Sachem Capital

Kurta Law is investigating broker recommendations of Sachem Capital. Companies initiating a stock offering must file a type of disclosure with the SEC called a prospectus. Sachem Capital disclosed major risks in its prospectus that show it was not suitable for all investors.

If you lost money on your investment in Sachem Capital, consider contacting a securities attorney. Investors may be required to resolve their complaints through FINRA arbitration, a quicker and cheaper alternative to civil court. Contact us at (877) 600-0098 or email info@kurtalawfirm.com to speak to one of our securities attorneys for free today.

What is Sachem Capital?

According to the prospectus, Sachem Capital (SACH) is a real estate investment trust (REIT) that originates, underwrites, funds, and manages a portfolio of short-term loans secured by mortgages on properties located in Connecticut and other states. These are “hard money” loans, secured by first mortgage liens on the property. In other words, Sachem Capital can purportedly immediately move to reclaim the property if borrowers default on their loans.

The company states in its prospectus that its borrowers are typically real estate investors who intend to use their loans to acquire, renovate, or otherwise develop residential or commercial properties.

What are the Risks Associated with Sachem Capital?

Investing in a REIT involves many risks due to its complex nature. Accordingly, some of the most significant risks Sachem Capital discloses in its prospectus concern the structure and fundamental operations of the company.

Risks Involving Outstanding Indebtedness

Sachem Capital states that it had approximately $31.2 million of outstanding debt secured by liens against its assets as of March 31, 2019.

The company continues: “To the extent that we do not have sufficient funds to repay our indebtedness at maturity, it may be necessary to refinance the debt through new debt or equity financings, which may not be available on acceptable terms or at all and which could be dilutive to our shareholders.”

If the company is unable to refinance its debt, it may need to liquidate some or all of its portfolio, severely affecting the company’s operations and dividends paid to investors. Further, Sachem Capital’s debt agreements contain provisions that allow lenders to demand full payment of all outstanding debt and to declare a default on one loan if the company defaults on a different loan.

Cash Flow and Terms of Loans to Borrowers

Sachem Capital discloses that “none of [its] loans are funded with interest reserves,” instead relying on borrowers to make interest payments on time. However, since many of the company’s properties do not produce cash or income, and “most of the borrowers are entities with no assets other than the single property that is the subject of the loan,” Sachem Capital’s cash flow depends on cash-pressed borrowers refinancing their loans or selling their properties.

Additionally, the company’s income depends on the interest rates on the loans it gives remaining higher than the interest rate on its debt. However, Sachem Capital sets fixed interest rates on its loans, whereas its own debts have variable interest rates. This could require the company to raise the interest rates on its loans to compensate for rising variable interest, potentially deterring future borrowers.

Potential Share Price Volatility

The prospectus states that the company’s stock may experience price volatility for a variety of reasons, including the company’s actual or projected financials and events in the real estate industry.

One of the most notable stated reasons is that the stock has lacked significant trading volume, limiting its liquidity and causing relatively small sales to have an outsized impact on its trading price. This could make it difficult for investors to sell their shares and depress the stock price when they do.

Aegis Capital Corp. Underwriting    

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm.  

What Can I Do If I Suffered Losses?

If you lost money on your investment in Sachem Capital, our experienced securities attorneys may be able to help you secure a fair settlement. Kurta Law attorneys have 5-star reviews on Google and regularly handle cases of unsuitable investment recommendations. Call (877) 600-0098 or email info@kurtalawfirm.com.