Real Estate

Harrison Multi-Family Recapitalization I

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Status

Closed

Recently funded

Accepting $15,000 - $500,000 investments

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Accepting $15,000 - $500,000 investments

Overview

Invest in a junior mortgage and mezzanine loan (the Loan) primarily secured by a substantially completed multi-family development and parcel of land (the Project) in Harrison, New Jersey. The Loan restructures (replaces) an $89.5M loan, which closed in December 2019 after the borrower did not meet its obligations. The COVID pandemic and increased supply costs caused the borrower to fall behind anticipated construction milestones and the project to run over budget. The Loan refinances the previous lender and provides additional capital (a recapitalization) to the borrower to help finish the construction project.

To incentivize the borrower and offer certain protections, the Loan obligates the borrower to complete the vast majority of the construction project by April 29, 2022. Should the borrower fail to meet this milestone, the Loan lenders can force a foreclosure process to take control and ownership of the project.

The underwritten value of the assets is substantially larger than the outstanding value of the Loan, which may allow for complete recovery should the foreclosure process begin. Newmark Knight Frank, a commercial real estate advisory firm, has appraised the project on an “as-is” basis at ~$161M representing a loan-to-value ratio of 61.8%. As such, the value of the project would need to fall by approximately 40% before an investor experiences losses.

The Project’s “as-is” value is expected to increase as future construction milestones are met due to the attractive characteristics of the Project, as well as the surrounding area. The Project which secures the Loan is located in Hudson County, which offers itself as an easily accessible and affordable area as apartment demand continues to spread from the urban core of New York City. The Project is well positioned to benefit from the convenience of the nearby PATH station, which provides direct commuter access to Manhattan in 25 minutes, Newark in under 5 minutes, and Newark Liberty International Airport within 15 minutes.

The loan has a term of 10 months remaining, with one option to extend for 6 months. Investors are expected to earn interest at a target net annualized yield of 16.8%. All interest is expected to be held back in reserve until remaining construction is completed (expected April 2022). After successful completion, reserve interest will be paid and investors can expect to receive ~14.1% per annum distributed monthly and ~2.7% per annum accruing and compounding monthly. Principal and accrued interest are expected to be repaid upon a sale/refinance of the project.

Note that investors earn a floating rate. The rates mentioned above reflect the interest rate at the 3-month LIBOR floor rate of 0.25%. If and when LIBOR rates increase, the interest rate earned by investors would increase correspondingly and any excess interest earned will be paid to investors upon maturity.

Highlights

Underlying asset
Desirable location
Guaranties
Business plan
Experienced team
  • The Project which primarily secures the Loan consists of two phases. The first phase consists of a 205-unit multifamily project across two buildings: a 90-unit multifamily building that is 69% occupied and a 115-unit multifamily property that is ~95% built and scheduled to be completed by April 2022. The second phase of the project consists of an adjacent 6-acre, fully entitled development site approved for up to 898 apartments, 205k SF of retail space, a 200-key hotel, and 1,350 additional parking spaces. Given the desirable location of the project, demand for units within the project is expected to be strong when fully complete.

  • The Project benefits from its strong transit-oriented location directly adjacent to the Harrison PATH station providing direct access to Manhattan in 25 minutes, Newark in under 5 minutes, and Newark Liberty International Airport within 15 minutes, as well as close proximity to the recently opened Red Bull Arena. Recently, Harrison established a $287 million Waterfront Redevelopment Plan, where public funds were expended to the redevelopment of the submarket’s infrastructure and public facilities and over $1 billion dollars of private investment were committed in the short term. Given the affordable nature of Harrison, NJ relative to New York City, demand for units in the area is expected to remain strong going forward.

  • The sponsor principals have provided full-recourse personal guarantees for obligations under the mortgage loan and mezzanine loan. The principals are personally liable for all obligations under the Loan.

  • The Sponsor’s business plan is to complete the second multi-family building, and upon stabilization, sell or refinance the two multi-family complexes that form phase 1 of the development. As per the Loan agreements, the Sponsor is obligated to obtain a temporary certificate of occupancy on at least 80% of units in the second multi-family building by April 29, 2022. Failure to do so would be an event of default and the Loan lenders would be able to exercise remedies. Proceeds from a sale or refinance of Phase 1 would then be utilized to partially pay down the Loan, upon which time, the Sponsor would seek to refinance the remaining loan, which would then be secured only by Phase 2.

  • The originator, Invictus, is a New York based, vertically integrated real estate PE firm founded in March 2020 by Eric Scheffler and Christopher Pardo. As of 12/30/21, Invictus has purchased or developed 10 properties with total asset value of $675M. Prior to Invictus, Eric was a director at the CMBS group of Bear Stearns (2004-2007), General Counsel and Managing Director at Madison Realty Capital (2007-2010), Principal and General Counsel at Glacier Global Partners, a real estate private equity firm (2010-2020). During his tenure at Madison Realty and Glacier, Eric has handled loan workouts (including foreclosures) on over 150 transactions.

    This is the third offering on Yieldstreet originated or sponsored by Invictus. Prior offerings, Williamsburg Multi-Family Restructuring Equity and North Shore Boston Multi-Family Equity, continue to perform in line with expectations.

Essentials

Please refer to the Series Note Supplement in the Documents section for more details about this offering.

Capital structure

Where does Yieldstreet lie in terms of priority?

Yieldstreet, and a Yieldstreet affiliate, have provided, on a pari passu basis, $18M of the subordinated position, with the remaining amount financed by the Originator. The senior loan was provided by a New York City based private equity firm and ranks ahead of the subordinated position. The equity was provided by the Sponsor (of which $2.4M was financed with a term loan provided by the Originator).

Cash flow

How do I get paid?

The loan has a term of 10 months remaining, with one option to extend for 6 months. Net of Yieldstreet’s management fee, investors are expected to earn interest at a minimum target net annualized yield of 16.8%, with ~14.1% per annum distributed monthly and ~2.7% per annum accruing and compounding monthly. All interest is expected to be held back in reserve until remaining construction is completed (expected April 2022). Thereafter successful completion, reserve interest will be paid to investors. Principal and accrued interest are expected to be repaid upon a sale/refinance of the project.

Note that investors earn a floating rate. The rates mentioned above reflect the interest rate at the LIBOR floor of 0.25%. If and when LIBOR rates increase, the interest rate earned by investors would increase correspondingly and any excess interest earned will be paid to investors upon maturity.

Assets

What is the collateral underlying the transaction?

The mortgage loan is primarily secured by collateral that is located in Harrison, New Jersey and consists of a completed 90-unit multifamily building that is currently 82% occupied, a ~95% complete 115-unit multifamily building, a 6-acre parcel of land fully entitled and approved for up to 898 multifamily units, 205k SF of retail space, a 200-key hotel, and 1,350 additional parking spaces.

The mezzanine loan is secured by a pledge of the borrower’s equity in each of the various property’s ownership entities. Invictus structured the financing with a mezzanine loan component so that, in the event of a default, they would be able to exercise remedies under the mezzanine loan, which includes a UCC foreclosure (generally more expeditious than a mortgage foreclosure).

Returns & Management fees

Ann'l management fee

2.5%

Min. target ann'l net yield

16.8%

Schedule

Payment schedule

Event based

Target term

10 months

Extension options

One, 6 month

Structure

Tax document

1099-INT

Offering structure

BPDN

Expenses

Ann'l flat expense

0.25%

Slide 1 of 3
  • Returns & Management fees

    Ann'l management fee

    2.5%

    Min. target ann'l net yield

    16.8%

  • Schedule

    Payment schedule

    Event based

    Target term

    10 months

    Extension options

    One, 6 month

  • Structure

    Tax document

    1099-INT

    Offering structure

    BPDN

    Expenses

    Ann'l flat expense

    0.25%

Docs

Content

This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS AltNotes I LLC ("Issuer"). The Offering is made only by means of the Private Placement Memorandum dated January 14, 2022 and the Series Note Supplement relating to the Offering (collectively, the "Offering Documents"). The information on this offering page is a summary of the Offering, does not purport to be complete and should not be considered a part of the Offering Documents, or as incorporated in the Offering Documents by reference or as forming the basis of the Offering. No person has been authorized to give any information or to make any representations other than those contained in the Offering Documents or in any marketing or sales literature issued by the Issuer or Yieldstreet Management, LLC, as adviser thereto, and referred to in the Offering Documents, and, if given or made, such information or representations must not be relied upon. All investors must read the Offering Documents in their entirety prior to investing in the securities.

Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.