
2018 |
|
|
||
Secured loans – end of period balance |
|
$ |
66,416,481 |
|
|
|
57,865,391 |
|
|
Secured loans – average daily balance |
|
$ |
62,209,000 |
|
|
|
55,758,000 |
|
|
Portfolio interest rate(1) |
|
|
8.7 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, gross |
|
$ |
1,360,992 |
|
|
|
1,177,732 |
|
|
Portfolio interest rate(1) |
|
|
8.7 |
% |
|
|
8.5 |
% |
|
Effective yield rate(2) |
|
|
8.8 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Amortization of loan administrative fees, net(7) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans, net |
|
$ |
1,360,992 |
|
|
|
1,177,732 |
|
|
Percent of average daily balance(2) |
|
|
8.8 |
% |
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
$ |
— |
|
|
|
— |
|
|
Percent of average daily balance(2) |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total operations expense(7) |
|
$ |
189,319 |
|
|
|
39,954 |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income(7) |
|
$ |
1,188,658 |
|
|
|
1,142,489 |
|
|
Percent of average members’ capital(3)(4) |
|
|
5.9 |
% |
|
|
6.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
Member Distributions, net |
|
$ |
1,111,007 |
|
|
|
1,090,347 |
|
|
Percent of average members’ capital(3)(5) |
|
|
5.6 |
% |
|
|
6.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
Members’ capital, gross – end of period balance |
|
$ |
79,965,409 |
|
|
|
69,816,123 |
|
|
Members’ capital, gross – average daily balance |
|
$ |
79,874,000 |
|
|
|
68,468,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Member Redemptions(6) |
|
$ |
1,092,396 |
|
|
$ |
403,400 |
|
|
|
(1) |
Stated note interest rate, weighted daily average (annualized) |
|
(2) |
Percent of secured loans – average daily balance (annualized) |
|
(3) |
Percent of members’ capital, gross – average daily balance (annualized) |
|
(4) |
Percent based on the net income available to members (excluding 1% allocated to manager) |
|
(5) |
Members Distributions is net of O&O costs allocated to members’ accounts during the year |
|
(6) |
Scheduled member redemptions as of March 31, 2019 were $1,039,402 payable in 2019. Scheduled member redemptions as of March 31, 2018 were $393,124. |
(7) See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2.
Secured loans
The secured loan balance at March 31, 2019 of $66,416,481 was an increase of approximately 14.9% ($8.6 million) over the March 31, 2018 secured loan balance of $57,865,391. The increase in the secured loan balance is consistent with the increased members’ capital of approximately 14.5% ($10.1 million). New loans originated were approximately $16.3 million for the three months ended March 31, 2019. Members’ capital increased approximately $767,000 for the three months ended March 31, 2019. Secured loans as a percent of members’ capital (based on average balances) was 77.9% and 81.4% for three months ended March 31, 2019 and 2018, respectively.
27
We have sought to exercise strong discipline in underwriting loan applications and lending against collateral at amounts that create a mortgage portfolio that has substantial protective equity (i.e., safety margins to outstanding debt) as indicated by the overall conservative weighted average loan-to-value ratio (LTV) which at March 31, 2019 was approximately 55.2%. Thus, per the appraisal-based valuations at the time of loan inception, borrowers have, in the aggregate, equity of 44.8% in the property, and we as lenders have lent in the aggregate 55.2% (including other senior liens on the property) against the properties we hold as collateral for the repayment of our loans.
See Note 4 (Loans) to the financial statements included in Part I, Item 1 of this report for detailed presentations on the secured loan portfolio and on the allowance for loan losses, which presentations are incorporated by this reference into this Item 2.
Performance overview
Revenue from the interest on loans, net for the three months ended March 31, 2019 increased by approximately $183,000, over the same period in 2018, due to the increased average secured loan balance, approximately $26,000 in default interest collected on three loans that had been designated impaired, and an increase in the average portfolio interest rate (8.7% in 2019 and 8.5% in 2018). Operations expense for the three months ended March 31, 2019 increased by approximately $149,000, over the same period in 2018 due primarily to the termination of financial support from RMC of our direct operating expenses (e.g. professional services and other direct operating expenses) beginning April 1, 2018, and an increase in mortgage servicing fees due to an increased loan portfolio. The annualized net distribution rate for the three months ended March 31, 2019, was 5.5%. In all periods presented, the manager, at its sole discretion, provided financial support that increased net income and the return to investors.
For the three months ended March 31, 2019 and 2018 financial support from RMC totaled approximately $462,000 and $605,000, respectively. Asset management fees and other fees which could have been collected by RMC increased during the three months ended March 31, 219 compared to the same period in 2018 due to increased loan and capital balances. As a result, the amount of support in the form of waived fees for loan administrative and asset management fees increased during the same period as RMC, in its sole discretion, elected to waive collection of such fees. Costs from RMC decreased for the three months ended March 31, 2019 compared to the same period in 2018, due primarily to a decrease in allocable payroll and consulting fee expenses incurred by RMC during the three month period ended March 31, 2019 as compared to the same period in 2018. Beginning April 1, 2018, RMI IX paid all direct operating expenses (i.e., professional services and other direct operating expenses) resulting in an increase in professional services and other expense in 2019. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s professional services and other direct expenses. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion. In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. In April 2018, the company commenced paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) beginning in the third quarter of 2019, and to similarly commence collection of the cost reimbursements from RMC in 2020. See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item I of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2.
28
Analysis and Discussion of income from operations 2019 v. 2018
Significant changes to revenue and expenses during the three months ended March 31, 2019 and 2018 are summarized in the following table.
|
|
Interest on loans, net |
|
|
Provision For Loan Losses |
|
|
Operations Expense |
|
|
Net Income |
|
||||
For the three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
$ |
1,360,992 |
|
|
|
— |
|
|
|
189,319 |
|
|
|
1,188,658 |
|
March 31, 2018 |
|
|
1,177,732 |
|
|
|
— |
|
|
|
39,954 |
|
|
|
1,142,489 |
|
Change |
|
$ |
183,260 |
|
|
|
— |
|
|
|
149,365 |
|
|
|
46,169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
14,738 |
|
|
|
— |
|
|
|
3,462 |
|
|
|
11,276 |
|
Loan portfolio effective yield rate |
|
|
168,522 |
|
|
|
— |
|
|
|
— |
|
|
|
168,522 |
|
Cost allocated from RMC |
|
|
— |
|
|
|
— |
|
|
|
(4,493 |
) |
|
|
4,493 |
|
Late fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,274 |
|
Capital balance increase |
|
|
— |
|
|
|
— |
|
|
|
18,725 |
|
|
|
(18,725 |
) |
RMC fees/costs waived |
|
|
— |
|
|
|
— |
|
|
|
(14,232 |
) |
|
|
14,232 |
|
Reduced support from RMC |
|
|
— |
|
|
|
— |
|
|
|
157,399 |
|
|
|
(157,399 |
) |
Other |
|
|
— |
|
|
|
— |
|
|
|
(11,496 |
) |
|
|
11,496 |
|
Change |
|
$ |
183,260 |
|
|
|
— |
|
|
|
149,365 |
|
|
|
46,169 |
|
The table above displays only significant changes to net income for the period, and is not intended to cross foot.
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
Interest on Loans, net
Interest on loans increased due to growth of the secured loan portfolio, approximately $26,000 in default interest collected on three loans that had been designated impaired, and an increase in the average portfolio interest rate (8.7% in 2019 and 8.5% in 2018). The portfolio has strong payment history with two loans (representing 3.4% of the aggregate principal balance of the company’s loan portfolio) currently designated as non-accrual at March 31, 2019. The Secured loans – average daily balance at March 31, 2019 increased approximately $6.5 million, or approximately 11.6% over the average daily balance at March 31, 2018.
Provision for loan losses
At March 31, 2019 and 2018, the company had not recorded an allowance for loan losses as all loans had protective equity such that at March 31, 2019 and 2018, collection was deemed probable for amounts owed by the borrowers.
Total principal amounts past due more than 90 days at March 31, 2019 and 2018 were $2,237,176 and $139,162 (representing 3.4% and 0.2% of the aggregate principal balance of the company’s loan portfolio), respectively.
Operations expense
Operations expense as a percent of interest on loans, net was approximately 13.9% and 3.4% for the three months ended March 31, 2019 and 2018, respectively. The increase in operations expense was due primarily to RMC ceasing to absorb our direct operating expenses (e.g. professional service expense and other direct operating expenses), beginning April 1, 2018, and an increase in mortgage servicing fees due to an increase average daily balance in the secured loan portfolio.
29
Significant changes to operations expense during the three months ended March 31, 2019 and 2018, are summarized in the following table.
|
|
Mortgage Servicing Fees |
|
|
Asset Management Fees, net |
|
|
Costs From RMC, net |
|
|
Professional Services, net |
|
|
Other |
|
|
Total |
|
||||||
For three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019 |
|
$ |
38,646 |
|
|
|
— |
|
|
|
— |
|
|
|
147,317 |
|
|
|
3,356 |
|
|
|
189,319 |
|
March 31, 2018 |
|
|
35,184 |
|
|
|
— |
|
|
|
— |
|
|
|
4,685 |
|
|
|
85 |
|
|
|
39,954 |
|
Change |
|
$ |
3,462 |
|
|
|
— |
|
|
|
— |
|
|
|
142,632 |
|
|
|
3,271 |
|
|
|
149,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan balance increase |
|
$ |
3,462 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,462 |
|
Capital balance increase |
|
|
— |
|
|
|
14,232 |
|
|
|
4,493 |
|
|
|
— |
|
|
|
— |
|
|
|
18,725 |
|
Cost allocated from RMC |
|
|
— |
|
|
|
— |
|
|
|
(4,493 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,493 |
) |
RMC fees/costs waived |
|
|
— |
|
|
|
(14,232 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,232 |
) |
Reduced support from RMC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
143,152 |
|
|
|
14,247 |
|
|
|
157,399 |
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(520 |
) |
|
|
(10,976 |
) |
|
|
(11,496 |
) |
Change |
|
$ |
3,462 |
|
|
|
— |
|
|
|
— |
|
|
|
142,632 |
|
|
|
3,271 |
|
|
|
149,365 |
|
See Note 3 (Manager and Other Related Parties) to the financial statements included in Part I, Item 1 of this report for a detailed discussion on fees waived and costs absorbed by the manager, which presentation is incorporated by this reference into this Item 2. See “Performance Overview” for a discussion of RMC’s plans to reduce and eventually eliminate fee waivers and cost absorptions.
Mortgage Servicing fees
The increase in mortgage servicing fees of $3,462 was consistent with the increase in the average daily secured loan portfolio to $62,209,000, noted above in Key Performance Indicators, at the annual rate of 0.25%.
Asset management fee
The total amount of asset management fees chargeable were $119,187 and $104,955 for the three months ended March 31, 2019 and 2018, respectively. The increase in asset management fees chargeable was due to the increase in total capital under management. Total members capital at March 31, 2019 and 2018 was approximately $79,965,000 and $69,816,000, respectively. Of the total amount chargeable, RMC, at its sole discretion, waived all asset management fees for the three months ended March 31, 2019 and 2018, respectively. The asset management fee is chargeable in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. This amount will be recomputed annually after the second full year of operations by subtracting from the then fair value of the company’s loans plus working capital reserves, an amount equal to the outstanding debt.
Costs from RMC, net
Cost incurred by RMC, for which reimbursement could have been requested were $179,656 and $184,149 for the three months ended March 31, 2019 and 2018, respectively. RMC, at its sole discretion, waived all reimbursements for the three months ended March 31, 2019 and 2018. The decrease in costs from RMC, net chargeable was due primarily to a decrease in allocable expenses incurred by RMC, specifically relating to payroll and consultant expenses. RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g. postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g. RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g. by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds.
Professional Services
Professional services consist primarily of legal, audit and tax-compliance expenses. Professional service expense incurred during the three months ended March 31, 2019 and 2018 was $147,317 and $147,837, respectively. Beginning April 1, 2018, RMI IX paid for all professional service expenses directly. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services. During the three months ended March 31, 2018, RMC, in its sole discretion, reimbursed $143,152 of professional services expense.
30
Members' capital, cash flows and liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows by business activity are presented in the following table for the three months ended March 31.
|
|
2019 |
|
|
2018 |
|
||
Members’ capital |
|
|
|
|
|
|
|
|
Contributions by members |
|
$ |
2,120,568 |
|
|
$ |
4,348,762 |
|
Organization and offering costs, net |
|
|
(56,394 |
) |
|
|
(131,500 |
) |
Formation loan, net |
|
|
(140,928 |
) |
|
|
(357,794 |
) |
Distributions and redemptions, net |
|
|
(1,555,007 |
) |
|
|
(895,469 |
) |
Cash – members’ capital, net |
|
|
368,239 |
|
|
|
2,963,999 |
|
Loan principal/advances/interest |
|
|
|
|
|
|
|
|
Principal collected |
|
$ |
11,889,592 |
|
|
$ |
12,739,617 |
|
Loans sold to non-affiliate, net |
|
|
143,000 |
|
|
|
— |
|
Interest received, net |
|
|
1,274,865 |
|
|
|
1,164,191 |
|
Other loan income |
|
|
17,135 |
|
|
|
4,711 |
|
Loan funding & advances, net |
|
|
(16,334,003 |
) |
|
|
(9,949,148 |
) |
Loans transferred from affiliates |
|
|
— |
|
|
|
(5,889,819 |
) |
Cash – loans, net |
|
|
(3,009,411 |
) |
|
|
(1,930,448 |
) |
|
|
|
|
|
|
|
|
|
Operations expense |
|
|
(174,539 |
) |
|
|
(2,453 |
) |
|
|
|
|
|
|
|
|
|
Net change in cash |
|
$ |
(2,815,711 |
) |
|
$ |
1,031,098 |
|
The table below shows the breakout of distributions for the three months ended March 31, 2019 and 2018.
|
|
2019 |
|
|
2018 |
|
||
DRIP |
|
$ |
602,896 |
|
|
$ |
598,278 |
|
Cash |
|
|
508,111 |
|
|
|
492,069 |
|
Total |
|
$ |
1,111,007 |
|
|
$ |
1,090,347 |
|
Percent of members’ capital, electing cash distribution |
|
|
46 |
% |
|
|
45 |
% |
The table below shows the company’s unit redemptions for the three months ended March 31, 2019 and 2018.
|
|
2019 |
|
|
2018 |
|
||
Capital redemptions-without penalty |
|
$ |
367,396 |
|
|
$ |
316,050 |
|
Capital redemptions-subject to penalty |
|
|
725,000 |
|
|
|
87,350 |
|
Total |
|
$ |
1,092,396 |
|
|
$ |
403,400 |
|
Ongoing public offering of units/ SEC Registrations
In June 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continued until April 30, 2019.
As of March 31, 2019, the gross proceeds from sales of units from inception (October, 2009) approximated $87,816,000– $39,407,000 units under previous registration statements and approximately $48,409,000 under the June 2016 registration statement/prospectus. Of the gross proceeds, approximately $9,256,000 were from members under our DRIP. In April 2019, gross proceeds from unit sales approximated $680,000.
The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 terminated as of April 30, 2019.
On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to the members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019.
31
Commencing May 1, 2019, the sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:
|
• |
borrowers’ monthly principal and interest payments; |
|
• |
loan payoffs; |
|
• |
loan sales to unaffiliated 3rd parties and loan transfers by executed assignment to affiliated mortgage funds; |
|
• |
payments from RMC on the outstanding balance of the formation loan; |
|
• |
amounts reinvested by members participating in the DRIP; and, |
|
• |
a line of credit, if obtained. |
The company’s loans generally have shorter maturity terms than typical mortgages. As a result, constraints on the ability of our borrowers to refinance their loans at maturity possibly would have a negative impact on their ability to repay their loans. In the event a borrower is unable to repay at maturity, the company may consider extending the term through a loan modification or foreclosing on the property. A reduction in loan repayments would reduce the company’s cash flows and restrict the company’s ability to invest in new loans and/or, if ongoing for an extended period, provide earnings distributions and redemptions of members’ capital.
Generally, within a broad range, the company’s rates on mortgage loans is not affected by market movements in interest rates. If, as expected, we continue to make and invest in fixed rate loans primarily, and interest rates were to rise, a possible result would be lower prepayments of the company’s loans. This increase in the duration of time loans are on the books may reduce overall liquidity, which itself may reduce the company’s investment into new loans at higher interest rates. Conversely, if interest rates were to decline, we could see a significant increase in borrower prepayments. If we then invest in new loans at lower rates of interest, a lower yield to members may possibly result.
Contractual obligations
At March 31, 2019, scheduled redemptions of members' capital equaled $1,039,402, all of which is scheduled to be paid in 2019.
The company is obligated, per the Operating agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales. As of March 31, 2019, RMC had incurred $3,484,467 of O&O expenses in excess of the 4.5% cap, and which may be reimbursed to RMC contingent upon the proceeds of future unit sales and future O&O expenses incurred by RMC.
At March 31, 2019, the company had no construction or rehabilitation loans outstanding.
The Company has no off-balance sheet arrangements as such arrangements are not permitted by the Operating Agreement.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not included because the company is a smaller reporting company.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The company is externally managed by RMC. The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for us to conduct our business, as we have no employees of our own.
As a limited liability company, we do not have a board of directors, nor, therefore, do we have an audit committee of the board of directors. Thus, there is not conventional independent oversight of the company’s financial reporting process. The manager, however, provides the equivalent functions of a board of directors and of an audit committee for, among other things, the following purposes:
|
• |
Appointment; compensation, and review and oversight of the work of our independent public accountants; and |
|
• |
establishing and maintaining internal controls over our financial reporting. |
RMC, as the manager, carried out an evaluation, with the participation of RMC's President (acting as principal executive officer/principal financial officer) of the effectiveness of the design and operation of the manager's controls and procedures over financial reporting and disclosure (as defined in Rule 13a-15 of the Exchange Act) as of and for the period covered by this report. Based upon that evaluation, RMC's principal executive officer/principal financial officer concluded that the manager's disclosure controls and procedures were effective.
32
Changes to Internal Control Over Financial Reporting
There have not been any changes in internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the manager’s or company’s internal control over financial reporting.
33
ITEM 1. |
Legal Proceedings |
In the normal course of business, the company may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc. to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes or protect or recoup its investment from the real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of March 31, 2019, the company was not involved in any legal proceedings other than those that would be considered part of the normal course of business.
ITEM 1A. |
Risk Factors |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Securities
There were no sales of securities by the company which were not registered under the Securities Act of 1933.
Use of Proceeds from Registered Securities
In June 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continued until April 30, 2019.
As of March 31, 2019, the gross proceeds from sales of units from inception (October, 2009) approximated $87,816,000– $39,407,000 units under previous registration statements and approximately $48,409,000 under the June 2016 registration statement/prospectus. Of the gross proceeds, approximately $9,256,000 were from members under our DRIP. In April 2019, gross proceeds from unit sales approximated $680,000.
The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 terminated as of April 30, 2019.
On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to the members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019. DRIP units and the right to participate in the DRIP are available only to members of record or their successors as of April 30, 2019.
The company used the gross proceeds from the sale of the units from inception (October 2009) through March 31, 2019 to:
|
• |
make additional loans; |
|
• |
fund working capital reserves; |
|
• |
pay RMC up to 4.5% of proceeds from sale of units for organization and offering expenses; and |
|
• |
fund a formation loan to RMC at up to 7% of proceeds from sale of units |
The units have been registered pursuant to Section 12(g) of the Exchange Act. Such registration of the units, along with the satisfaction of certain other requirements under ERISA, enables the units to qualify as “publicly-offered securities” for purposes of ERISA and regulations issued thereunder. By satisfying those requirements, the underlying assets of the company should not be considered assets of a “benefit plan investor” (as defined under ERISA) by virtue of the investment by such benefit plan investor in the units.
Cash generated from loan payoffs and borrower payments of principal and interest is used for operating expenses, reimbursements to RMC of O&O expenses, and unit redemptions. The cash flow, if any, in excess of these uses is reinvested in new loans.
For a description of the formation loan advances made by RMI IX to RMC from offering proceeds to pay broker dealer sales commissions, see Note 3 (Manager and other Related Parties) to the financial statements included in Part I, Item 1 of this report, which information is incorporated by reference in this Item 2.
34
Redemptions are made once a quarter, on the last business day of the quarter. Redemptions for the three months ended March 31, 2019 were $1,092,396. The unit redemption program is ongoing and available to members beginning one year after the purchase of the units. The maximum number of units that may be redeemed in any year and the maximum amount of redemption available in any period to members are subject to certain limitations.
ITEM 3. |
Defaults Upon Senior Securities |
Not Applicable.
ITEM 4. |
Mine Safety Disclosures |
Not Applicable.
ITEM 5. |
Other Information |
None.
ITEM 6. |
Exhibits |
Exhibit No. |
|
Description of Exhibits |
|
|
|
31.1 |
|
Certification of Manager pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1 |
|
Certification of Manager pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
35
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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REDWOOD MORTGAGE INVESTORS IX, LLC |
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(Registrant) |
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Date: May 10, 2019 |
By: |
Redwood Mortgage Corp., Manager |
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By: |
/s/ Michael R. Burwell |
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Name: |
Michael R. Burwell |
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Title: |
President, Secretary and Treasurer |
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(On behalf of the registrant, and in the capacity of principal financial officer) |
36
Exhibit 31.1
PRESIDENT’S CERTIFICATION
I, Michael R. Burwell, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Redwood Mortgage Investors IX, LLC, a Delaware limited liability company (the “Registrant”); |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
4. |
The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15-d-15(f)) for the Registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
5. |
The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
/s/ Michael R. Burwell |
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Michael R. Burwell, President, |
(principal executive officer and principal financial officer) |
Redwood Mortgage Corp., |
Manager |
May 10, 2019 |
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Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Redwood Mortgage Investors IX, LLC (the “company”) on Form 10-Q for the period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), pursuant to 18 U.S.C. (S) 1350, as adopted pursuant to (S) 906 of the Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, certify that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company at the dates and for the periods indicated. |
A signed original of this written statement required by Section 906 has been provided to Redwood Mortgage Investors IX, LLC and will be retained by Redwood Mortgage Investors IX, LLC and furnished to the Securities and Exchange Commission or its staff upon request.
/s/ Michael R. Burwell |
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Michael R. Burwell, President, |
(principal executive officer and principal financial officer) |
Redwood Mortgage Corp., |
Manager |
May 10, 2019 |
Document and Entity Information |
3 Months Ended |
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Mar. 31, 2019
shares
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Document And Entity Information [Abstract] | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Mar. 31, 2019 |
Document Fiscal Year Focus | 2019 |
Document Fiscal Period Focus | Q1 |
Trading Symbol | CK0001448038 |
Entity Registrant Name | Redwood Mortgage Investors IX |
Entity Central Index Key | 0001448038 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Non-accelerated Filer |
Entity Small Business | true |
Entity Emerging Growth Company | false |
Entity Common Stock, Shares Outstanding | 0 |
Balance Sheets - USD ($) |
Mar. 31, 2019 |
Dec. 31, 2018 |
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ASSETS | ||
Cash and cash equivalents | $ 7,859,242 | $ 10,674,953 |
Loans | ||
Principal | 66,416,481 | 62,115,713 |
Advances | 23,395 | 21,041 |
Accrued interest | 558,382 | 473,966 |
Loan balances secured by deeds of trust | 66,998,258 | 62,610,720 |
Total assets | 74,857,500 | 73,285,673 |
LIABILITIES, INVESTORS IN APPLICANT STATUS, AND MEMBERS’ CAPITAL | ||
Liabilities - Accounts payable and accrued liabilities | 24,284 | 9,321 |
Commitments and contingencies (Note 5) | ||
Investors in applicant status | 1,499,263 | 651,500 |
Members’ capital, net | 77,628,139 | 76,804,195 |
Receivable from manager (formation loan) | (4,294,186) | (4,179,343) |
Members’ capital, net, less formation loan | 73,333,953 | 72,624,852 |
Total liabilities, investors in applicant status and members’ capital | $ 74,857,500 | $ 73,285,673 |
Statements of Income (Unaudited) - USD ($) |
3 Months Ended | |
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Mar. 31, 2019 |
Mar. 31, 2018 |
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Revenues, net | ||
Interest income | $ 1,360,992 | $ 1,177,732 |
Late fees | 16,985 | 4,711 |
Total revenues | 1,377,977 | 1,182,443 |
Operations expense | ||
Mortgage servicing fees | 38,646 | 35,184 |
Professional services, net (Note 3) | 147,317 | 4,685 |
Other | 3,356 | 85 |
Total operations expense | 189,319 | 39,954 |
Net income | 1,188,658 | 1,142,489 |
Members (99%) | 1,176,771 | 1,131,064 |
Manager (1%) | $ 11,887 | $ 11,425 |
Statements of Income (Parenthetical) (Unaudited) |
3 Months Ended | |
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Mar. 31, 2019 |
Mar. 31, 2018 |
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Managers investment | 1.00% | 1.00% |
Redwood Mortgage Investors IX [Member] | ||
Members investment | 99.00% | 99.00% |
Statements of Cash Flows (Unaudited) - USD ($) |
3 Months Ended | |
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Mar. 31, 2019 |
Mar. 31, 2018 |
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Operations | ||
Interest received | $ 1,274,865 | $ 1,161,061 |
Other loan income | 17,135 | 4,711 |
Loan administrative fee reimbursed | 3,130 | |
Operations expense | (174,539) | (2,453) |
Total cash provided by operations | 1,117,461 | 1,166,449 |
Investing – loan principal/advances | ||
Principal collected on loans | 11,889,592 | 12,739,617 |
Loans originated | (16,327,000) | (9,946,500) |
Loans sold to non-affiliate, net | 143,000 | |
Loans transferred from affiliates | (5,889,819) | |
Advances made on loans | (7,003) | (2,648) |
Total cash used in investing | (4,301,411) | (3,099,350) |
Contributions by members, net | ||
Organization and offering expenses paid, net | (56,394) | (131,500) |
Formation loan funding | (140,928) | (357,794) |
Total cash provided by members, net | 1,923,246 | 3,859,468 |
Distributions to members | ||
Distributions to Member | (1,555,007) | (895,469) |
Total cash provided by financing | 368,239 | 2,963,999 |
Net (decrease) increase in cash | (2,815,711) | 1,031,098 |
Cash, beginning of period | 10,674,953 | 8,509,852 |
Cash, March 31, | 7,859,242 | 9,540,950 |
Net income | 1,188,658 | 1,142,489 |
Change in operating assets and liabilities | ||
Accrued interest | (86,127) | (16,672) |
Loan administrative fees reimbursed | 3,130 | |
Accounts payable and accrued liabilities | 14,930 | 35,754 |
Other | 1,748 | |
Total adjustments | (71,197) | 23,960 |
Total cash provided by operations | 1,117,461 | 1,166,449 |
Members Equity Contributions [Member] | ||
Contributions by members, net | ||
Contributions by members/manager | 2,120,568 | 4,348,762 |
Earnings Distributed To Members [Member] | ||
Distributions to members | ||
Distributions to Member | (508,111) | (492,069) |
Member's Redemptions [Member] | ||
Distributions to members | ||
Distributions to Member | $ (1,046,896) | $ (403,400) |
Statements of Cash Flows (Parenthetical) (Unaudited) |
3 Months Ended |
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Mar. 31, 2019
USD ($)
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Statement Of Cash Flows [Abstract] | |
Non cash financing activity in early withdrawal penalties | $ 45,500 |
Organization and General |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and General |
NOTE 1 – ORGANIZATION AND GENERAL In the opinion of the Redwood Mortgage Corp. (RMC or the manager), the accompanying unaudited financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements included in the company’s Form 10-K for the fiscal year December 31, 2018 filed with the U.S. Securities and Exchange Commission (SEC). The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the operations results to be expected for the full year. Redwood Mortgage Investors IX, LLC (RMI IX or the company) is a Delaware limited liability company formed in October 2008 to engage in business as a mortgage lender and investor by making and holding-for-investment mortgage loans secured by California real estate, primarily through first and second deeds of trust. The company is externally managed by Redwood Mortgage Corp (“RMC” or “the manager”). The manager is solely responsible for managing the business and affairs of the company, subject to the voting rights of the members on specified matters. The manager acting alone has the power and authority to act for and bind the company. RMC provides the personnel and services necessary for the company to conduct its business as the company has no employees of its own. The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. The mortgage loans the company funds and/or invests in are arranged and generally are serviced by RMC. The rights, duties and powers of the members and manager of the company are governed by the Ninth Amended and Restated Limited Liability Company Operating Agreement of RMI IX (the “Operating Agreement”), the Delaware Limited Liability Company Act and the California Revised Uniform Limited Liability Company Act. The following is a summary of certain provisions of the Operating Agreement and is qualified in its entirety by the terms of the Operating Agreement itself. Members should refer to the company’s Operating Agreement for complete disclosure of its provisions. The company’s primary investment objectives are to:
The ongoing sources of funds for loans are the proceeds (net of redemption of members’ capital and operating expenses) from:
Net income and losses are allocated monthly among the members according to their respective capital accounts after one percent (1%) of the profits and losses are allocated to the manager. RMC’s allocated one percent (1%) of the profits and losses was $11,887 and $11,425 for the three months ended March 31, 2019 and 2018, respectively. The monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. Investors should not expect the company to provide tax benefits of the type commonly associated with limited liability company tax shelter investments. Federal and state income taxes are the obligation of the members, if and when taxes apply, other than the annual California franchise tax and the California LLC cash receipts taxes paid by the company. Members representing a majority of the outstanding units may, without the concurrence of the managers, vote to: (i) dissolve the company, (ii) amend the Operating Agreement, subject to certain limitations, (iii) approve or disapprove the sale of all or substantially all of the assets of the company or (iv) remove or replace one or all of the managers. Where there is only one manager, a majority in interest of the members is required to elect a new manager to continue the company business after a manager ceases to be a manager due to its withdrawal. Distribution policy Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. Cash available for distribution means cash flow from operations (excluding repayments for loan principal and other capital transaction proceeds) less amounts set aside for creation or restoration of reserves. The manager may withhold from cash available for distribution otherwise distributable to the members with respect to any period the respective amounts of O&O expenses allocated to the members’ accounts for the applicable period pursuant to the company’s reimbursement to RMC and allocation to members’ accounts of organization and offering expenses policy. The amount otherwise distributable, less the respective amounts of organization and offering expenses allocated to members, is the net distribution. Per the terms of the company’s Operating Agreement, cash available for distribution allocated to the members is allocated among the members in proportion to their percentage interests (except with respect to differences in the amounts of organization and offering expenses allocated to the respective members during the applicable period) and in proportion to the number of days during the applicable month that they owned such percentage interests. See Note 3 (Manager and Other Related Parties) to the financial statements for a detailed discussion on the allocation of O&O to members’ accounts. Cash available for distributions allocable to members, other than those participating in the distribution reinvestment plan (DRIP) and the manager, is distributed at the end of each calendar month. Cash available for distribution allocable to members who participate in the DRIP is used to purchase additional units at the end of each calendar month. The manager’s allocable share of cash available for distribution is also distributed not more frequently than with cash distributions to members. To determine the amount of cash to be distributed in any specific month, the company relies in part on its forecast of full year profits, which takes into account the difference between the forecasted and actual results in the year and the requirement to maintain a cash reserve. At March 31, 2019 year to date earnings (estimated) allocated to members’ accounts was $1,191,815 and net income available to members (actual) was $1,176,771. The cumulative difference between earnings allocated to members’ account and net income available to members of $39,497 is expected to be offset by future earning in excess of net distributions in 2019. The company’s net income, cash available for distribution, and net-distribution rate fluctuates depending on:
Financial Support from RMC Since commencement of operations in 2009, RMC, at its sole discretion, provided significant financial support to the company which increased the net income, cash available for distribution, and the net-distribution rate, by:
Such fee and cost-reimbursement waivers and the absorption of the company’s expenses by RMC were not made for the purpose of providing the company with sufficient funds to satisfy any required level of distributions, as the Operating Agreement has no such required level of distributions, nor to meet withdrawal requests. Any decision to waive fees or cost-reimbursements and/or to absorb direct expenses, and the amount (if any) to be waived or absorbed, is made by RMC in its sole discretion. This assistance has increased the company’s financial performance and resulted in an annual 6.5% net distribution rate since inception (6.95% before O&O expense allocation of 0.45% when applicable) for periods prior to February 28, 2018. In March 2018, RMC communicated to the members’ planned and ongoing reductions in financial support from RMC and that net income, cash available for distribution and the net distribution rate were expected to decrease correspondingly. In April 2018, the company commenced paying all of its direct expenses for professional-service fees (legal and audit/tax compliance) and other operating expenses (postage, printing etc.). RMC plans to phase in the collection of the asset management fee of 75 basis points (0.75%) beginning in the third quarter of 2019, and to similarly commence collection of the cost reimbursements from RMC in 2020. Distribution reinvestment plan (DRIP) Members may elect to participate in the DRIP with written notice to the manager provided that the registration statement for the DRIP is effective at the time. Liquidity and unit redemption program There are substantial restrictions on transferability of units, and there is no established public trading and/or secondary market for the units and none is expected to develop. In order to provide liquidity to members, the company’s Operating Agreement includes a unit redemption program, whereby beginning one year from the date of purchase of the units, a member may redeem all or part of their units, subject to certain limitations. The price paid for redeemed units is based on the lesser of the purchase price paid by the redeeming member or the member’s capital account balance as of the date of each redemption payment. Redemption value is calculated based on the period from date of purchase as follows:
The company redeems units quarterly, subject to certain limitations as provided for in the Operating Agreement. The maximum number of units which may be redeemed per quarter per individual member shall not exceed the greater of (i) 100,000 units, or (ii) 25% of the member’s total outstanding units. For redemption requests requiring more than one quarter to fully redeem, the percentage discount amount that, if any, applies when the redemption payments begin continues to apply throughout the redemption period and applies to all units covered by such redemption request regardless of when the final redemption payment is made. The company has not established a cash reserve from which to fund redemptions. The company’s capacity to redeem units upon request is limited by the availability of cash and the company’s cash flow. As provided in the Operating Agreement, the company will not, in any calendar year, redeem more than five percent (5%) of the weighted average number of units outstanding during the twelve-month period immediately prior to the date of the redemption. In the event unit withdrawal requests exceed 5% in any calendar year, units will be redeemed in the priority provided in the Operating Agreement. Contributed capital The manager is required to contribute to capital one tenth of one percent (0.1%) of the aggregate capital accounts of the members. Manager’s interest If a manager is removed, withdrawn or terminated, the company will pay to the manager all amounts then accrued and owing to the manager. Additionally, the company will terminate the manager’s interest in the company’s profits, losses, distributions and capital by payment of an amount in cash equal to the then-present fair value of such interest. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered. Unit sales In June 2016, the company’s Registration Statement on Form S-11 filed with the SEC (SEC File No. 333-208315) to offer up to 120,000,000 units ($120,000,000) to the public and 20,000,000 units ($20,000,000) to its members pursuant to the DRIP became effective and continued until April 30, 2019.
As of March 31, 2019, the gross proceeds from sales of units from inception (October, 2009) approximated $87,816,000– $39,407,000 units under previous registration statements and approximately $48,409,000 under the June 2016 registration statement/prospectus. Of the gross proceeds, approximately $9,256,000 were from members under our DRIP. In April 2019, gross proceeds from sales of units approximated $680,000. The company used the gross proceeds from the sale of the units to:
The June 2016 registration statement expires June 6, 2019, and unit sales to other than members of record or their successors as of April 30, 2019 terminated as of April 30, 2019. On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019. Unit sales – commissions paid to broker-dealers/formation loan Commissions for unit sales were previously paid to broker-dealers (B/D sales commissions) by RMC and were not paid directly by the company out of offering proceeds. Instead, the company advanced to RMC, from offering proceeds, amounts sufficient to pay the B/D sales commissions and premiums paid to investors up to seven percent (7%) of offering proceeds. The receivable arising from the advances is unsecured, and non-interest bearing and is referred to as the “formation loan.” As of March 31, 2019, the company had made such advances of $5,580,839, of which $4,294,186 remains outstanding on the formation loan. Advances under the formation loan terminated upon the termination of the primary offering of units on April 30, 2019. RMC is required to make annual payments on the formation loan in the amount of one tenth of the principal balance outstanding at December 31 of the prior year. Term of the company The term of the company will continue until 2028, unless sooner terminated as provided in the Operating Agreement.
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Summary of Significant Accounting Policies |
3 Months Ended | |||||||||
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Accounting Policies [Abstract] | ||||||||||
Summary of Significant Accounting Policies |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Management estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates. Fair value estimates GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace; and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g., as-is, when-completed or for land when-entitled); and determining the unit of value (e.g., as a series of individual unit sales or as a bulk disposition). Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types. Cash and cash equivalents The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At March 31, 2019, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating. Loans and interest income Performing loans are carried at amortized costs which is generally equal to the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower. For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Late fees are recognized in the period received. The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal. If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal. In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired. From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. Allowance for loan losses Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate. For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value. Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible. At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses. Real estate owned (REO) Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing. Recently issued accounting pronouncements -Accounting and Financial reporting for Expected Credit Losses The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020. RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral. The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position. |
Manager and Other Related Parties |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Manager and Other Related Parties |
NOTE 3 – MANAGER AND OTHER RELATED PARTIES RMC is entitled to 1% of the profits and losses of the company. See Note 1 (Organization and General). Manager financial support (RMC support) RMC support provided, as detailed below, totaled approximately $462,000 and $605,000 for the three months ended March 31, 2019 and 2018, respectively. Loan administrative fees, mortgage servicing fees, and asset management fees which could have been collected increased during the three months ended March 31, 2019 compared to the same period in 2018 due to increased loan and capital balances. As a result, the amount of support in the form of waived fees for loan administrative and asset management fees increased during the same period as RMC, in its sole discretion, elected to waive collection of such fees. Costs from RMC decreased for the three months ended March 31, 2019 compared to the same period in 2018, due to a decrease in allocable payroll and consulting fee expenses incurred by RMC during the three months period ended March 31, 2019 as compared to the same period in 2018. Beginning April 1, 2018, RMI IX paid all direct operating expenses (i.e., professional services and other direct operating expenses) resulting in an increase in professional services and other expense in 2019. Prior to April 1, 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s professional services and other direct expenses. The loan and capital balances are used as a base for the calculation for fees charged by RMC, and increases or decreases in the balances will have a similar effect on the total amount chargeable by RMC. The decision to waive all or a portion of these fees is made by RMC, in its sole discretion.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2019 are presented in the following table.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2018 are presented in the following table.
Loan administrative fees RMC is entitled to receive a loan administrative fee in an amount up to one percent (1%) of the principal amount of each new loan originated or acquired on the company’s behalf by RMC for services rendered in connection with the selection and underwriting of potential loans. Such fees would be payable by the company upon the closing or acquisition of each loan. Since August 2015, RMC, at its sole discretion, waived and continues to waive, the loan administrative fees. Mortgage servicing fees RMC earns mortgage servicing fees from the company of up to one-quarter of one percent (0.25%) annually of the unpaid principal balance of the loan portfolio or such lesser amount as is reasonable and customary in the geographic area where the property securing the mortgage is located. RMC is entitled to receive these fees regardless of whether specific mortgage payments are collected. The mortgage servicing fees are accrued monthly on all loans. Remittance to RMC is made monthly unless the loan has been assigned a specific loss reserve, at which point remittance is deferred until the specific loss reserve is no longer required, or the property has been acquired by the company. Asset management fees RMC is entitled to receive a monthly asset management fee for managing the company’s portfolio and operations in an amount up to three-quarters of one percent (0.75%) annually of the portion of the capital originally committed to investment in mortgages, not including leverage, and including up to two percent (2%) of working capital reserves. In April 2018, the calculation of the asset management fees was adjusted to conform to the specifically applicable provisions of the Operating Agreement, accordingly the 2018 dollar amounts in the table above have been updated. The previously disclosed asset management fees were $127,844 for the three months ended March 31, 2018. This update had no effect on net income or total operating expenses, as all asset management fees were waived in 2018. Costs from RMC RMC, per the Operating Agreement, may request reimbursement by the company for operations expense incurred on behalf of the company, including without limitation, postage and preparation of reports to members and out-of-pocket general and administration expenses. Certain of these qualifying costs (e.g., postage) can be tracked by RMC as specifically attributable to the company. Other costs (e.g., RMC’s accounting and audit fees, legal fees and expenses, qualifying payroll expenses, occupancy, and insurance premium) are allocated on a pro-rata basis (e.g., by the company’s percentage of total capital of all mortgage funds managed by RMC). Payroll and consulting fees are broken out first based on activity, and then allocated to the company on a pro-rata basis based on percentage of capital to the total capital of all mortgage funds. RMC, at its sole discretion, has elected to waive reimbursement for operating expenses in the quarters ended March 31, 2019 and 2018. Professional Services
Professional services consist primarily of legal, regulatory (including SEC/FINRA compliance) and audit and tax compliance expenses. Prior to April 2018, RMC, at its sole discretion, had elected to absorb some or all of RMI IX’s expenses for professional services (and other operating expenses directly incurred by the company). Commissions and fees are paid by the borrowers to RMC. Brokerage commissions, loan originations
For fees in connection with the review, selection, evaluation, negotiation and extension of loans, RMC may collect a loan brokerage commission that is expected to range from approximately 1.5% to 5% of the principal amount of each loan made during the year. Total loan brokerage commissions are limited to an amount not to exceed 4% of the total company assets per year. The loan brokerage commissions are paid by the borrowers, and thus, are not an expense of the company. Other fees RMC receives fees for processing, notary, document preparation, credit investigation, reconveyance and other mortgage related fees. The amounts received are customary for comparable services in the geographical area where the property securing the loan is located, payable solely by the borrower and not by the company. In the ordinary course of business, performing loans may be transferred by executed assignment, in-part or in-full, between the affiliated mortgage funds at par. During the three months ended March 31, 2018, Redwood Mortgage Investors VIII, LP, an affiliated mortgage fund, transferred to the company two performing loans in-full at par value, which approximates fair value, of approximately $5,890,000. The company paid cash for the loans and the affiliated mortgage fund has no continuing obligation or involvement on the loans. No loans were transferred during the three months ended March 31, 2019. Formation loan Formation loan transactions are presented in the following table.
The future minimum payments on the formation loan, net of early withdrawal penalties, as of March 31, 2019 are presented in the following table.
RMC is required to make annual payments on the formation loan, net of early withdrawal penalties, of one tenth of the principal balance outstanding at December 31 of the prior year. The formation loan is forgiven if the manager is removed and RMC is no longer receiving payments for services rendered. The primary source of repayment of the formation loan are loan brokerage commissions earned by RMC. The table below presents the company’s unit redemptions for the three months ended March 31, 2019 and 2018.
Reimbursement and allocation of organization and offering expenses The manager is reimbursed for, or the company may pay directly, organization and offering expenses (or O&O expenses) incurred in connection with the organization of the company or offering of the units including, without limitation, attorneys’ fees, accounting fees, printing costs and other selling expenses (other than sales commissions) in a total amount not exceeding 4.5% of the original purchase price of all units (other than DRIP units) sold in all offerings (hereafter, the “maximum O&O expenses”), and the manager pays any O&O expenses in excess of the maximum O&O expenses. For each calendar quarter or portion thereof after December 31, 2015, that a member holds units (other than DRIP units) and for a maximum of forty (40) such quarters, a portion of the O&O expenses borne by the company is allocated to and debited from that member’s capital account in an annual amount equal to 0.45% of the member’s original purchase price for those units, in equal quarterly installments of 0.1125% each commencing with the later of the first calendar quarter of 2016 or the first full calendar quarter after a member’s purchase of units, and continuing through the quarter in which such units are redeemed. If at any time the aggregate O&O expenses actually paid or reimbursed by the company since inception are less than the maximum O&O expenses, the company shall first reimburse the manager for any O&O expenses previously borne by it so long as it does not result in the company bearing more than the maximum O&O expenses, and any savings thereafter remaining shall be equitably allocated among (and serve to reduce any subsequent such cost allocations to) those members who have not yet received forty (40) quarterly allocations of O&O expenses, as determined in the good faith judgment of the manager. Unallocated O&O expenses with respect to a member’s units that remain upon redemption of such units shall be repaid to the company by RMC. Unallocated O&O transactions are summarized in the following table.
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Loans |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loans |
NOTE 4 – LOANS Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of March 31, 2019, 83 of the company’s 85 loans (representing 99% of the aggregate principal of the company’s loan portfolio) have a loan term of five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment penalty provision. As of March 31, 2019, 60 loans outstanding (representing 60% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of principal and interest, typically calculated on a 30-year amortization, with the remaining principal balance due at maturity. The remaining loans provide for monthly payments of interest only, with the principal balance due at maturity. Secured loans unpaid principal balance (principal) Secured loan transactions are summarized in the following table for the three months ended March 31, 2019.
During the three months ended March 31, 2019, the company renewed no loans. See Note 3 (Manager and Other Related Parties) for a description of loans transferred by executed assignments between affiliates. The company originates loans with the intent to hold the loans until maturity. From time to time the company may sell certain loans. Loans are classified as held-for-sale once a decision has been made to sell loans and loans held-for-sale have been identified.
At March 31, 2019 and 2018 the company held no loans classified as held-for-sale.
On March 28, 2019 and March 29, 2019, RMI IX and two separate borrowers executed and notarized loan documents for $200,000 and $1,285,000, respectively, and RMI IX received the corresponding deeds of trust. The loans were funded on April 2, 2019 and April 4, 2019, respectively.
In March 2019, one loan with a principal balance of $136,640, that had been designated as impaired and in non-accrual status, was sold to an unaffiliated third party which specializes in the resolution of such loans. The loan was sold for $143,000, of which $1,711 was recognized as interest income, with $10,791 in foregone interest. Loan characteristics Secured loans had the characteristics presented in the following table.
As of March 31, 2019, the company’s largest loan with principal of $4,000,000 represents 6.0% of outstanding secured loans and 5.3% of company assets. The loan is secured by a multifamily residence located in San Francisco County, bears an interest rate of 8.90% and matures on September 1, 2021. As of March 31, 2019, the company had 2 loans with filed notices of default. As of March 31, 2019, the company had no construction loans outstanding, had no rehabilitation loans outstanding, and had no commitments to fund construction or rehabilitation loans. Borrower payments are deposited into a bank trust account maintained by RMC and are subsequently disbursed to the company after an appropriate holding period, to ensure the funds are collected. At March 31, 2019, the trust account held a balance of $50,839, consisting of borrower payments, all of which was disbursed on or before April 15, 2019. Lien position Secured loans had the lien positions presented in the following table.
Property type Secured loans summarized by property type are presented in the following table.
Distribution of loans within California The distribution of secured loans by counties is presented in the following table.
Scheduled maturities Secured loans are scheduled to mature as presented in the following table as of March 31, 2019.
Two loans with an aggregate principal balance of $446,333 were past maturity at March 31, 2019. The loans were designated as impaired and were 58 and 89 days delinquent, respectively, at March 31, 2019. Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts. Delinquency Secured loans summarized by payment delinquency are presented in the following table.
Loans in non-accrual status
At March 31, 2019, and December 31, 2018 no loans were 90 or more days delinquent and not in non-accrual status. Impaired loans/allowance for loan losses
(5) Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes.
Five and six loans were designated as impaired at March 31, 2019 and at December 31, 2018, respectively. No allowance for loan losses has been recorded as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for all amounts owing.
Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the three months ended March 31, 2019 and the year ended December 31, 2018.
Modifications and troubled debt restructurings No loan payment modifications were made during three months ended March 31, 2019, and no modifications were in effect at March 31, 2019 and December 31, 2018. Fair Value The company does not record its performing loans at fair value on a recurring basis as it is the intention of the company to hold loans until maturity. As in 2018, when certain performing loans were sold, at an immaterial gain (net of expenses), the sale occurred in the same reporting period as when they would have been classified as held-for-sale. Therefore, the recorded amount of the preforming loan (i.e., the loan balance) is deemed to approximate fair value as is the loan balance of loans designated impaired for which a specific reserve has not been recorded (i.e., the loan is well collateralized such that collection of the amount owed is assured, including foregone interest, if any). Loans designated impaired (i.e., that are collateral dependent) are measured at fair value on a non-recurring basis when the net realizable value of the real property collateral is determined to be less than the loan balance. No impaired loans were measured at fair value on a non-recurring basis at and for the periods ended March 31, 2019 or December 31, 2018. Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed quarterly for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. The fair value of loan balances secured by deeds of trust is deemed to approximate the recorded amount (per the financial statements) as our loans:
Secured loans, designated impaired (Level 2) - Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions (Level 2 inputs). The following methods and assumptions are used to determine the fair value of the collateral securing a loan. Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition and year built. If applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of brokers’ opinions of value or appraisals. Multi-family residential – Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities and year built. Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals. Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When adequate sale comps are not available or reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value and/or management will seek additional information in the form of brokers’ opinion of value or appraisals. Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal. Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), brokers’ opinion of value, or appraisal. |
Commitments and Contingencies, Other Than Loan Commitments |
3 Months Ended |
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Mar. 31, 2019 | |
Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies, Other Than Loan Commitments |
NOTE 5 – COMMITMENTS AND CONTINGENCIES, OTHER THAN LOAN COMMITMENTS Commitments At March 31, 2019, scheduled redemptions of members' capital equaled $1,039,402, all of which is scheduled for payment in 2019. The company is obligated, per the Operating Agreement, to reimburse RMC for O&O expenses at 4.5% of gross proceeds of future unit sales (excluding member’s capital from DRIP). Unit sales to other than members of record or their successors terminated April 30, 2019. Legal proceedings In the normal course of its business, the company may become involved in legal proceedings (such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc.) to collect the debt owed under the promissory notes, to enforce the provisions of the deeds of trust, to protect its interest in the real property subject to the deeds of trust and to resolve disputes with borrowers, lenders, lien holders and mechanics. None of these actions, in and of themselves, typically would be of any material financial impact to the net income or balance sheet of the company. As of the date hereof, the company is not involved in any legal proceedings other than those that would be considered part of the normal course of business.
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Subsequent Events |
3 Months Ended |
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Mar. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events |
NOTE 6 – SUBSEQUENT EVENTS On May 9, 2019, a registration statement on Form S-3 was filed with the SEC (SEC File No. 333-231333) to offer up to 15,000,000 units ($15,000,000) to the members pursuant to the DRIP. The May 2019 registration statement became effective on May 9, 2019.
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Summary of Significant Accounting Policies (Policies) |
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Mar. 31, 2019 | ||||||||||
Accounting Policies [Abstract] | ||||||||||
Basis of Presentation |
Basis of presentation The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). |
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Management Estimates |
Management estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the dates of the financial statements and the reported amounts of revenues and expenses during the reported periods. Such estimates relate principally to the determination of the allowance for loan losses, including, when applicable, the valuation of impaired loans (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently. Actual results could differ significantly from these estimates. |
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Fair Value Estimates |
Fair value estimates GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. Fair values of assets and liabilities are determined based on the fair-value hierarchy established in GAAP. The hierarchy is comprised of three levels of inputs to be used:
The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values and publicly available information on in-market transactions. Appraisals of commercial real property generally present three approaches to estimating value: 1) market comparables or sales approach; 2) cost to replace; and 3) capitalized cash flows or investment approach. These approaches may or may not result in a common, single value. The market-comparables approach may yield several different values depending on certain basic assumptions, such as, determining highest and best use (which may or may not be the current use); determining the condition (e.g., as-is, when-completed or for land when-entitled); and determining the unit of value (e.g., as a series of individual unit sales or as a bulk disposition). Management has the requisite familiarity with the real estate markets it lends in generally and of the properties lent on specifically to analyze sales-comparables and assess their suitability/applicability. Management is acquainted with market participants – investors, developers, brokers, lenders – that are useful, relevant secondary sources of data and information regarding valuation and valuation variability. These secondary sources may have familiarity with and perspectives on pending transactions, successful strategies to optimize value and the history and details of specific properties – on and off the market – that enhance the process and analysis that is particularly and principally germane to establishing value in distressed markets and/or property types. |
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Cash and Cash Equivalents |
Cash and cash equivalents The company considers all highly liquid financial instruments with maturities of three months or less at the time of purchase to be cash equivalents. At March 31, 2019, certain of the company’s cash balances in banks exceed federally insured limits of $250,000. The bank or banks in which funds are deposited are reviewed periodically for their general credit-worthiness/investment grade credit rating. |
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Loans and Interest Income |
Loans and interest income Performing loans are carried at amortized costs which is generally equal to the unpaid principal balance (principal). Management has discretion to pay amounts (advances) to third parties on behalf of borrowers to protect the company’s interest in the loan. Advances include, but are not limited to, the payment of interest and principal on a senior lien to prevent foreclosure by the senior lien holder, property taxes, insurance premiums and attorney fees. Advances generally are stated at the amounts paid out on the borrower’s behalf and any accrued interest on amounts paid out, until repaid by the borrower. For performing loans, interest is accrued daily on the principal plus advances, if any. Impaired loans less than 180 days delinquent continue to recognize interest income as long as the loan is in the process of collection and is considered to be well-secured. Impaired loans are placed on non-accrual status if 180 days delinquent or at the earlier of management’s determination that the primary source of repayment will come from the foreclosure and subsequent sale of the collateral securing the loan (which usually occurs when a notice of sale is filed) or when the loan is no longer considered well-secured. When a loan is placed on non-accrual status, the accrual of interest is discontinued; however, previously recorded interest is not reversed. A loan may return to accrual status when all delinquent interest and principal payments become current in accordance with the terms of the loan agreement. Late fees are recognized in the period received. The company may fund a specific loan origination net of an interest reserve (one to two years) to insure timely interest payments at the inception of the loan. In the event of an early loan payoff, any unapplied interest reserves would be first applied to any accrued but unpaid interest and then as a reduction to the principal. If events and or changes in circumstances cause management to have serious doubts about the collectability of the payments of interest and principal in accordance with the loan agreement, a loan may be designated as impaired. Impaired loans are included in management’s periodic analysis of recoverability. Any subsequent payments on impaired loans are applied to late fees, then to the accrued interest, then to advances, and lastly to principal. In the normal course of the company’s operations, loans that mature may be renewed at then current market rates and terms for new loans. Such renewals are not designated as impaired, unless the renewed loan was previously designated as impaired. From time to time, the company negotiates and enters into loan modifications with borrowers whose loans are delinquent. If the loan modification results in a significant delay or reduction in the cash flow compared to the original note, the modification is deemed a troubled debt restructuring and a loss is recognized. |
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Allowance for Loan Losses |
Allowance for loan losses Loans and the related accrued interest and advances (i.e. the loan balance) are analyzed on a periodic basis for ultimate recoverability. Collateral fair values are reviewed quarterly and the protective equity for each loan is computed. As used herein, “protective equity” is the dollar amount by which the fair value of the collateral, net of any senior liens exceeds the loan balance, where “loan balance” is the sum of the unpaid principal, advances and the recorded interest thereon. This computation is done for each loan (whether impaired or performing), and while loans secured by collateral of similar property type are grouped, there is enough distinction and variation in the collateral that a loan-by-loan, collateral-by-collateral analysis is appropriate. For loans designated impaired, a provision is made for loan losses to adjust the allowance for loan losses to an amount such that the net carrying amount (unpaid principal less the specific allowance) is reduced to the lower of the loan balance or the estimated fair value of the related collateral, net of any senior loans and net of any costs to sell in arriving at net realizable value. Loans determined not to be individually impaired are grouped by the property type of the underlying collateral, and for each loan and for the total by property type, the amount of protective equity or amount of exposure to loss (i.e., the dollar amount of the deficiency of the fair value of the underlying collateral to the loan balance) is computed. The company charges off uncollectible loans and related receivables directly to the allowance account once it is determined the full amount is not collectible. At foreclosure any excess of the recorded investment in the loan (accounting basis) over the net realizable value is charged against the allowance for loan losses. |
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Real Estate Owned (REO) |
Real estate owned (REO) Real estate owned, or REO, is property acquired in full or partial settlement of loan obligations generally through foreclosure, and is recorded at acquisition at property’s net realizable value, which is the fair value less estimated costs to sell, as applicable. The fair value estimates are derived from information available in the real estate markets including similar property, and often require the experience and judgment of third parties such as commercial real estate appraisers and brokers. The estimates figure materially in calculating the value of the property at acquisition, the level of charge to the allowance for loan losses and any subsequent valuation reserves. After acquisition, costs incurred relating to the development and improvement of property are capitalized to the extent they do not cause the recorded value to exceed the net realizable value, whereas costs relating to holding and disposition of the property are expensed as incurred. After acquisition, REO is analyzed periodically for changes in fair values and any subsequent write down is charged to operations expenses. Any recovery in the fair value subsequent to such a write down is recorded and is not to exceed the value recorded at acquisition. Recognition of gains on the sale of real estate is dependent upon the transaction meeting certain criteria related to the nature of the property and the terms of the sale including potential seller financing. |
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Recently Issued Accounting Pronouncements |
Recently issued accounting pronouncements -Accounting and Financial reporting for Expected Credit Losses The Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that significantly changes how entities will account for credit losses for most financial assets that are not measured at fair value through net income. The new standard will supersede currently in effect guidance and applies to all entities. Entities will be required to use a current expected credit loss (CECL) model to estimate credit impairment. This estimate will be forward-looking, meaning management will be required to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. This will be a significant change from the current incurred credit loss model, and generally may result in allowances being recognized in earlier periods than under the current credit loss model. The manager expects to adopt the ASU for interim and annual reporting in 2020. RMI IX invests in real estate secured loans made with the expectation that the possibility of credit losses is remote as a result of substantial protective equity provided by the underlying collateral. The real estate secured programs and low loan-to-value ratios have caused RMC to conclude that the adoption of the CECL model from the incurred loss models presently in use as to credit loss recognition will likely not materially impact the reported results of operations or financial position. |
Manager and Other Related Parties (Tables) |
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Summary of Loan Administrative Fees and Operating Expenses, for Fees and Cost Reimbursements Waived and Expenses Absorbed |
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2019 are presented in the following table.
Loan administrative fees and operating expenses, including amounts for fees and cost reimbursements waived and/or expenses absorbed by RMC, for the three months ended March 31, 2018 are presented in the following table.
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Schedule of Accounts, Notes, Loans and Financing Receivable |
Formation loan transactions are presented in the following table.
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Formation Loan, Future Minimum Payments Net of Early Withdrawal Penalties |
The future minimum payments on the formation loan, net of early withdrawal penalties, as of March 31, 2019 are presented in the following table.
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Schedule of Unit Redemptions |
The table below presents the company’s unit redemptions for the three months ended March 31, 2019 and 2018.
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Summary of Organization and Offering Expenses |
Unallocated O&O transactions are summarized in the following table.
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Loans (Tables) |
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Secured Loan Principal Transactions |
Secured loan transactions are summarized in the following table for the three months ended March 31, 2019.
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Secured Loans Characteristics |
Secured loans had the characteristics presented in the following table.
|
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Secured Loans by Lien Position in the Collateral |
Secured loans had the lien positions presented in the following table.
|
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Secured Loans by Property Type of the Collateral |
Secured loans summarized by property type are presented in the following table.
|
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Secured Loans Distributed within California |
The distribution of secured loans by counties is presented in the following table.
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Secured Loans Scheduled Maturities |
Secured loans are scheduled to mature as presented in the following table as of March 31, 2019.
|
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Past Due Financing Receivables |
Secured loans summarized by payment delinquency are presented in the following table.
|
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Secured Loans in Non-Accrual Status |
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Impaired Loans [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Financing Receivables |
Impaired loans/allowance for loan losses
(5) Recorded investment is the sum of the principal, advances, and interest accrued for financial reporting purposes. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Balances and Interest Income [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impaired Financing Receivables |
Impaired loans had average balances and interest income recognized and received in cash as presented in the following tables as of and for the three months ended March 31, 2019 and the year ended December 31, 2018.
|
Organization and General - Additional Information (Details) |
1 Months Ended | 3 Months Ended | 101 Months Ended | 114 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Apr. 30, 2019
USD ($)
|
Mar. 31, 2019
USD ($)
Unit
|
Mar. 31, 2018
USD ($)
|
Feb. 28, 2018 |
Mar. 31, 2019
USD ($)
|
Sep. 30, 2019 |
May 09, 2019
USD ($)
shares
|
Dec. 31, 2018
USD ($)
|
Jun. 30, 2016
USD ($)
shares
|
|
Organization and General (Details) [Line Items] | |||||||||
Ownership interest held by the manager | 1.00% | 1.00% | |||||||
Managers Share of Profits or Losses | 1.00% | ||||||||
Managers (1%), Net income | $ 11,887 | $ 11,425 | |||||||
Members or partners capital, description | Cash available for distribution at the end of each calendar month is allocated ninety-nine percent (99%) to the members and one percent (1%) to the manager. | ||||||||
Percentage of distribution allocated to members | 99.00% | ||||||||
Estimated earnings allocated to members accounts | $ 1,191,815 | $ 1,191,815 | |||||||
Members (99%) | 1,176,771 | 1,131,064 | |||||||
Cash available for distribution | $ 39,497 | 39,497 | |||||||
Annualized net distribution rate | 6.50% | ||||||||
Net distribution rate before organization and offering expense percentage | 6.95% | ||||||||
Organization and offering expense percentage | 0.45% | ||||||||
Unit Redemption Program, Years After Purchase | 1 year | ||||||||
Maximum Capital Units for Redemption Per Quarter Per Individual | Unit | 100,000 | ||||||||
Maximum Percentage of Members Total Outstanding Units for Redemption Per Quarter Per Individual | 25.00% | ||||||||
Maximum Percentage of Weighted Average Number of Members Outstanding Units During Twelve Months for Redemption | 5.00% | ||||||||
Capital Unit Sold in Public Offering, Shares | shares | 120,000,000 | ||||||||
Capital Unit Sold in Public Offering, Value | $ 120,000,000 | ||||||||
Gross proceeds from unit sales | 87,816,000 | ||||||||
Formation loan, advances | $ 140,928 | $ 357,794 | |||||||
Receivable from affiliate (formation loan) | 4,294,186 | 4,294,186 | $ 4,179,343 | ||||||
Formation Loan [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Formation loan, advances | 5,580,839 | ||||||||
Receivable from affiliate (formation loan) | $ 4,294,186 | 4,294,186 | |||||||
Maximum [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Percentage of offering proceeds | 7.00% | ||||||||
Subsequent Event [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Gross proceeds from unit sales | $ 680,000 | ||||||||
DRIP [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Gross proceeds from unit sales | 9,256,000 | ||||||||
Capital Units Under Previous Registration Statements [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Gross proceeds from unit sales | 39,407,000 | ||||||||
Capital Units Under June 2016 Registration Statement/Prospectus [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Gross proceeds from unit sales | $ 48,409,000 | ||||||||
Member Units [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Capital Unit Sold in Public Offering, Shares | shares | 20,000,000 | ||||||||
Capital Unit Sold in Public Offering, Value | $ 20,000,000 | ||||||||
Member Units [Member] | Subsequent Event [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Capital Unit Sold in Public Offering, Shares | shares | 15,000,000 | ||||||||
Capital Unit Sold in Public Offering, Value | $ 15,000,000 | ||||||||
Redemption Between One to Two Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 92.00% | 92.00% | |||||||
Redemption Between Two to Three Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 94.00% | 94.00% | |||||||
Redemption Between Three to Four Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 96.00% | 96.00% | |||||||
Redemption Between Four to Five Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 98.00% | 98.00% | |||||||
Redemption After Five Years [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Redemption Value Percentage of Purchase Price or Capital Account Balance | 100.00% | 100.00% | |||||||
RMC [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Ownership interest held by the manager | 0.10% | ||||||||
Percentage of profits and losses allocated to manager | 1.00% | 1.00% | |||||||
Managers (1%), Net income | $ 11,887 | $ 11,425 | |||||||
Management Fee, Percentage | 0.75% | 0.75% | |||||||
RMC [Member] | Maximum [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Percentage of proceeds from sale of units used to pay for organization and offering expenses | 4.50% | ||||||||
Percentage of proceeds from sale of units used for funding formation loan to related party | 7.00% | ||||||||
RMC [Member] | Scenario, Forecast [Member] | |||||||||
Organization and General (Details) [Line Items] | |||||||||
Management Fee, Percentage | 0.75% |
Summary of Significant Accounting Policies - Additional Information (Details) |
3 Months Ended |
---|---|
Mar. 31, 2019
USD ($)
Approach
| |
Summary Of Significant Accounting Policies [Line Items] | |
Estimating Real Property Value, Number of Approaches | Approach | 3 |
Cash and Cash Equivalents, Maximum Initial Maturity | 3 months |
Impaired loans maximum days of delinquent | 180 days |
Interest Reserve Minimum Length | 1 year |
Interest Reserve Maximum Length | 2 years |
Maximum [Member] | |
Summary Of Significant Accounting Policies [Line Items] | |
Federal Insurance Limit | $ | $ 250,000 |
Manager and Other Related Parties - Additional Information (Details) |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Mar. 31, 2018
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
|
Managers and Other Related Parties (Details) [Line Items] | |||
Managers Share of Profits or Losses | 1.00% | ||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 85 | 83 | |
Principal | $ 66,416,481 | $ 62,115,713 | |
Percentage of reimbursement of organization and offering expenses | 4.50% | ||
Reimbursement as a percentage of member's original purchase price | 0.45% | ||
Percentage of original purchase price, quarterly installment percentage | 0.1125% | ||
Performing Loans [Member] | |||
Managers and Other Related Parties (Details) [Line Items] | |||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 0 | 2 | |
Principal | $ 5,890,000 | ||
Maximum [Member] | |||
Managers and Other Related Parties (Details) [Line Items] | |||
Annual mortgage servicing fees, percentage | 0.25% | ||
Percentage of reimbursement of organization and offering expenses | 4.50% | ||
Reimbursement threshold | Maximum of forty (40) such quarters | ||
RMC [Member] | |||
Managers and Other Related Parties (Details) [Line Items] | |||
Related Party Transaction, Amounts of Transaction | $ 462,000 | 605,000 | |
Administrative Fees, Percentage | 1.00% | ||
Management Fee, Percentage | 0.75% | ||
Working Capital Reserve, Percentage | 2.00% | ||
Asset management fees | $ 462,113 | 604,866 | |
Loan Brokerage Commission Percent Minimum | 1.50% | ||
Loan Brokerage Commission Percent Maximum | 5.00% | ||
Loan Brokerage Commissions, Maximum Percent of Assets | 4.00% | ||
RMC [Member] | Asset Management Fee [Member] | |||
Managers and Other Related Parties (Details) [Line Items] | |||
Asset management fees | $ 119,187 | $ 104,955 | |
RMC [Member] | Asset Management Fee [Member] | Scenario Previously Reported [Member] | |||
Managers and Other Related Parties (Details) [Line Items] | |||
Asset management fees | $ 127,844 |
Manager and Other Related Parties - Summary of Loan Administrative Fees and Operating Expenses, for Fees and Cost Reimbursements Waived and Expenses Absorbed (Details) - RMC [Member] - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | $ 651,432 | $ 644,820 |
Waived | (462,113) | (447,467) |
Expenses absorbed by RMC | (157,399) | |
Total RMC support | (462,113) | (604,866) |
Net charged | 189,319 | 39,954 |
Loan Admin Fees [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 163,270 | 158,363 |
Waived | (163,270) | (158,363) |
Total RMC support | (163,270) | (158,363) |
Mortgage Servicing Fees [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 38,646 | 35,184 |
Net charged | 38,646 | 35,184 |
Asset Management Fee [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 119,187 | 104,955 |
Waived | (119,187) | (104,955) |
Total RMC support | (119,187) | (104,955) |
Costs from RMC [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 179,656 | 184,149 |
Waived | (179,656) | (184,149) |
Total RMC support | (179,656) | (184,149) |
Professional Services [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 147,317 | 147,837 |
Expenses absorbed by RMC | (143,152) | |
Total RMC support | (143,152) | |
Net charged | 147,317 | 4,685 |
Other [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Chargeable/reimbursable | 3,356 | 14,332 |
Expenses absorbed by RMC | (14,247) | |
Total RMC support | (14,247) | |
Net charged | $ 3,356 | $ 85 |
Manager and Other Related Parties - Formation Loan Transactions (Details) - USD ($) |
3 Months Ended | 114 Months Ended |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2019 |
|
Formation Loan Transactions [Abstract] | ||
Balance, beginning of period | $ 4,179,343 | |
Formation loan advances to RMC | 140,928 | $ 5,580,838 |
Payments received from RMC | (1,199,716) | |
Early withdrawal penalties applied | (26,085) | (86,936) |
Balance, March 31, 2019 | $ 4,294,186 | 4,294,186 |
Subscription proceeds since inception | $ 79,702,750 | |
Formation loan advance rate | 7.00% |
Manager and Other Related Parties - Formation Loan, Future Minimum Payments Net of Early Withdrawal Penalties (Details) |
Mar. 31, 2019
USD ($)
|
---|---|
Formation Loan Future Minimum Payments [Abstract] | |
2019 | $ 391,849 |
2020 | 417,934 |
2021 | 417,934 |
2022 | 417,934 |
2023 | 417,934 |
Thereafter | 2,230,601 |
Total | $ 4,294,186 |
Manager and Other Related Parties - Schedule of Unit Redemptions (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 31, 2019 |
Mar. 31, 2018 |
|
Managers and Other Related Parties (Details) [Line Items] | ||
Total, Capital redemptions | $ 1,039,402 | |
RMC [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Total, Capital redemptions | 1,092,396 | $ 403,400 |
RMC [Member] | Capital Redemptions-without Penalty [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Total, Capital redemptions | 367,396 | 316,050 |
RMC [Member] | Capital Redemptions-subject to Penalty [Member] | ||
Managers and Other Related Parties (Details) [Line Items] | ||
Total, Capital redemptions | $ 725,000 | $ 87,350 |
Manager and Other Related Parties - Summary of Organization and Offering Expenses (Details) - USD ($) |
3 Months Ended | 114 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2019 |
Mar. 31, 2019 |
||||||||
Related Party Transactions [Abstract] | |||||||||
Balance, January 1 | $ 2,519,458 | ||||||||
O&O expenses reimbursed to RMC | 93,239 | $ 3,579,760 | |||||||
Early withdrawal penalties applied | [1] | (19,415) | (60,290) | ||||||
O&O expenses allocated | [2] | (80,808) | (767,164) | ||||||
O&O expenses repaid to Members' Capital by RMC | [3] | (36,845) | (276,677) | ||||||
Balance, March 31 | $ 2,475,629 | $ 2,475,629 | |||||||
|
Manager and Other Related Parties - Summary of Organization and Offering Expenses (Parenthetical) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2019
USD ($)
| |
Related Party Transactions [Abstract] | |
O&O expenses reimbursed period to RMC | 120 months |
Unallocated O&O expenses on units rebates period | 120 months |
Estimated future rebates on scheduled redemptions | $ 30,030 |
Loans - Additional Information (Details) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 29, 2019
USD ($)
|
Mar. 28, 2019
USD ($)
|
Mar. 31, 2019
USD ($)
MortgageLoan
Loan
Borrower
|
Dec. 31, 2018
USD ($)
MortgageLoan
Loan
|
|
Loans (Details) [Line Items] | ||||
Loans Receivable, Term | 5 years | |||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 85 | 83 | ||
Loans Receivable, Number of Principal and Interest Loans | Loan | 60 | |||
Loans Receivable, Amortization Term | 30 years | |||
Mortgage Loans on Real Estate Renewed, Number of Loans | MortgageLoan | 0 | |||
Mortgage loan on real estate classified as held for sale, number of loans | MortgageLoan | 0 | |||
Mortgage loan on real estate renewed number of borrower | Borrower | 2 | |||
Mortgage Loan | $ 200,000 | $ 16,327,000 | ||
Mortgage loan, funded date | Apr. 02, 2019 | |||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | |||
Proceeds from sale of loan | $ 143,000 | |||
Foregone interest | 10,791 | |||
Loans Receivable Largest Loan (in Dollars) | $ 4,000,000 | $ 4,000,000 | ||
Loans Receivable, Percent | 100.00% | 100.00% | ||
Loans - principal (in Dollars) | $ 66,416,481 | $ 62,115,713 | ||
Balance relating to loan portfolio held in bank trust account | 50,839 | |||
Financing receivable, recorded investment, 90 days past due and still accruing | $ 0 | $ 0 | ||
Financing Receivable, Modifications, Number of Contracts | Loan | 0 | 0 | ||
Fair Value on Non-recurring [Member] | ||||
Loans (Details) [Line Items] | ||||
Impaired loans measured at fair value on non-recurring basis | $ 0 | $ 0 | ||
Interest Income [Member] | ||||
Loans (Details) [Line Items] | ||||
Proceeds from sale of loan | $ 1,711 | |||
Impaired Loans [Member] | ||||
Loans (Details) [Line Items] | ||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 5 | 6 | ||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 1 | |||
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $ 136,640 | |||
Impaired Loans [Member] | Past Maturity 1 to 58 Days and 1 tot 89 Days [Member] | ||||
Loans (Details) [Line Items] | ||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | |||
Financing Receivable, Recorded Investment, Nonaccrual Status (in Dollars) | $ 446,333 | |||
Borrowings [Member] | ||||
Loans (Details) [Line Items] | ||||
Mortgage Loan | $ 1,285,000 | |||
Mortgage loan, funded date | Apr. 04, 2019 | |||
Five Years Or Less Term Loans [Member] | ||||
Loans (Details) [Line Items] | ||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 83 | |||
Loans Receivable, Percent of Aggregate Principal | 99.00% | |||
Interest Only [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans Receivable, Percent of Aggregate Principal | 60.00% | |||
Largest Loan [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans Receivable, Percent | 6.00% | |||
Loans Receivable, Percent of Assets | 5.30% | |||
Loans Receivable, Yield of Loan Acquired | 8.90% | |||
Loans Receivable Maturity Date | Sep. 01, 2021 | |||
Largest Loan [Member] | Filed Notice Of Sale [Member] | ||||
Loans (Details) [Line Items] | ||||
Mortgage Loans on Real Estate, Number of Loans | MortgageLoan | 2 | |||
Construction Loans [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans outstanding | $ 0 | |||
Rehabilitation Loans [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans outstanding | 0 | |||
Construction Or Rehabilitation Loans [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans - principal (in Dollars) | $ 0 | |||
Minimum [Member] | ||||
Loans (Details) [Line Items] | ||||
Loans Receivable, Remaining Term | 5 years | |||
Maximum [Member] | ||||
Loans (Details) [Line Items] | ||||
Balance relating to loan portfolio held in bank trust account, disbursement date to partnership | Apr. 15, 2019 |
Loans - Secured Loan Principal Transactions (Details) - USD ($) |
3 Months Ended | |
---|---|---|
Mar. 28, 2019 |
Mar. 31, 2019 |
|
Receivables [Abstract] | ||
Principal, beginning of period | $ 62,115,713 | |
Loans originated | $ 200,000 | 16,327,000 |
Loans sold to non-affiliate | (136,640) | |
Principal payments received | (11,889,592) | |
Principal, March 31, 2019 | $ 66,416,481 |
Loans - Secured Loans Characteristics (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
Country
|
Dec. 31, 2018
USD ($)
MortgageLoan
Country
|
|
Secured Loan Transactions [Line Items] | ||
Number of secured loans | MortgageLoan | 85 | 83 |
Secured loans - principal (in Dollars) | $ 66,416,481 | $ 62,115,713 |
Average secured loan - principal (in Dollars) | $ 781,370 | $ 748,382 |
Average principal as percent of total principal | 1.20% | 1.20% |
Average principal as percent of members’ capital, net | 1.00% | 1.00% |
Average principal as percent of total assets | 1.00% | 1.00% |
Largest secured loan - principal (in Dollars) | $ 4,000,000 | $ 4,000,000 |
Largest principal as percent of total principal | 6.00% | 6.40% |
Largest principal as percent of members’ capital, net | 5.20% | 5.20% |
Largest principal as percent of total assets | 5.30% | 5.50% |
Smallest secured loan - principal (in Dollars) | $ 64,444 | $ 74,390 |
Smallest principal as percent of total principal | 0.10% | 0.10% |
Smallest principal as percent of members’ capital, net | 0.10% | 0.10% |
Smallest principal as percent of total assets | 0.10% | 0.10% |
Number of California counties where security is located | Country | 18 | 15 |
Largest percentage of principal in one California county | 20.50% | 25.00% |
Secured loans in foreclosure - principal (in Dollars) | $ 2,237,176 | $ 565,685 |
Minimum [Member] | ||
Secured Loan Transactions [Line Items] | ||
Secured loans – interest rate (fixed) | 7.00% | 7.00% |
Maximum [Member] | ||
Secured Loan Transactions [Line Items] | ||
Secured loans – interest rate (fixed) | 10.50% | 10.50% |
Filed Notice of Default [Member] | ||
Secured Loan Transactions [Line Items] | ||
Number of secured loans | MortgageLoan | 2 | 2 |
Loans - Secured Loans by Lien Position in the Collateral (Details) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
|||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | ||||
Loans | MortgageLoan | 85 | 83 | ||
Loans - principal (in Dollars) | $ 66,416,481 | $ 62,115,713 | ||
Liens due other lenders at loan closing | 72,198,788 | 65,941,118 | ||
Total debt | 138,615,269 | 128,056,831 | ||
Appraised property value at loan closing | $ 260,199,000 | $ 240,307,000 | ||
Percent of total debt to appraised values (LTV) at loan closing | [1] | 55.20% | 54.50% | |
Loans - percent | 100.00% | 100.00% | ||
First Trust Deeds [Member] | ||||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | ||||
Loans | MortgageLoan | 43 | 41 | ||
Loans - principal (in Dollars) | $ 33,670,707 | $ 29,699,888 | ||
Loans - percent | 51.00% | 48.00% | ||
Second Trust Deeds [Member] | ||||
Loans (Details) - Secured Loans by Lien Position in the Collateral [Line Items] | ||||
Loans | MortgageLoan | 42 | 42 | ||
Loans - principal (in Dollars) | $ 32,745,774 | $ 32,415,825 | ||
Loans - percent | 49.00% | 52.00% | ||
|
Loans - Secured Loans by Property Type (Details) |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
||||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||||
Loans | MortgageLoan | 85 | 83 | |||
Loans - principal (in Dollars) | $ | $ 66,416,481 | $ 62,115,713 | |||
Loans - percent | 100.00% | 100.00% | |||
Land [Member] | |||||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||||
Loans | MortgageLoan | 1 | ||||
Loans - principal (in Dollars) | $ | $ 1,850,000 | ||||
Loans - percent | 3.00% | ||||
Single Family [Member] | |||||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||||
Loans | MortgageLoan | [1] | 59 | 60 | ||
Loans - principal (in Dollars) | $ | [1] | $ 40,265,988 | $ 42,967,253 | ||
Loans - percent | [1] | 61.00% | 69.00% | ||
Multifamily [Member] | |||||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||||
Loans | MortgageLoan | 9 | 8 | |||
Loans - principal (in Dollars) | $ | $ 8,946,916 | $ 8,210,970 | |||
Loans - percent | 13.00% | 13.00% | |||
Commercial [Member] | |||||
Loans (Details) - Secured Loans by Property Type [Line Items] | |||||
Loans | MortgageLoan | 16 | 15 | |||
Loans - principal (in Dollars) | $ | $ 15,353,577 | $ 10,937,490 | |||
Loans - percent | 23.00% | 18.00% | |||
|
Loans - Secured Loans by Property Type (Parenthetical) (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
|
Loans (Details) - Secured Loans by Property Type [Line Items] | ||
Number of secured loans | MortgageLoan | 85 | 83 |
Principal | $ | $ 66,416,481 | $ 62,115,713 |
Single Family Property-Owner Occupied [Member] | ||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||
Number of secured loans | MortgageLoan | 10 | 14 |
Principal | $ | $ 6,081,808 | $ 11,398,869 |
Single Family Property-NonOwner Occupied [Member] | ||
Loans (Details) - Secured Loans by Property Type [Line Items] | ||
Number of secured loans | MortgageLoan | 49 | 46 |
Principal | $ | $ 34,184,180 | $ 31,568,384 |
Loans - Secured Loans Distributed Within California (Details) - USD ($) |
Mar. 31, 2019 |
Dec. 31, 2018 |
|||
---|---|---|---|---|---|
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 66,416,481 | $ 62,115,713 | |||
Loans - percent | 100.00% | 100.00% | |||
San Mateo [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 11,577,654 | $ 9,619,609 | ||
Loans - percent | [1] | 17.40% | 15.50% | ||
San Francisco [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 5,651,862 | $ 5,238,008 | ||
Loans - percent | [1] | 8.50% | 8.40% | ||
Alameda [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 5,940,248 | $ 7,306,779 | ||
Loans - percent | [1] | 8.90% | 11.80% | ||
Santa Clara [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 10,143,664 | $ 11,756,695 | ||
Loans - percent | [1] | 15.30% | 18.90% | ||
Contra Costa [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 605,583 | $ 725,771 | ||
Loans - percent | [1] | 0.90% | 1.20% | ||
Sonoma [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 1,298,378 | $ 1,300,000 | ||
Loans - percent | [1] | 2.00% | 2.10% | ||
Marin [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 1,073,977 | $ 575,000 | |||
Loans - percent | 1.60% | 0.90% | |||
Solano [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 600,000 | |||
Loans - percent | [1] | 0.90% | |||
San Francisco Bay Area [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | [1] | $ 36,891,366 | $ 36,521,862 | ||
Loans - percent | [1] | 55.50% | 58.80% | ||
Placer [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 635,887 | $ 637,354 | |||
Loans - percent | 1.00% | 1.00% | |||
Sutter [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 3,815,000 | ||||
Loans - percent | 5.70% | ||||
Sacramento [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 2,062,300 | $ 822,500 | |||
Loans - percent | 3.10% | 1.30% | |||
Monterey [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 321,916 | $ 322,716 | |||
Loans - percent | 0.50% | 0.50% | |||
Other Northern California [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 6,835,103 | $ 1,782,570 | |||
Loans - percent | 10.30% | 2.80% | |||
Northern California [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 43,726,469 | $ 38,304,432 | |||
Loans - percent | 65.80% | 61.60% | |||
Los Angeles [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 13,628,274 | $ 15,514,789 | |||
Loans - percent | 20.50% | 25.00% | |||
Orange [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 1,165,520 | $ 1,177,446 | |||
Loans - percent | 1.70% | 1.90% | |||
San Diego [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 5,366,218 | $ 5,563,635 | |||
Loans - percent | 8.10% | 9.00% | |||
Santa Barbara [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 500,000 | ||||
Loans - percent | 0.80% | ||||
Los Angeles & Coastal [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 20,660,012 | $ 22,255,870 | |||
Loans - percent | 31.10% | 35.90% | |||
San Bernardino [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 1,200,000 | $ 1,200,000 | |||
Loans - percent | 1.80% | 1.90% | |||
Riverside [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 830,000 | $ 355,411 | |||
Loans - percent | 1.30% | 0.60% | |||
Other Southern California [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 2,030,000 | $ 1,555,411 | |||
Loans - percent | 3.10% | 2.50% | |||
Southern California [Member] | |||||
Loans (Details) - Secured Loans Distributed Within California [Line Items] | |||||
Loans - principal (in Dollars) | $ 22,690,012 | $ 23,811,281 | |||
Loans - percent | 34.20% | 38.40% | |||
|
Loans - Secured Loans Scheduled Maturities (Details) |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
||||
Secured Loans Scheduled Maturities [Abstract] | |||||
2019, Loans | MortgageLoan | [1] | 25 | |||
2020, Loans | MortgageLoan | 28 | ||||
2021, Loans | MortgageLoan | 19 | ||||
2022, Loans | MortgageLoan | 6 | ||||
2023, Loans | MortgageLoan | 3 | ||||
Thereafter, Loans | MortgageLoan | 2 | ||||
Total future maturities, Loans | MortgageLoan | 83 | ||||
Matured as of March 31, 2019, Loans | MortgageLoan | 2 | ||||
Number of secured loans | MortgageLoan | 85 | 83 | |||
2019, Principal | $ | [1] | $ 23,392,278 | |||
2020, Principal | $ | 21,399,550 | ||||
2021, Principal | $ | 17,426,916 | ||||
2022, Principal | $ | 2,001,123 | ||||
2023, Principal | $ | 835,808 | ||||
Thereafter, Principal | $ | 914,473 | ||||
Total future maturities, Principal | $ | 65,970,148 | ||||
Matured as of March 31, 2019, Principal | $ | 446,333 | ||||
Total principal, secured loans, Principal | $ | $ 66,416,481 | $ 62,115,713 | |||
2019, Percent | [1] | 35.00% | |||
2020, Percent | 33.00% | ||||
2021, Percent | 26.00% | ||||
2022, Percent | 3.00% | ||||
2023, Percent | 1.00% | ||||
Thereafter, Percent | 1.00% | ||||
Total future maturities, Percent | 99.00% | ||||
Matured as of March 31, 2019, Percent | 1.00% | ||||
Total principal, secured loans, Percent | 100.00% | 100.00% | |||
|
Loans - Past Due Financing Receivables (Details) |
Mar. 31, 2019
USD ($)
Loan
|
Dec. 31, 2018
USD ($)
Loan
|
---|---|---|
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 85 | 83 |
Principal | $ | $ 66,416,481 | $ 62,115,713 |
Past Due 30-89 Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 6 | 5 |
Principal | $ | $ 1,937,339 | $ 3,828,975 |
Past Due 90-179 Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 1 | |
Principal | $ | $ 1,808,789 | |
Past Due 180 Or More Days [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 1 | 2 |
Principal | $ | $ 428,387 | $ 565,685 |
Total Past Due [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 8 | 7 |
Principal | $ | $ 4,174,515 | $ 4,394,660 |
Current [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of loans | Loan | 77 | 76 |
Principal | $ | $ 62,241,966 | $ 57,721,053 |
Loans - Secured Loans in Non-Accrual Status (Details) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2019
USD ($)
MortgageLoan
|
Dec. 31, 2018
USD ($)
MortgageLoan
|
|
Loans Details Secured Loans In Nonaccrual Status [Line Items] | ||
Number of secured loans | MortgageLoan | 85 | 83 |
Loans - principal (in Dollars) | $ 66,416,481 | $ 62,115,713 |
Accrued interest | 558,382 | $ 473,966 |
Foregone interest | $ 10,791 | |
Non-Accrual Status [Member] | ||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | ||
Number of secured loans | MortgageLoan | 2 | 2 |
Loans - principal (in Dollars) | $ 2,345,320 | $ 596,204 |
Accrued interest | 93,384 | 19,831 |
Foregone interest | 26,417 | 33,410 |
Principal [Member] | Non-Accrual Status [Member] | ||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | ||
Loans - principal (in Dollars) | 2,237,176 | 565,685 |
Advances [Member] | Non-Accrual Status [Member] | ||
Loans Details Secured Loans In Nonaccrual Status [Line Items] | ||
Loans - principal (in Dollars) | $ 14,760 | $ 10,688 |
Loans - Schedule of Impaired Loans/Allowance for Loan Losses (Details) |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2019
USD ($)
Loan
|
Dec. 31, 2018
USD ($)
Loan
|
|||
Secured Loans Designated as Impaired Loans [Abstract] | ||||
Principal | $ 2,874,277 | $ 3,841,148 | ||
Recorded investment | [1] | 3,005,658 | 3,950,157 | |
Impaired loans without allowance | $ 3,005,658 | $ 3,950,157 | ||
Number of loans | Loan | 5 | 6 | ||
|
Loans - Impaired Loans - Average Balances and Interest Income (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2019 |
Dec. 31, 2018 |
|
Impaired Loans - Average Balances and Interest Income [Abstract] | ||
Average recorded investment | $ 3,477,908 | $ 2,050,897 |
Interest income recognized | 38,421 | 23,848 |
Interest income received in cash | $ 21,670 | $ 21,670 |
Commitment and Contingencies, Other Than Loan Commitments - Additional Information (Details) |
3 Months Ended |
---|---|
Mar. 31, 2019
USD ($)
| |
Commitments And Contingencies Disclosure [Abstract] | |
Redemptions of members' capital | $ 1,039,402 |
Percentage of reimbursement of organization and offering expenses | 4.50% |
Subsequent Events - Additional Information (Details) - USD ($) |
May 09, 2019 |
Jun. 30, 2016 |
---|---|---|
Subsequent Event [Line Items] | ||
Capital Unit Sold in Public Offering, Shares | 120,000,000 | |
Capital Unit Sold in Public Offering, Value | $ 120,000,000 | |
Member Units [Member] | ||
Subsequent Event [Line Items] | ||
Capital Unit Sold in Public Offering, Shares | 20,000,000 | |
Capital Unit Sold in Public Offering, Value | $ 20,000,000 | |
Member Units [Member] | Subsequent Event [Member] | ||
Subsequent Event [Line Items] | ||
Capital Unit Sold in Public Offering, Shares | 15,000,000 | |
Capital Unit Sold in Public Offering, Value | $ 15,000,000 |
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