Yieldstreet deals defaulting?

15 Replies

I noticed there hasn't been much talk of Yieldstreet on here.  If you don't know it's a crowdfunding website for hedge fund like debt investments, such as private real estate notes, law firm financing, lawsuit financing, container ship financing, and early on they did a couple ride share company financings. It initially seemed great as they were offering 8 to 20% yields and their underwriting notes made it sound like these were well secured investments, usually showing LTVs anywhere from 20 to 60%.

Anyway, fast forward, and it seems that a bunch of deals are falling through. Here are the indications:

1) Their homepage used to advertise "$0 in principal loss" and it no longer does.

2) Here ( https://www.biggerpockets.com/forums/520/topics/38... ) one poster said they invested in a law firm financing back in 2016 and hasn't received "any repayment." Another poster invested in a real estate deal and didn't receive repayments for 90 days and received minimal response from Yieldstreet when he inquired. He did get repaid eventually but claims he lost out on some of the interest he was owed.

3) These links are some of their oldest deals from 2 to 3 years ago, and their "term remaining" is listed as "Ongoing" when normally an active deals shows an estimate of the number of months til deal maturity.  The amounts repaid are less or way less than what they should be by now given the age of the deals. So pretty sure these deals below have defaulted.

https://www.yieldstreet.com/offering/106/quest-liv...

https://www.yieldstreet.com/offering/721/nationall...

https://www.yieldstreet.com/offering/1400/accelera...

https://www.yieldstreet.com/offering/1428/accelera...

3) I had a conversation with a fund manager in the lawsuit financing world and he told me off the record that he knows for a fact that some of their law deals have suffered major losses.

Anyway, I'm posting the above as a PSA and also to see if anyone else here has invested or has info. In full disclosure, I invested in one of their LawCash deals, but so far it's repaying on schedule. My fingers are crossed. Pretty sure I will not be investing any more with them.

I have not yet been fully comfortable enough to pull the trigger on any YieldStreet deals (for reasons described below). However investors  have claimed that the following are in default/foreclosure:

1) 2019 Commercial Financial I:default

2) 2017 Ridesharing Fleet Expansion Originated by Soli Capital: default.

3) Louisiana Oil & Gas Financing Originated by Arena Investors LP: foreclosure.

I personally would not rely on the platform to be doing due diligence for me, and believe it is the investors responsibility to do a thorough diligence in every single deal.

However, I personally think it's no longer economically feasible to do true DD on Yield Street deals anymore. New deals fill up so quickly: many times in just a few seconds and the vast majority of people who want in are not able to do it. This is a problem because it takes days or weeks to truly evaluate a single deal. Why should I or any conservative investor invest that kind of time when I have maybe a 0.5% chance of actually being able to subscribe to the deal if I end up liking it? So I think this tells the story of the type of investor that is on the platform today.

Also, it's hard for me to not notice that deals filling up ridiculously quickly, has been associated in the past on other platforms with their peak (right before a sudden fall). Fundrise 1.0 was filling deals very quickly and then shortly after completely abandoned the accredited investor model. It was also the case with Patch of Land back when they were very popular and before investors started reporting huge defaults.  I think avoiding the temptation of that trap can be very difficult for a company. I hope that Yield Street is not on the same flight path. 

Thanks Ian for the additional info!  A few responses:

1) I too experienced the mad rush to get into some of their deals.  I remember a year ago, within 10 seconds of deal launch, the deal would be oversubscribed.  I found this curious as how was it physically possible to click through the subscription process that fast.  Well a few months later, I was talking to an NYC fund manager in the know who told me Yieldsteet would presell to select family offices up and down Park Ave and then "launch" the deal to the public without disclosing that 90% was already prebought, thus creating the illusion of a frenzy.  Very sneaky.

2)  The defaults seem to have caught up with them because Yieldsteet launched "Short Term Small Business Financing V" today at 6pm.  Here we are at almost 10:30pm and $1.44mln out of the $3mln is still available. So I guess the frenzy is dying down.  

Short Term Small Business Financing II was a $3mln deal and originated 9 months ago, and is showing 7 months to maturity but is only showing about $200k in principal and interest paid.  

https://www.yieldstreet.com/offering/DAxQFQ/short-...

3)  I forgot to mention I heard that one of the Yieldstreet principals has been involved with fraud in the past.  I wasn't in a position to press the source for a name, but I tried googling Michael Weisz and Melind Mehere and "fraud" and nothing came up.  Anyone have any info on this?

Ian, I notice you're a crowd fund expert.  Do you have any current thoughts on Lexshares?

@Chuck Woolsey , Very interesting. Yes I do like many things about LexShares. Although as a conservative investor I would not invest in any individual or tiny portfolio deals on the platform, as there is too much all-or-nothing binary risk. (This isn’t a knock on them: the same applies for any platform for me).

On the other hand, they have a diversified fund offering that will be made available later in the year that will allow the investor to diversify across all the later offerings. I am very interested in this and have talked to them about it quite a bit already. If you want more info, PM me.

Originally posted by @Ian Ippolito :

I have not yet been fully comfortable enough to pull the trigger on any YieldStreet deals (for reasons described below). However investors  have claimed that the following are in default/foreclosure:

1) 2019 Commercial Financial I:default

2) 2017 Ridesharing Fleet Expansion Originated by Soli Capital: default.

3) Louisiana Oil & Gas Financing Originated by Arena Investors LP: foreclosure.

I personally would not rely on the platform to be doing due diligence for me, and believe it is the investors responsibility to do a thorough diligence in every single deal.

However, I personally think it's no longer economically feasible to do true DD on Yield Street deals anymore. New deals fill up so quickly: many times in just a few seconds and the vast majority of people who want in are not able to do it. This is a problem because it takes days or weeks to truly evaluate a single deal. Why should I or any conservative investor invest that kind of time when I have maybe a 0.5% chance of actually being able to subscribe to the deal if I end up liking it? So I think this tells the story of the type of investor that is on the platform today.

Also, it's hard for me to not notice that deals filling up ridiculously quickly, has been associated in the past on other platforms with their peak (right before a sudden fall). Fundrise 1.0 was filling deals very quickly and then shortly after completely abandoned the accredited investor model. It was also the case with Patch of Land back when they were very popular and before investors started reporting huge defaults.  I think avoiding the temptation of that trap can be very difficult for a company. I hope that Yield Street is not on the same flight path. 

sounds like they are all over the map.. lawsuit financing is highly risky.. that major one in LA went down.. 

seem like too many different deals for one company.. .. usually I think kind of like to stick to companies that know one asset class or maybe a few.. but not such a wide variety.. the lawsuit thing has been touted for 3 plus decades I know of.  

Top 150 Law Financing is also a Default.  Communication from YS is very patchy.  When distributions from them do appear in my bank account there is often a weeks-to-months lag before they appear on my YieldStreet account.  This makes it very hard to reconcile your bank account and YieldStreet account, particularly when the delay spans from one tax year to the next.

I'm surprised to find out here that so many deals actually go for default. their website still claims "$0 principal loss", how can that be legal? 

checked a few recently -closed offerings in their website, seems no recent deals get any payment. most of the deals in first page shows 0 payment although they are supposed to be the monthly payment offerings.

communication is definitely a problem. their phone contact goes to voice mail, email doesn't get responsed. sounds very sneaky.

and they recently claimed that they closed the series B after raising 62m as milestone. it has been quiet since then.  does anyone know what that means by closing series B? did they finally realize troubles coming?

so worrying...

I have two investments with YieldStreet adn both are having problems. One has had a default and the second has been extended beyond the original term. I am pulling whatever money I can get our of the account, asap. I would not invest with them and I am glad that word is making its way out onto the internet. Avoid! 

@Charles Bonomo

It’s just a matter of time these sites start to go belly up as the investments I reviewed on these sites were flawed with their proformas and expectations and being solicited by people who lacked experience as there is a lot of cash in th market and many of these deals were people who couldn’t get conventional money.

@Chris Seveney

Chris hit the nail on the head. You can only restructure a non performing loan so many times before you have to admit its non performing. Most of these platforms are run by tech guys, the financial guys they hire are, to be blunt, lightweights.

I’ve been asked by a couple of we’ll know platforms to show their loan underwriters how we evaluate a commercial mortgage loan. Problem is that it takes knowledge, experience and ability to have success in the non conventional lending field. And those requirements are not obtained by observing one transaction.

I’m sure there are platforms that employ talented, experienced and competent people in their underwriting, however, many have a lacking in this area.

@Don Konipol

You hit the nail on the head and my assumption when I did some background on some of these other crowdfunding sites was they were started by technology people and not commercial real estate investors and underwriters who have the experience. In today's job environment the good underwriting and analysts are working for funds or private commercial firms and getting paid a very good salary, and I would not expect some of these platforms to be employing top talent because they are more of a technology platform and not true real estate companies.

This company continues to lure new gilluble investors by claiming "Zero principal loss" on their investments. Meanwhile several of their investments are in trouble. I have one which stopped accruing interest and is now in a lawsuit that can drag on for years and we probably will lose all our money. So yes, a principal loss could take years to materialize and these guys meanwhile can keep claiming zero principal loss and rake in millions from unsuspecting investors.

FDIC needs to take a serious look at these guys. How can they claim zero principal lost while so many of their investments are in litigation?

Yieldstreet is a bust, I got involved in one short term marine deconstruction, it was a 6 month project.  They did pay the interest promised.  After the 6 months no return of principal.  No responses from Yieldstreet either.  There was one vague general letter, stating they were working things out, and these things take time.  I am not a wealthy man, but would appreciate feedback on what others would do next in order to at least have a chance on some recovery.  

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