Offering overview
In our first deal with Urban Standard Capital (USC), Yieldstreet originated a note backed by four first mortgage loans collateralized by three multifamily properties and one mixed-use property in Brooklyn, NY.
- With respect to the 2Q20 market dynamics in the Properties’ sub-markets, the Prospect Park (Park Slope and Carroll Gardens) and Downtown Brooklyn (Boerum Hill) multi-family sub-markets ended the quarter with vacancies of 1.86% and 2.53%, respectively. The Downtown Brooklyn retail submarket had a vacancy of 4.26%.
- The Sponsor is a vertically integrated owner and operator of residential and commercial real estate in the Greater NYC area. It focuses on the repositioning of multi-family and mixed-use assets. Since 1Q16, the Sponsor has acquired over 15 buildings and 400 apartments with a cumulative market value over $250M. The Principal of the Sponsor has an estimated net worth of $5.4M, with cash of $1.0M as of 5/29/20.
Offering updates
As of mid-September, we are pleased to share that despite the complexity of the current environment, progress has been made on the properties.
- The Sponsor has spent approximately $300K of the capex budget, and reportedly expects the total capex costs to increase to approximately $1M (from the original $910k). The Sponsor will be contributing additional equity to cover the budget increase. One Park Slope property with 4 residential units is nearing completion.
- Virtual staging is expected to occur in the next week (to be posted online for leasing), and final finishes are expected to be installed over the next two weeks.
- Construction work on the remaining properties is expected to be completed 2-4 weeks thereafter.
- With regard to the mixed-use property, a lease has been signed with a deli operator and it is expected to move in mid-October.
We expect to conduct another site visit within 4 weeks with USC and receive regular updates on the status of the project in the interim.
Performance of offering
This investment has been active on our platform for the past two months and, as of Sept. 24, 2020, has been paying out as expected, with investors receiving their interest payments in a timely manner. As of late, the New York real estate market has been under a microscope given the COVID-19 crisis fallout. Based on our research, we believe the dynamics of the Brooklyn market differ from that of Manhattan. Demand for less dense neighborhoods and extra square footage has increased as individuals spend more time at home. These areas of Brooklyn provide such benefits relative to Manhattan (such as additional green space, extensive street closures for outdoor dining, and overall larger square footage in living areas), which adds to our confidence in the project.
Originator overview
This is the first deal we have originated with Urban Standard Capital, a NYC-based real estate investment company with three lines of business: ground-up development, renovations, and short-term financings.Their track record and experience in the New York market reinforce our confidence in this investment.
- USC has a captive property manager, which provides real-time market intelligence to facilitate due diligence and underwriting.
- Since 2016, USC has originated 47 loans, totaling over $176M, all secured by properties in the Greater NYC Area.
Investor FAQs we’ve received
Given that this investment has been active for a while now, can you share whether it’s paying out as expected currently?
Yes, as of Sept. 24, 2020, it has been paying as expected. Investors have been receiving the expected interest payments in a timely manner.
Is there enough cash flow to meet the yield?
When the building is stabilized (i.e. fully leased up) the net operating income (NOI) is slightly short of the amount due to service the loan, so the sponsor is funding the gap with out of pocket cash. Pages 7-10 of the Series Note Supplement walks through the cash flows of the buildings. In addition, the underlying coupon to USC is over 8%. Once the work is completed and the property is leased, the Sponsor should be able to secure more economically advantageous bank debt.
What is the yield and cash flow profile of the underlying mortgages? Was there an origination fee or management fee taken by the Sponsor?
Underlying properties are expected to generate a debt yield of 8.7% once stabilized and USC is charging the owner of the properties 8.85% interest on the money they have borrowed. The gap is covered by out of pocket cash from the owner of the properties.
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