Baltimore Multi-Family Conversion Financing

Annualized yield3

Term3

11 months

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Status

Closed

Recently funded

Accepting $10,000 - $500,000 investments

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Accepting $10,000 - $500,000 investments

Overview

Highlights

Attractive basis

Business plan

Market dynamics

Partial principal guaranty

Sponsor experience

Cushman and Wakefield, a global commercial real estate firm, appraised the hotel on an “as-is” basis at $21.8M. The property was purchased for a purchase price of $18.1M, or $59k per key, equating to a loan-to-purchase price of 66.1%. The senior $11.9M loan has a loan basis of $39k per key. The total acquisition cost was $20.4M, or $66.9k per key, and the sponsor contributed $8.5M of cash equity which serves as first-loss capital in a downside scenario. The appraiser valued the event space on an “as-is” basis at $6.8M. While the event space was not given credit during underwriting, it serves as additional collateral under the loan.
The sponsor’s business plan is to convert the hotel into a 306 door multi-family property. Since the hotel was originally built as a multi-family property, it is zoned “as of right” for multi-family use. Prior to closing this loan, the sponsor had reportedly received an indication of interest for a construction loan at 65% loan-to-cost. However, the borrower has opted to secure bridge financing instead so that they can make further progress on development plans, budgets and approvals, and to potentially obtain a more competitive construction loan. The sponsor’s preliminary total budget for the development project is $54M, or $176k per unit. A survey of multi-family sale comparables in Downtown Baltimore consisted of older vintages (2005-2010) which traded in the range of $148k-191k, generally supporting the sponsor’s project basis.
The property is located in the historic district of Baltimore, which is in the downtown Baltimore submarket and in walking distance to Baltimore Penn Station. According to CoStar, demand for multi-family product in Baltimore has rebounded since pandemic lows and has been above average historical norms, which may bode well for the downtown submarket. 2Q21 vacancy rates were at 9.6%, which has put upwards pressure on rents, leading to annual rent growth of 4.8%. Submarket vacancy is projected to be relatively stable at 6-7% from 2021-2025, and rent growth is expected to reach 10% in 2021 and stabilize to 2% by 2025.
Furthermore, investor interest in the submarket has been strong. Total sales volume surpassed $50M for the second year in a row in 2020, and the total number of sales that took place matched the submarket's five-year peak. The immediate construction pipeline is strong.
The principals of the sponsor have jointly and severally provided a personal guarantee for $1.5M of the loan. According to the principals’ personal financial statements as of 12/31/20, the individuals each have net worths in excess of the guaranteed amount.
The sponsor is a Washington DC-focused vertically integrated multi-family developer, general contractor, and property manager. The sponsor focuses on purchasing older, underutilized multi-family properties in core residential neighborhoods below replacement value due to deferred maintenance, lack of capital improvements, or constrained rents.
Since its founding, the sponsor has introduced over 10 real estate funds, along with numerous stand-alone investments, with a total valuation of over $1 billion. The sponsor has acquired, developed and/or redeveloped residential properties totaling more than 5,000 units. Since inception, the sponsor has exited 20 projects containing 2,942 units for sale price of $371M.

Essentials

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

Capital structure

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Cash flow

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Assets

What is the collateral underlying the transaction?

Returns & management fee

Ann'l management fee

1.75%

Target ann'l net yield

8.75%

Target current ann'l yield

~5.8%

Target deferred ann'l yield

~2.9%

Schedule

Payment schedule

Monthly

Prefunded

Yes

Target term

11 months

Structure

Tax document

1099-INT

Offering structure

BPDN

Expenses

First year expense

$100

Annual Flat Expense

$30

Docs

Content

This offering page describes only certain aspects of the offering ("Offering") of the securities issued by YS ALTNOTES II 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.

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