First Quarter Update
7e Investments is pleased to provide you with our First Quarter Update for 2024. We continue to consistently deliver distributions on time each month as expected for 20 months straight. This past quarter, our asset management team reviewed over $3.5B in loans spread out over 366 different pools of loans. Q1 also marked a significant phase in our portfolio, as it saw us successfully disposing of lower balance assets that went from non-performing to performing status – a testament to our team’s adeptness in asset management and value realization. Concurrent with these liquidations, we actively acquired additional performing and non-performing loans, aimed at diversifying, and strengthening the portfolio. While our overall loan count continues to decline, it’s crucial to note the AUM, value, and average balance of the loans have increased, which allows us to remain operationally efficient as we scale. We continue to focus on equity in the assets and diversification across multiple states.
Current Portfolio Overview
Market Update
In the past quarter, we continue to observe a notable trend in the non-performing loan pools and additional observations based on the current interest rate environment. We will continue to educate our investors how these shifts affect our note fund, especially in comparison to other investment vehicles.
The Decline in Commercial Real Estate
We continue to see the commercial real estate market (especially multi-family) facing unprecedented challenges, marking a significant shift in its landscape. Once a bastion of steady growth and reliable investment, this sector is now navigating through turbulent waters, reshaping the strategies and outlooks of investors and stakeholders alike.
Challenges in the Market:
The market is currently grappling with a trio of formidable challenges. We are seeing syndications searching for preferred equity, making capital calls and faltering deals that go into default. Capital calls have become more frequent and demanding, reflecting the increased need for liquidity among investors. Furthermore, a noticeable uptick in deals going awry exemplifies the market’s instability, leaving investors wary and cautious. These elements collectively underscore the sector’s ongoing struggle to regain its footing in a rapidly evolving economic landscape.
Contrast with Mortgage Notes:
In the multifaceted world of real estate investment, factors influencing the multi-family sector present a distinct landscape compared to our approach in the mortgage note fund. Central to our strategy is the absence of debt, a key differentiator that sets us apart in an environment where leverage often poses significant risks. Our methodology revolves around acquiring assets at a discount, with a focus on purchasing seasoned loans. This adds another layer of security, offering us substantial equity coverage. This strategic combination—debt-free operations, discounted acquisitions, and equity-rich seasoned loans—equips us uniquely, enabling us to navigate market fluctuations with a robust and resilient stance.
Inflation & Market Impact
Inflation continues to cast a long shadow over the economic landscape, and its ripple effects are palpably felt in the real estate sector. This prolonged period of inflation is not only influencing purchasing power and investment decisions but also escalating the incidence of loan defaults. Such a trend necessitates a heightened level of vigilance and strategic caution, especially when it comes to acquiring performing loans.
Challenges in the Market:
The uptick in defaults poses a nuanced challenge. While it opens avenues for acquiring non-performing loans, it simultaneously complicates the process of negotiating new agreements with borrowers. In this intricate scenario, our fund’s approach is meticulously crafted to navigate these complexities. Our vertically integrated team employs a rigorous and exhaustive due diligence process, allowing us to selectively pinpoint loans where we possess a high level of confidence in our ability to successfully negotiate with borrowers. This methodical selection process is not just about identifying opportunities; it’s about ensuring that each chosen loan aligns with our stringent criteria for potential successful workouts.
Strategic Distinction:
Our fund’s distinction lies in this very process. We don’t merely adapt to the challenges posed by inflation and rising defaults; we proactively seek to turn these challenges into opportunities. By cherry-picking loans with the highest potential for successful arrangements, we position ourselves not just to weather the storm but to emerge with strategic gains. This approach underscores our commitment to prudent, informed decision-making in an unpredictable market.
Case Studies
CASE STUDY #1: Borrower Started Trial Payment Plan
The Stats: UPB (Unpaid Principal Balance): $58,866
Principal and interest Monthly Payment: $640.46
Status: Non-performing
The Story & Our Process:
Acquired in April 2023 for $41,500.
Status: Non-peforming Borrower was 11 months behind in payments Need $7,500 to reinstate.
Action Taken: We engaged legal & a foreclosure sale was set for October 2023. In September, the borrower reached out and provided a Financial Hardship Application. We reviewed their incomes and expenses & offered a trial payment plan with a loan modification. They agreed and the foreclosure sale was canceled.
Outcome: In December, the borrower paid a $3,000 down payment towards the arrearages. They agreed to pay $800/monthly payments – increased from $640/month for 6 months. After 6 months of consistent payments, we plan to modify the loan so that the new Total Balance will include all past due amounts. This will increase the value of the loan for us to sell after 12 full months of payments (January 2025).
CASE STUDY #2: Payoff from Property Sale
The Stats: UPB (Unpaid Principal Balance): $451,976
Principal and interest Monthly Payment: $1,966
Status: Non-Performing Property Characteristics:
- Fair Market Value of $1,000,000
- 5 bedrooms, 5 bathrooms
- 8580 Living SqFt
The Story & Our Process:
We acquired this loan in August 2023 for $400,000.
The Story & Outcome:
Prior to the purchase, during our due diligence phase we identified that the borrower had the property listed for sale and it was pending sale for $1,000,000 The property was sold in October 2023. Our loan was paid off in full in the amount of $451,976. Total Profit – $40,430.00
Please do not hesitate to reach out to us directly at invest@7einvestments.com to speak with a member of our team should you need anything.
If you are an investor with 7e, chances are you’ve spoken with, texted or emailed Toni – our rockstar Investor Relations Associate. Maintaining a strong connection with our investors is one of our main objectives as a team. We pride ourselves on being available to our investors!
Whether she is assisting with your investment, coordinating with an IRA Custodian, onboarding your investor portal, or answering questions about your account – Toni is your go to resource for your investment experience. Best of all, she is a full-time employee of 7e! Unlike a call center, you can connect with a knowledgeable member of our internal team.
A few fun facts about Toni – she grew up in Santa Barbara, played collegiate water polo at University of California Irvine, and will always say yes to a matcha latte from her favorite coffee shops.
Employee Spotlight – Toni Shackelford
Investor Relations Associate
