Thanks to your participation and support, we’ve reached another exciting set of milestones at PeerStreet: $2 billion transacted on the platform and over $1 billion in assets under management.
These numbers matter because loan volume is integral to the health of our platform. But they aren’t our only benchmarks for success. To truly transform this industry, we’ve aimed to integrate relatively novel concepts in the space: access, control, transparency, and the ability for all our investors to easily diversify (a common strategy to mitigate against potentially changing markets). That’s how we are working to level the playing field between Wall Street and Main Street.
The fragmented nature of the industry made it unrealistic for most people, and even many institutions, to easily access short-term real estate debt—a unique asset class due in part to the physical property backing each investment. We’ve removed many of these old barriers to entry.
Because this is a relatively new investment opportunity for many people, we want our investors to be as knowledgeable as possible. Losses in this space can and will happen, regardless of the market, the parameters of the loan, or the strength of our platform. Two PeerStreet transactions in the last year encapsulate the variable nature of this asset class, particularly when a foreclosure is necessitated. We recently experienced our first gain on a foreclosure sale, resulting in a 14% return for investors on an anticipated 8% return, as well as our first net loss on an individual loan, resulting in a -10.5% return.
Up until this month, we had a four-year streak of no net losses* on any individual transaction for our investors. Our in-house Underwriting, Servicing, and Asset Management teams work with the goal to approve quality lenders, bring quality loans onto the platform, collect and distribute payments from borrowers, and, if/when a loan goes into foreclosure, work hard to ensure investors get paid back.
The best way we can demonstrate our efforts is to show you the numbers. As of March 21, 2019, we’ve transacted on over 4,775 loans. Of those, 136 loans (i.e., fewer than 3% of the loans we’ve transacted on) have gone into default, meaning we have filed a notice of default or foreclosure complaint against a property.
Of those 136 loans that went into default:
- 55 loans (40%) were paid off before completing a foreclosure and investors received a positive cash-on-cash return on all of these loans; 42 of those 55 loans resulted in a payment above the originally anticipated investor return
- 57 loans are actively in the foreclosure process
- We have completed foreclosures on 20 properties
- Of those 20 foreclosures, we have sold five of the properties and distributed proceeds to investors; four of these foreclosure sales resulted in positive returns to investors, with the fifth resulting in the loss described above
- The four remaining loans of the 136 total that entered default status have since been cured by the associated borrowers and are now performing
These numbers represent our current snapshot in time. The PeerStreet platform is a dynamic one—we have hundreds of lenders and thousands of investors transacting regularly, so these numbers can and will change. Like we have said, losses in any investment space are inevitable, in spite of our team taking great pains to avoid any problems for our investors.
We wanted to highlight these numbers for a few reasons: (i) our goal is to be as transparent as possible with you, our investors, so you can make the most informed decisions of what to do with your investment capital; (ii) we want to highlight that one of the benefits of investing in secured real estate debt is that even when a loan goes into default, because of the collateralized nature of the loan, the property backing the loan can be sold to mitigate losses; and (iii) most importantly, we want to reiterate how investors can diversify on our platform.
From the start, we created this marketplace to make it easy for investors to diversify their portfolios, namely through making it possible to invest in small increments ($1,000 minimum) and using our Automated Investing feature, where investors get faster access to investments that meet their personal criteria. If you were to put all your eggs in one loan basket, so to speak, the possibility of a loan default or foreclosure could carry more serious consequences. With PeerStreet, you can diversify across lenders, borrowers, asset classes, geography, yield, term, and LTV, all with just a few clicks.
How you diversify is your choice. Diversifying your portfolio isn’t an impenetrable shield against borrowers who can’t (or won’t) pay their loans back, but it may help ensure that a single investment loss doesn’t define your portfolio. Our goal is to make your ability to invest in real estate debt as streamlined and hassle-free as possible. And as we keep rolling out new offerings, we’re excited to explore more ways to help our investors diversify.
*When we have had to complete those foreclosures, either the value of the property at the time of sale negated a net loss, or sufficient fees and costs could be negotiated down or waived to avoid a loss. There were occasions when there was a loss at final payoff, but the interest and fees that were collected made up the difference, so investors didn’t lose money (and many benefitted from a positive return).
