Third Quarter Update with 7E Investments
CWS is off to a fast start. On the investor relations front, the company has over 100 investors in the fund within the first two months of receiving our qualification from the SEC. This has allowed our asset management division to scale to approximately $10MM in AUM and are continuing to pursue new acquisitions daily to see if they would be a fit for our portfolio
Market Update & Acquisitions
We have seen an increase in market activity in the distressed sector which we expect to create significant opportunities for our fund in the coming months. Just this past week, our team was dissecting close to 500 mortgage notes for sale with unpaid balances of $60M (also called “a tape, or a tape of assets”). Our asset management leadership team narrowed down the pool of assets to approximately 50. As we have noted in the past, we take a 3-dimensional perspective on the loan, or what we call the three P’s. The Property (value), the Person (borrower) and the Position (why did borrower get into this position/predicament).
We start with the property. Below is an image of one of the properties that was listed on the tape of assets. Based on an initial visual inspection, this property is vacant and in deplorable condition. This asset provides little value to 7E as our only recourse would be to foreclose on the asset and sell it on the secondary market to a real estate investor since this type of property would require significant repairs. When properties require significant repairs on the interior, they are not qualified for conventional financing, nor do we qualify them for seller financing through 7E as we only finance properties to borrowers which are occupiable.
Another example of using our three-dimensional approach includes understanding the people (borrower). During our analysis on the assets we were looking to acquire, we discovered several loans where the borrowers were “serial bankruptcy filers”. What does this mean? These are borrowers who appear to “manipulate the system.” These are rare occurrences, but it does happen. The borrower will not pay their mortgage payments, file bankruptcy to avoid foreclosure, stop making payments in bankruptcy and once bankruptcy is dismissed, file again in the near future (as seen below).
These are loans where it is difficult to assist a borrower who is not looking to get assistance. These loans also require considerable time and costs to manage. Because these loans are not a win-win for either party, we avoid these types of borrowers.
Second Chances
Case Study #1
We recently acquired a distressed loan in Auburn Maine. The property had recently been renovated by the homeowner who also had fallen behind on their payments. This property was a great fit for our buy box as the loan balance was approximately $125,000 but the property value was over $500,000 (see pics below). We acquired the loan at a 40% discount with the borrower being several months behind on their mortgage. Since acquiring the loan, we have been receiving payments from the borrower based on modified loan terms we were able to offer them. At the same time, we worked with them on the sale of the property as they are looking to liquidate the property as the house is too large for their needs at this time.
This case study is also an example of one of our risk mitigation efforts of acquiring loans where the property has significant equity. If home prices were to drop by 25%, the borrowers balance of $125,000 is still significantly lower than the value which would still be $375,000.
Case Study #2
128 Cambridge
We acquired this loan at an approximate 40% discount and quickly connected with the borrower who informed us that she had been paying the mortgage on the property as well as paying rent to live elsewhere because there is lead in her home and she has children. In order to get the assistance she needs with the lead, the deed must be transferred to her name, as the arrangement the borrower made with the prior seller was based on an installment contract, which is like that of a car loan, whereby title is not transferred until the loan is paid off.
Due to the borrower having to make double payments, this hardship caused the borrower to fall behind on payments by four months. Since discovering the lead issue and the understanding the borrower’s hardship, our asset management team has been working with this borrower to transfer the deed into the borrower’s name, so they can get state assistance to deal with the lead paint issue and provide the borrower with a traditional mortgage. This is just one of many examples of our asset management team reacting quickly to resolve an issue, whereas with institutional and traditional lenders, a resolution may require a multi-step approval process and cause the borrower to get significantly behind.
Due to the borrower having to make double payments, this hardship caused the borrower to fall behind on payments by four months. Since discovering the lead issue and the understanding the borrower’s hardship, our asset management team has been working with this borrower to transfer the deed into the borrower’s name, so they can get state assistance to deal with the lead paint issue and provide the borrower with a traditional mortgage. This is just one of many examples of our asset management team reacting quickly to resolve an issue, whereas with institutional and traditional lenders, a resolution may require a multi-step approval process and cause the borrower to get significantly behind.
Invest with 7E
Current investors are consistently receiving their monthly dividend income while most financial markets are down 20% or more YTD. With inflation still very high and interest rates putting a halt to the residential real estate market, we believe our strategy will continue to be successful while other markets remain very volatile.
If you are interested in investing with 7E, please 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
Katie is the grease to our wheels and keeps everything moving smoothly at 7E. She is the first point of contact for new investors – helping them through the onboarding process and answering any questions they bring her way. She brings a smile to every conversation that she has and can find a positive solution to any problem.
Her passion for efficient, kind, and professional communication really shines through in her day-to-day work, and she is the gal who makes sure our wonderful investors get their monthly dividends on time!
In her free time, she loves all things Santa Barbara – hiking, beaches, wine tasting and spending time with her family and friends.
Employee Spotlight – Katie Klezek,
Director of Investor Relations
