Williamsburg Multi-Family Restructuring Equity

Annualized return3

Term

10 months

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Status

Fully repaid

Recently funded

Accepting $50,000 - $500,000 investments

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Accepting $50,000 - $500,000 investments

Overview

Invest in an existing first mortgage and mezzanine loan secured by a multi-family complex in Williamsburg, Brooklyn. It’s expected that the property will be foreclosed upon by the lender group and if successful, the lender group is expected to take ownership of the property. The borrower has failed to meet obligations under the loans, foreclosure proceedings have already commenced and a receiver is expected to be appointed by the court (though it may not occur at all) in the next few months. Upon placement into receivership, the sponsor’s business plan is to lease-up the retail and parking spaces before an eventual sale.

Built in 2018 and located one block from the East River waterfront, the 96-unit luxury rental building is in a hip Brooklyn neighborhood that draws young professionals to its boutiques, trendy cafes and buzzy restaurants. Residents in the area can easily commute to Manhattan via subway or ferry, both of which are located only a couple of blocks from the building. Now considered one of the most desirable NYC neighborhoods, the Williamsburg submarket benefits from its excellent demand drivers causing vacancy rates to remain low and rents to increase over recent years despite constant new supply becoming available.

The offering is expected to provide investors a targeted annualized return of 15-17%. Returns are expected to be achieved at the time of sale or refinance, anticipated to be within 36 months. Since this is expected to be an equity investment, there is potential for returns to be above or below the target range.

Important Notes

• This offering is not available to pension plans, defined benefit plans, defined contribution plans, retirement plans, IRAs, 401(k) and 403(b) funds, and funds comprised of these plans and funds.

Highlights

Attractive cost basis
Quality asset
Desirable location
Grounds for foreclosure
Experienced team
  • CBRE, a commercial real estate services company, appraised the property as of October 2019. CBRE valued the property on an “as-is” basis at $109.6M, or $1.1M per unit, and “as stabilized” at $119.7M, or $1.2M per unit. The sponsor additionally valued the property on an “as-stabilized” basis at $119.0M, consistent with the appraisal. Yieldstreet’s investment basis is $94.4M, or $983k per unit, equating to 79.3% of the property’s estimated value.

  • The mortgage loan is secured by a 96-unit multi-family building with 31K SF of multi-level retail space in Williamsburg, Brooklyn, NY. The property enjoys frontage and strong visibility in a prime location, and the units (consisting of studios to three bedroom apartments) each feature large windows, hardwood floors, stainless steel appliances, quartz countertops and individually controlled heating and cooling. Beyond the high quality interiors of each unit, the building also offers residents amenities including a rooftop deck, rear patio, spa, co-working space, fitness center, laundry room, bike room, state of the art gym, 170 space parking garage and seventh-floor recreation room.

  • According to CoStar, a leading commercial real estate analytics company, the Williamsburg submarket has transformed from an industrial working-class neighborhood to one of New York’s most prominent neighborhoods. The submarket's strong demand drivers include abundant retail amenities, manageable rents compared with Manhattan, proximity to nearby job centers, and have supported strong demand from young professionals.

  • Based on the loan agreements, the borrower has defaulted on three terms: failure to meet the temporary certificate of occupancy deadline; not paying back the loan upon maturity; and misappropriation of funds. These events of default warrant the sponsor to pursue all remedies under its rights as a first mortgage and mezzanine lender, and additionally maintains the right to pursue bad act guaranty claims against the guarantors. While the loan is non performing, the multiple avenues available to the sponsor to seek recourse increase the expectation of a resolution within 36 months.

  • The sponsor, Invictus, is a New York based, vertically integrated real estate PE firm founded in March 2020 by Eric Scheffler and Christopher Pardo. As of 5/31/21, Invictus has closed 8 transactions with total equity investment of $125M. Prior to Invictus, Eric was a director at the CMBS group of Bear Stearns, GC and MD at Madison Realty Capital where he worked on loan workouts, including foreclosures, on over 150 deals. Most recently, Eric was the principal and GC at Glacier Global Partners, a real estate PE firm.

    In addition to the experience of Invictus and its founders, the sponsor has also retained two reputable international and national law firms as counsel for the foreclosure proceedings.

Essentials

Please refer to the Investment Memorandum 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 $10M of the equity, and the remaining balance was provided by the sponsor and original lender. The equity position is subordinate to the senior lender, a NY-based private equity firm.

Cash flow

How do I get paid?

Over the life of the investment, investors are expected to receive a target annualized return of 15-17%, net of Yieldtsreet’s management fee, commitment fee and fees earned by the sponsor as further described in the Investment Memorandum. Investors are expected to receive principal and returns at the time of sale or refinancing of the property, anticipated to be within 36 months.

Assets

What is the collateral underlying the transaction?

The sponsor has purchased the unpaid first mortgage and mezzanine debt from the original lender. The first mortgage was first originated in December 2017 with an aggregate balance of $78 million. It was originally structured with a 24-month term and two six-month extension options. The mezzanine loan was originated in October 2019 to provide additional funding due to budget overruns. At the time of mezzanine loan origination, the original lender amended its first mortgage loan so that both loans terminated on the same date in March 2020.

Not only do both loans remain unpaid, the borrower also failed to meet the temporary certificate of occupancy (TCO) deadline, and so is in default under the loan covenants. Furthermore, the borrower was also obligated to deposit rents and other revenue into a lockbox but failed to do so, ultimately constituting misappropriation of funds. Due to the foregoing, the sponsor is able to pursue all remedies under its rights as a first mortgage and mezzanine lender, and additionally maintains the right to pursue bad act guaranty claims against the guarantors.

Given the numerous instances of default, the litigation strategy is to simultaneously undergo mortgage foreclosure proceedings (already commenced), to potentially gain receivership of the property, as well as undergo a UCC foreclosure under the mezzanine loan. Undergoing UCC foreclosure under the mezzanine loan gives the sponsor a quicker avenue to potentially obtain ownership of the property in an attempt to realize profits through an eventual sale.

Returns & Management fees

Ann'l management fee

2.5%

Target ann'l net return

15% - 17%

Share in excess profits

100%

Target equity multiple

1.6x - 1.7x

Schedule

Payment schedule

Event based

Prefunded

Target term

36 months

Structure

Tax document

K-1

Offering structure

SPV

Expenses

First year expense

$150

Annual Flat Expense

$70

Slide 1 of 3
  • Returns & Management fees

    Ann'l management fee

    2.5%

    Target ann'l net return

    15% - 17%

    Share in excess profits

    100%

    Target equity multiple

    1.6x - 1.7x

  • Schedule

    Payment schedule

    Event based

    Prefunded

    Target term

    36 months

  • Structure

    Tax document

    K-1

    Offering structure

    SPV

    Expenses

    First year expense

    $150

    Annual Flat Expense

    $70

Docs

Content

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.