Investment Payoff: Williamsburg Multi-Family Restructuring Equity
Key takeaways:
- Yieldstreet invested $9.8 million of equity to purchase two non-performing loans secured by a mixed-use property in Brooklyn, New York.
- Yieldstreet’s investment thesis was that the loans were well collateralized and the purchase price, which was at a discount, was attractive. Yieldstreet evaluated two potential outcomes for the loans – a payoff or a foreclosure – and believed both outcomes, given the purchase price, offered a strong risk-reward profile.
- The Sponsor then negotiated a settlement that led to the loan paying off in August 2022, resulting in a 41% net annualized return to investors.
Investment thesis
Yieldstreet made a $9.8M equity investment to purchase a non-performing first mortgage and mezzanine loan secured by a mixed-use property (multi-family with street level retail) in Williamsburg, Brooklyn. The investment was underwritten to provide investors with a 15-17% target net annualized return with an expected investment term of 36 months.
The investment thesis was centered around the loan’s attractive discount, with the opportunity to either secure a payoff from the borrower at a profit that would generate the expected return profile, or to foreclose and gain ownership of the property, before leasing the vacant retail space and potential sale.
Investment outcome
Upon acquisition of the defaulted loan at a significant discount, Invictus Real Estate Partners, the sponsor, decided it would simultaneously undergo mortgage foreclosure proceedings to gain title of the property and a UCC foreclosure under the mezzanine loan.
In February 2022, a receiver with control over the property and its cash flows was appointed by the court. The Sponsor then proceeded to lease most of the vacant retail space, while negotiating an approximately $104 million settlement agreement with the borrower that would be used to repay the loans at an attractive return in exchange for a temporary “staying” of foreclosure proceedings from May 2022 to August 2022.
In addition, the settlement required the borrower to post a total of $9 million in Letters of Credit to secure their obligations and ensure repayment for any out of pocket costs borne by the sponsor, such as tenant improvements, legal, repairs and taxes. Moreover, the borrower was forced to provide a debt term sheet to the sponsor by April.
On July 29th, the borrower successfully secured the required amount of debt financing, and repaid the loans. As a result of this settlement, investors achieved an annualized return of 41%, net of all fees, which represents a return more than 20% above initial expectations.
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2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]