by Naveen Malhotra | Portfolio Management & Servicing
The successful work-out strategy implemented for Suburban Chicago Land & SFR Financing by Yieldstreet and the originator, First National (collectively “Lender”), resulted in a full recovery of principal and outstanding accrued interest, as well as additional upside that was shared with investors.
In April 2021, Suburban Chicago Land & SFR Financing was launched on the Yieldstreet platform. Investors had the opportunity to invest in a first mortgage loan backed by 1,490 residential lots in addition to all profits generated by two to-be-built single family rental (SFR) communities. The offering had an expected initial duration of 24 months, with a target annual yield of 9.61%, and investors were expected to be repaid through both the sale of the underlying lots and the distributions from the underlying SFR properties.
The financing package required the borrower to pre-fund an interest reserve and a development reserve, equating to an LTV at-closing of 23.4%, and offered one twelve-month extension conditional upon certain requirements being met. The development reserve would be distributed for the necessary equity contributions towards the SFR properties, subject to the Lender’s verification and approval, and after the Borrower fulfilled its obligation to enter into a Joint Venture Agreement with the appointed SFR national homebuilder (“National Homebuilder”).
In September 2021, the borrower both defaulted on its obligation to pay taxes on the underlying properties and failed to execute a Joint Venture Agreement with the National Homebuilder within the contractually required time frame. The Lender Group, composed of Yieldstreet and First National, subsequently issued a default notice and proposed a short-term forbearance to allow the Borrower time to cure the default and / or secure a third-party refinancing in the market. However, the Borrower was unwilling to sign the forbearance and First National notified them of the Lender Group’s intent to enforce their rights and remedies on the loan through foreclosure. Simultaneously, Yieldstreet and First National commenced the process to market the underlying note for sale through a national broker as an alternative strategy. In the interim, Yieldstreet continued to make monthly interest payments to investors at the targeted yield through the pre-funded interest reserve.
At the end of December 2021, the Borrower successfully secured a refinancing in the market through a third-party lender and the proceeds were used to repay Yieldstreet investors in full at the targeted return, with additional upside related to the early prepayment of the facility.
Despite the contractual breach, Yieldstreet and First National were able to facilitate a successful recovery of the loan, while keeping investors current on interest payments, in less than four months. Throughout the work out process, Yieldstreet maintained its conviction in the investment due to the strong collateral coverage and negotiated structural enhancements. Due to the structural enhancements and collateral coverage of the investment, Yieldstreet was able to keep the investment current on payments and maintained its strong conviction that a positive resolution would be reached and was able to facilitate a successful outcome, in coordination with First National.
Below is an overview of the workout process that achieved full recovery of investor principal and outstanding interest.
Gain access to unique offerings previously reserved for the ultra-wealthy
Customize your portfolio for income, growth, or a balance of both
The due diligence, risk management, and product education materials are thorough, excellent, and easy to use and understand.
Excellent and unique selections that I can't find elsewhere.
The platform delivers in a very concise manner. Easy to get a clear understanding at a glance from the web or mobile app.
Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.