First Quarter Update with 7E Investments
7E Investments is pleased to provide you with our First Quarter Update for 2023. Not only has 7E consistently delivered distributions on time each month as expected, but we are also providing an excess dividend of an additional 50% for March 2023 – to be paid on May 1!
The first quarter of 2023 was our best quarter to date. We have over 100 assets in the fund and over $25M of AUM. Our Asset Management team reviewed over $300M in loans during this past quarter while our investor base has grown to over 300 investors.
We continue to set ourselves up for growth and the upcoming opportunities, as it is during times of instability when we see the greatest opportunities to buy distressed debt. Therefore, we remain bullish and confident in our ability to continue to find and acquire new opportunities during challenging conditions that align with our business plan.
Assets Under Management (AUM)
All signs are pointing to a significant increase in defaulted debt coming to the markets in the next 24 months. Some significant updates since the last quarter (besides Silicon Valley Bank) include:
- FHA mortgage default rate is now above 10%
- Commercial Property Debt Creates More Bank Worries – WSJ
- Jerome Powell anticipates 2M job cuts are required to bring down inflation
Due to the ongoing banking concerns, banks will be eager to sell off their defaulted debt to avoid liquidity issues and revaluing portfolios based on today’s valuations. These market conditions should lead to an increase in distressed assets available for sale on the secondary market as banks look to move assets off their balance sheets. As more assets become available, acquisition prices will decrease. This is where 7E Investments can step in, purchase said assets, and work with the borrower to get them reperforming again.
One of the ways we are preparing for an increase in asset availability is by continuing to build relationships with those at the forefront of any distressed asset sales. We recently returned from a conference where we met with several firms affiliated with liquidation of bank assets. Many of these firms require pre-approval and a vetting process, which we have already undergone and are pre-approved to bid on future pools that these firms will be trading.
Acquisitions & Dispositions
Assets Evaluated: 300M
Bids placed: 30M
Acquisitions: Some of the larger loans we acquired were
- A $1.3MM loan on a $9.6MM single family property in Palm Beach, FL
- A $750K loan on a $1.2M 3-property note in South Fallsburg, NY
- A $500K loan on $2M multi-property note in Russellville, AL
Dispositions: This past quarter we disposed of a handful of loans which provided us with an IRR of over 25%.
Due Diligence 101
Due Diligence is one of the areas we excel in compared to our competition. We have a 25-point due diligence plan and checklist that we follow for every asset and our due diligence is done by a senior member of our team, unlike most of our competition who outsources it overseas to lower wage staff.
From a high level, the due diligence on a note is very similar to buying a property. There are no commitments or costs spent upfront until an agreed upon price is determined upfront. Once the price is agreed upon, the buyer will spend the next 2-3 weeks doing their due diligence before closing the sale. The difference is the information we obtain when buying a loan is we receive the loan package along with ordering the required reports.
If everything checks out, we continue with the purchase. The top two reasons why a sale is not completed is either due to a title issue that cannot be resolved, or the property valuation was significantly lower than expected.
CASE STUDY #1: Happy Borrower – Loan Brought Current
Sometimes it’s as simple as picking up the phone and communicating with the borrower
- Sent demand letter to borrower to pay ~$70,000
- Borrower reached out wanting to stay in their home and offered a $15,000 down payment and recurring monthly payments
- We worked out a plan with the borrower to accept the $15,000 and additional payments each month
- Borrower still paying every month and is now caught up with their loan!
CASE STUDY #2: Happy Borrower – Loan Mod
CWS worked with the borrower to come to a win-win solution with a monthly payment that the borrower can afford while also achieving a good return to CWS’ investors
- This loan was originally a low balance second position loan with a small monthly payment of $45. The borrower had several thousand in charges and advances. If we had not modified the loan the return would have been 5%.
- The borrower agreed to a loan modification to roll charges and advances into a new total balance and started paying $200/month to payoff the original balance and the charges. With the modification our return jumped to over 30%.
- Borrower started paying after loan modification was executed & continued to make consistent monthly payments.
- Because we modified the loan and the borrower was paying successfully, we were able to sell the loan on the secondary market for over a 100% return.
CASE STUDY #3: Asset Purchase
CWS acquired this performing loan at a discount with an interest rate of 13.5%.
- Purchased a recently originated performing loan
- Loan to Value(LTV): 58%
- Fair Market Value(FMV): $9.6MM
- Interest Paid Upfront
- Expected rate of return: 15%+
Larisa is the backbone to our asset management team and holds down the fort on a daily basis. With her extreme attention to detail and her willingness to take on daunting tasks, she has proven to be a team player through & through.
Through her ability to juggle the management of our servicers, our attorneys, and our loan software company, she has shown that she has the heart, fortitude, and grit it takes to exemplify what we would all want in an asset manager. Not to mention, she keeps us laughing with her witty one-of-a-kind sense of humor.
In her free time, she enjoys traveling, camping in the great outdoors, growing as an investor herself, and spending time with her family and friends, preferably gathered around a nice outdoor fire with a drink in hand.