Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.
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Manhattan Bridge Capital provides short-term loans for residential construction and renovation. Its operating model is designed to keep risk low while delivering steady returns on both existing and new capital.
Three aspects of their business model stand out:
a) Strong value proposition – Professional real estate investors often acquire properties below market value through distressed sales, estates, or short sales. These transactions require quick, contingency-free closings—usually in cash. LOAN fills this niche by offering fast financing (3–10 business days) but at high interest rates. These lending activities usually work with strong relationships, which LOAN has developed in New York metropolitan market over three decades.
b) LOAN takes minimal risk – It minimizes credit risk by taking a first lien position, securing loans with both real estate collateral and personal guarantees from borrowers. Loans are short-term (weighted average term 6+ months), allowing the company to quickly adapt lending criteria to changing market conditions - if economy is getting weak they can become stricter.
c) Attractive business economics – LOAN generates return on assets (ROA) in range of 7% to 8% which is typically higher than banks (<2%), driven by their charging higher interest rates (referenced above). Combine this leverage, they are able to generate mid-teen return on equity.
All the above factors have led to a consistent record of generating low-teens return on equity while not taking enough risk and leverage (higher Equity to Assets is better).
source: SEC filings and author calculations
Moreover, the company has compounded the incremental capital at low-mid teens without relying heavily on debt.
source: SEC filings and author calculations
How much can a seller demand for a business that can compound your initial capital and subsequent capital additions at low-teens when current government bond rate is under 5%? May be two times tangible equity or even 2.5 times. You have an asset that is backed by real estate collateral. Yet, it currently trades at approximately 1.5 times tangible equity.
However, I don't like the stock yet because it doesn't provide enough margin of safety. First, the valuation is not cheap enough at 1.5 times tangible equity. Second, with a cost of debt (~8.6% as of June 2025) exceeding its ROA, sustaining a low-teens ROE may prove challenging—especially if competition increases. Third, the company faces an upcoming ~$6 million debt maturity (April 2026)—roughly equal to its annual net income—while holding only about $200 thousand in cash on the balance sheet. Together, these factors leave minimal margin for error.
My investment approach focuses prioritizes margin on safety on every dollar invested. With LOAN, I don't see enough safety in the common stock so I will stay away.
