Real EstateCottonwood Management

Scottsdale Resort Financing

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Status

Closed

Recently funded

Accepting $5,000 - $500,000 investments

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Accepting $5,000 - $500,000 investments

Overview

Invest in a floating rate mortgage loan secured by a 326-key resort-style hotel with over 90k square of conference/meeting space in Scottsdale, Arizona. The purpose of the loan is to acquire, renovate and rebrand the resort. Once renovations are complete it is expected the property will benefit from higher occupancy and room rates given its ideal location in Scottsdale, Arizona.

Positive development update

• As of June 2022, the Sponsor has accelerated their business plan and successfully re-flagged the property under the brand of a major hotel group - over 6 months ahead of expectations. It was initially contemplated that the hotel group would obtain the flag after the Sponsor completed its $24.6M capital improvement plan but they made an exemption for the property and bypassed that requirement. This is a major milestone as it fast tracks the Sponsor's strategy to stabilize the asset. In the interim, the Sponsor remains on track to complete their $24.6M capital improvement plan by Q4 2022.

Premise

The loan’s floating rate nature enhances the yield investors receive during rising rate environments

  • The loan is floating rate meaning the interest rate may rise overtime as the reference rate (1-month SOFR) increases.
  • The investment is expected to provide a minimum yield of 8.5%, (8.25% + SOFR floor of 0.25%), well above traditional fixed income
  • With 1-month SOFR currently at ~2.3%, the current yield for the loan is ~10.5% and should continue to increase as rates rise.
  • Given the Fed is in the midst of a rate hiking cycle, the market expects 1-month SOFR to surpass 3% by the end of 2022 (Bloomberg 1-month SOFR forward curve).
  • When accounting for the expected increase in 1-month SOFR, we anticipate the yield of the loan to increase and stabilize between 11-11.5% over the next year

According to CoStar, Scottsdale generates both corporate and tourism travel demand

  • The Phoenix-Mesa-Scottsdale area is the 11th largest in the country by population and one of the nation's fastest-growing.
  • Collectively the area gained more than 650k residents between 2010 and 2020 and nearly 1.6M since 2000.
  • The population is expected to continue to grow at approximately 1.2% year-over-year through 2026.
  • Considered the commercial and business hub of the Southwest, the area has a diverse industry base driven by financial services, aerospace, transportation, health care and tech.
  • Unemployment in the area has recovered quickly to pre-pandemic levels, and is currently 3.8%, compared to the national rate of 4.3%.
  • The submarket where the property is located, while highly commutable to downtown Scottsdale, also has strong demand drivers in its own right, including TPC Scottsdale which hosts the PGA Tour’s Waste Management Phoenix Open, and the upcoming Super Bowl LVII in 2023.
  • In addition to golf and event hosting, Old Town Scottsdale offers a variety of entertainment and nightlife options including restaurants, retail, art galleries and nightclubs, often drawing comparison to Miami’s South Beach area.
  • The resort is well situated to capture the demand generated by corporate conferences and tourists that travel to Scottsdale to enjoy all it has to offer.

Investment secured by a branded resort-style property in a high-end area

  • The resort has undergone a rebranding, and now falls under a brand within a major hospitality group, and is expected to benefit from the hospitality group’s 100+ million member loyalty program.
  • Once renovations are completed, which is anticipated to be within a year, it is expected that demand for individual and group travel and leisure travel will increase.
  • HVS, a hospitality-focused consulting firm, appraised the property on "as-complete" basis at ~ $165M, which implies an LTV of 63%.

Resort location attracts both groups (incl. conference) and individual travelers

  • The resort is located within McCormick Ranch, an affluent master-planned community in northern Scottsdale, spanning 3,116 acres, and has over 90k SF of indoor and outdoor meeting space.
  • The community is home to 27k residents and features a variety of shopping plazas, medical centers, golf courses, tennis courts and bicycle paths.
  • Resort is near Downtown Scottsdale, Arizona State University, Phoenix Sky Harbor International Airport and Downtown Phoenix.
  • Guests traveling to Scottsdale to play golf favor this resort because it is adjacent to the McCormick Ranch Golf Club, a 36-hole golf club with a clubhouse that is a 5-minute walk from the main lobby.
  • As one of the largest hospitality submarkets in Arizona, and the 36th largest in the country, Scottsdale is a highly beneficial place for the resort to be located, with significant demand that is expected to increase further as we come out of the Covid-19 pandemic.

Loan originated by an experienced originator

  • The Originator, Cottonwood Management, is a Los Angeles-based private equity real estate investment management firm specializing in large-scale, highly structured and complex projects with substantial barrier-of-entry characteristics.
  • Focused on U.S. opportunities, Cottonwood exists to serve as the financial and investment steward for investors—acting as thoughtful dealmakers who tirelessly and consistently champion high-performing investment opportunities with outsized, risk-adjusted and absolute returns.
  • Cottonwood has AUM of more than US $3Bn.
  • Cottonwood is the firm behind the development and management of the award winning EchelonSeaport and The Alyx in Boston’s Seaport District.

Investment managed by an experienced Sponsor

  • The Sponsor is a vertically integrated hospitality-focused developer and investor with more than $3Bn of AUM, managing over 15k keys across 80 hotels.
  • The Sponsor’s in-house expertise includes sourcing, underwriting, financing, asset management, operations, development, and legal, which ensures the entire deal lifecycle is managed in-house.
  • The Sponsor also already manages three branded hotels in Arizona, one of which it developed ground-up. This indicates that the Sponsor has the relationships and expertise to carry out the business plan.

Strong business plan to capitalize and improve upon the location and property characteristics

  • The purpose of the levered mortgage loan originated by Cottonwood is to acquire, renovate and re-brand the property.
  • There is a $24.4M renovation budget in place to renovate the resort to a more luxury standard, including improvements to common areas, all rooms, and the combining of some of the rooms to make them into suites.
  • It is expected that the resort will benefit from its location in a submarket which has shown strong recovery from the Covid-19 pandemic, a $24.4M renovation, and the re-branding to a well-known brand-name hospitality group.
  • The Sponsor and Originator believe that as group demand recovers and grows, the resort will be able to increase transient room rates as well as increase transient demand in general.
  • The Sponsor expects to achieve stabilization in 33 months’ time, at which point they intend to refinance this loan and return capital to investors.

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 has provided $10.75M of the subordinated position, with the remaining amount financed by an affiliate of Cottonwood Management and an affiliate of Yieldstreet as set forth above.
  • The senior loan was provided by a FDIC-insured CA-based bank with approximately $14Bn in AUM.
  • As the loan is paid down, the senior position and subordinated position will be paid back on a pari passu basis.

Cash flow

How do I get paid?

  • As cash flows are received, unpaid fund expenses, reserve amounts, Yieldstreet’s management fees and annual member expenses are deducted first, and then capital contributions are returned to investors. Next, the remaining proceeds are paid to investors. The first income distribution typically occurs at the end of the first full month after launch, however, investors may not see this payment reflected in their wallets at this time if amounts set forth in the Operating Agreement have not yet been paid in full. Once those amounts have been paid in full, investors will begin receiving payments in their wallet. Please refer to the Operating Agreement for more details.
  • Investors are expected to earn monthly interest at a minimum target net annualized yield of 8.5%.
  • The loan has a term of 30 months, with two one-year extension options.
  • Note that investors earn a floating rate. The rates mentioned above reflect the interest rate at the 3-month SOFR floor rate of 0.25%. If and when SOFR rates increase, the interest rate earned by investors would increase correspondingly and any excess interest earned will be paid to investors
  • Target yields are not referenced to past performance, are not guaranteed and results may differ materially.

Returns & Management fees

Ann'l management fee

1.0%

Estimated floating rate yield

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Minimum annualized yield

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Schedule

Payment schedule

Monthly

Target term

30 months

Extension options

2, 1-year

Structure

Tax document

1099-INT

Offering structure

BPDN

Ann'l flat expense

0.25%

Slide 1 of 3
  • Returns & Management fees

    Ann'l management fee

    1.0%

    Estimated floating rate yield

    Login to view

    Minimum annualized yield

    Login to view
  • Schedule

    Payment schedule

    Monthly

    Target term

    30 months

    Extension options

    2, 1-year

  • Structure

    Tax document

    1099-INT

    Offering structure

    BPDN

    Ann'l flat expense

    0.25%

Target yields are offered as opinion and are not referenced to past performance. Target yields are not guaranteed and results may differ materially.

Why our investors chose this offering

Craig S.

Investor since 2021

"An attractive yield with real estate as collateral."

*The testimonials presented on this page have been provided by actual investors in Yieldstreet funds without compensation. Yieldstreet has selected the testimonials, and certain testimonials have been edited to remove personally identifiable information and for brevity. Testimonials were not selected based on objective or random criteria, but rather were selected based on Yieldstreet's understanding of its relationship with the providers of the testimonials. The uncompensated testimonials presented here may not be representative of other investors' experiences, and there can be no guarantee that investors will experience future performance or success consistent with the testimonials presented.*

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.

Docs

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.