Second Quarter Update with 7e Investments
At 7e, the second quarter was one of great progress. 7e continues to consistently deliver distributions on time each month as expected.
The second quarter of 2023 was our best quarter to date. We have over 120 assets in the fund and over $38M of AUM. Our Asset Management team reviewed over $4B in loans during this past quarter while our investor base has grown to over 400 investors.
During this past quarter we successfully completed our audited financials with the assistance of Grant Thornton, a major milestone that underscores our commitment to financial transparency and regulatory compliance. After a thorough review, these audited financials were promptly submitted to the Securities and Exchange Commission (SEC), marking an important step in our regulatory process.
Additionally, in an effort to capitalize on market opportunities and facilitate the growth of our investment pool, we have also submitted a Post Offering Statement. This allows us to extend our offering period for another year, demonstrating our confidence in the viability and future growth of our portfolio, and providing potential investors with an extended opportunity to participate in our ongoing success.
Portfolio Overview
122
Number Assets
$38M
Assets Under Management (AUM)
29
Number States
Market Update
The distressed debt market has remained in a state of flux throughout Q2 2023, largely in the shadow of the lingering impact of COVID-19. With foreclosure rates continuing to increase post covid, there has been a significant increase in the distressed asset inventory.
Simultaneously, there’s been a conservative shift in US banks’ attitudes towards lending. Lenders are raising their standards and building up cash reserves, putting further strain on borrowers and likely driving an uptick in defaults due to a borrower’s inability to refinance. This trend reflects heightened risk aversion in the banking sector and could potentially increase the inflow of distressed assets to the market.
In terms of market activity, there’s been an increase in assets sales this quarter. An aggregate of over $4B in assets were put up for sale. However, a key challenge facing the debt market is the persisting disparity in the bid/ask spreads. Sellers’ expectations continue to be inconsistent with buyers’ pricing, echoing patterns witnessed in the real estate market. This gap has caused friction in the negotiation process and slowed transaction velocities.
Nevertheless, markets are displaying their inherent dynamism by self-adjusting. Gradually, we’re witnessing a realignment of price expectations between buyers and sellers. If this continues, it should lead to a more fluid debt market, aiding both parties in reaching a consensus and closing deals faster.
As we move into Q3 2023, it’s expected that market participants will continue to adapt to these evolving conditions and we will continue to see a significant number of assets for sale.
Acquisitions
Assets Evaluated: This past quarter we received over $4B in assets to review. We placed bids on over $50M in assets. We have over $4M in closed/ accepted bids (under due diligence).
Acquisitions: Some of the larger loans we acquired were:
- Dawsonville, GA
- Performing Loan
- UPB: $600K
- Projected return: 15% +
- Cumming, GA
- Performing Loan
- UPB: $600K
- Projected return: 15% +
- 18 loan pool purchase
- Non-Performing Loans
- UPB: $1MM
- Projected return: 24% +
Case Studies
CASE STUDY #1: Borrower paid off early!
- UPB: $123,699
- P&I: $587.80
- Status: Paying & Current
- Property Characteristics:
- 4 bedrooms, 4 bathrooms
- 2363 Living Sqft
- Fair Market Value of $500,000
- STORY – ACTIONS TAKEN:
- Purchase Price: $80,000
- We acquired this loan from a seller we had purchased over 100 loans from
- Borrower had renovated property and listed it for sale, but property sat on market
- We acquired loan and waited. Our model had shown any payoff within 48 months would yield us our desired results
- Borrower paid off loan in April 2023.
- Received 3,294 in borrower payments
- Borrower paid off loan in amount of $122,000
- Total all in costs – $80,626
- Total Profit – $44,668 (75% IRR / 55% ROI)
CASE STUDY #2: Borrower Reinstated
Borrower was behind a full year’s worth of payments; by having our servicer conduct some borrower outreach, we were able to reach the borrower and encouraged the borrower to fully reinstate in order to achieve a status as current.
- Borrower was $55,00 behind. We worked with our servicing company and their borrower outreach led to the borrower fully reinstating, and borrower is now current. Once the borrower makes another 6+ payments we will look to liquidate this asset on the secondary market as a performing loan.
ACQUISITIONS
CASE STUDY #1: ACQUISITIONS – PURCHASED
During the past quarter we continue to acquire assets. In one of our larger purchases, we acquired 18 loans in one purchase with some of the highlights below:
- Purchased a tape of 18 loans across 10 states
- UPB: $1MM
- Borrowers on these loans are 6-10 months behind
- Just completed loan boarding on all these loans
- Purchased these loans because they have great equity above the loan purchased due to the high quality of each property on this tape
Photos of one of the properties on this tape – high quality properties securing our interest:
CASE STUDY #2: ACQUISITIONS – PASSED
After we get a property under agreement, it is critical to have the property visually inspected to determine estimated market value. The asset below was noted on the tape we received to have a value of over $125,000. Upon inspection, the estimated value of the property was $40,000.
This low value does not meet our standards for fair market value of the collateral behind the notes that we typically like to purchase, so in this example we passed on this asset.
CASE STUDY #2: ACQUISITIONS – PASSED
Not every asset we look to acquire ends up fitting our buying criteria. As a reminder, we paint a 3D picture of every asset following the P’s (Property, Predicament, Person). We recently received a list of eight assets for sale, where every property was in excellent conditions, but the Person behind the asset was another story.
- We passed on a tape of loans due to the quality of borrowers on the tape – one example was due to the borrowers’ criminal records
- This borrower had seventeen pages of criminal history – this is not the type of asset we look to have in our portfolio
Employee Spotlight
Delaney Huthsing
Director of Operations
1. What are some of your strengths that you bring to the business?
Optimize processes, streamline workflows, and leverage data-driven insights to drive efficiency, scalability, and cost savings.
2. What is your favorite thing about working with the 7e team?
Our team has grit. We are small but mighty and determined to win. The energy and enthusiasm on this team to solve problems, continuously improve, and get it done are what makes us great.
3. What did you do before working with 7e?
Before 7e, Delaney led a successful career in operations and continuous improvement in her 10 years working in corporate and non-profit. She has worked as a Senior Operations Leader at Target and Direct Relief, developing and leading teams, improving operational efficiencies, and implementing systems and processes at scale.
4. What did you study in college?
Business Management
5. What are some of your hobbies outside of work?
Outside of the office, Delaney is likely to be with her family outdoors, chasing her sons around the Santa Barbara beaches, hiking in the hills, or off camping somewhere.
6. What is a book you recently read or would recommend?
Atlas Shrugged
7. How do you drink your coffee?
She doesn’t drink coffee on the regular but will enjoy a latte with milk and sugar with a friend.
Ready to Make an Investment?
If you are interested in investing with 7E, you can do so online here. You can also reach out to us directly at invest@7einvestments.com to speak with a member of our team or visit our offering page to learn more at https://invest.7einvestments.com
