Third Quarter Update with 7e Investments
At 7e, the third quarter was one of great progress. 7e continues to consistently deliver distributions on time each month as expected. We have over 120 assets in the fund and over $55M of AUM. Our Asset Management team reviewed over $4B in loans during this past quarter while our investor base has grown to over 500 investors.
During the third quarter we also started to sell some of our reperforming loans to recapitalize those costs and reinvest in new assets. While our asset count did not increase, the total valuation and costs of our assets increased significantly.
Portfolio Overview
123
Number Assets
$55M
Assets Under Management (AUM)
29
Number States
Market Update
The distressed mortgage industry continues to undergo notable changes as we approach the last quarter of 2023. Foreclosure auction volume is forecasted to increase by 24% compared to 2022, although it will still be about half of the levels seen in 2019. This uptick is attributed to the gradual phasing out of pandemic-era foreclosure protections.
The current lending environment is also experiencing turbulence, particularly in the banking sector. According to a report by the Office of the Comptroller of the Currency (OCC), the banking system faced increased volatility due to a liquidity crisis in the first and second quarter of 2023. Banks are now focused on stabilizing liquidity levels, which have been strengthened in response to the failures of several banks and depreciation in investment portfolios. Rising long-term rates have put a spotlight on banks’ liquidity risk profiles.
Between the uptick in foreclosure rates and bank liquidity crunch, we are not only seeing an increase in the number of loans but also the closing of the gap in the bid/ask spread when buying assets. Sellers’ expectations are now more consistent with buyers pricing in the nonperforming space.
As we move into Q4 of 2023, we continue to see ample opportunities on assets that meet the criteria of the fund.
Case Studies
CASE STUDY #1: ACQUISITIONS – PURCHASED
New Orleans, LA
- LOAN CHARACTERISTICS:
- Nonperforming loan
- UPB: $353,776.95
- Payoff: $451,347.16
- Purchase Price: $400,000.00
- Projected return: 292.95%
- Approximated profit: $47,000
- PROPERTY CHARACTERISTICS
- 5 bedrooms, 5 baths
- 4442 Living Sqft
- Fair Market Value of $1,100,000.00
- STORY – ACTIONS TAKEN
- Our DD process is thorough and deep – we look at each asset on every tape on a loan-by-loan basis, even if there are hundreds or even thousands of assets on a single tape
- If we are allowed to carve (i.e. pick out loans from the tape to bid on rather than bidding on & purchasing the entirety of the tape), we do so in order to pick out the assets that would best fit our buy box and our overall portfolio methodology
- Through our deep due diligence process, we discovered that the borrower was intending to place this property on market; as we had predicted, the asset sold within weeks after we purchased it, resulting in a neat little profit requiring only our DD process upfront and very little management on the backend
- We purchased the loan August 2023, borrower paid off loan in September 2023
- Borrower paid off loan in amount of $451,347.16
- Total all in costs – $405,000
- Total Approximate Profit – $46,350
CASE STUDY #2: ACQUISITIONS – PASSED
Spencer, MA
- Loan Characteristics:
- UPB: $145,601.06
- Payoff: $244,724.01
- P&I: $745.70
- IR: 4.50%
- Next Due Date: 4/20/2016
- Status: Vacant, abandoned
- Property Characteristics:
- 2 bedrooms, 2 bathrooms
- 1425 Living Sqft
- Fair Market Value: In Question
- STORY – ACTIONS TAKEN:
- Original bid: $195,000
- Seller counter: $205,000
- Seller had stated that the Fair Market Value of the property was $340,000; however, during our due diligence process, we sent out an inspector to the property and he reported to us that he found that the property to be worth closer to $200K due to significant damage done to the property since it had been left vacant for quite some time. The holes in the roof were substantial, and there was water damage in the interior due to the rain. Our inspector also mentioned termite damage, unfinished bathrooms, unfinished flooring, missing brick ties and mortar, and soffits that were open, damaged, or missing entirely.
- We couldn’t come to an agreement on price with the seller and therefore both parties decided to leave this particular asset out of the overall purchase
- We are happy with our decision, as this decision protects us against the downside of long property renovation timelines (especially with winter weather coming in the coming months) which could affect returns significantly
CASE STUDY #3: ASSET MANAGEMENT
Borrower Successfully Executing Payment/Forbearance Plan
- Loan Characteristics:
- UPB: $59,379.05
- Payoff: $63,011.98
- P&I: $818.03
- Next Due Date: 12/1/2022
- Status: Successful Forbearance Plan
- Property Characteristics:
- 3 bedrooms, 2 bathrooms
- 2080 Living Sqft
- Fair Market Value of $414,000.00
- STORY – ACTIONS TAKEN:
- Purchase Price: $48,500
- We acquired this loan June of 2023 from a broker & seller new to us – we are always looking to forge new & strong relationships in the industry
- Borrower was behind a full year and a half’s worth of payments; by sending a Demand Letter, we were able to bring the borrower to the table to work out a payment/forbearance plan. We worked with our servicing company to get the borrower on a repayment plan, and the borrower is now close to current.
- The borrower was $6,936.44 behind. She made her first payment of $818 on 7/14/23, then a $3000 payment on 8/18, with an additional $1000 every two weeks until caught up, which will allow her to be fully reinstated by end of year.
CASE STUDY #4: DISPOSITIONS
Westbury, NY
- LOAN CHARACTERISTICS
- UPB: $335,792.32
- Payoff: $442,562.94
- P&I: $1,660.21
- PROPERTY CHARACTERISTICS
- 3 bedrooms, 2 bathrooms
- 1584 Living Square Feet
- Fair Market Value: $655,000
- STORY – ACTIONS TAKEN:
- Purchase Price: $216,532
- We acquired this loan July 26th, 2022 direct from seller
- In order to maximize our returns while also limiting our downside, we decided to sell the asset because the borrower had been doing all he could to stall the foreclosure case, which was leading to a prolonged foreclosure timeframe. Again, this would have brought down returns significantly due to the time value of money. By choosing the path we took for this particular asset, we were still able to exit with a 20% return, thereby protecting our overall portfolio IRR.
Employee Spotlight
Chi Nguyen
Director of Asset Management
1. What are some of your strengths that you bring to the business?
My passion for real estate. I find all aspects of real estate interesting & exciting! I think it’s a huge strength when you naturally find your work interesting, so I tend to dive deep down the research rabbit hole. I also enjoy networking with other real estate investors and continually learning from others and sharing my experiences.
2. What is your favorite thing about working with the 7e team?
Working with an incredibly driven, intelligent, and passionate team! I think our entire team exemplifies the three i’s that Warren Buffet looks for in a good hire – integrity, intelligence, and initiative… and with each of our own colorful personalities. It’s a BLAST to work with this
3. What did you do before working with 7e?
I was an active real estate investor! I was an SFR buy & hold investor, a developer, and had my own portfolio of mortgage notes.
4. What did you study in college?
I received my B.A. in International Development Studies with a double minor in Global Studies and Public Health from UCLA, which currently comes in handy as I help lead a small but mighty 501©3 nonprofit called Trek Relief in my spare time outside of work. My goal is to always have a part of my life dedicated to giving back to the world and leaving it in a better state than I found it.
5. What are some of your hobbies outside of work?
When I’m not working or giving back, I love surfing, practicing yoga, reading, camping, and traveling the world volunteering or backpacking. I love seeing new places & trying new experiences.
6. What is a book you recently read or would recommend?
“The Go-Giver” by Bob Burg and John David Mann, and “The Buddha & The Badass” by Vishen Lakihani. I finished each book, and then went right to the start of each book to read them all over again – they were both that good!
7. How do you drink your coffee?
If I’m at a coffee shop, then I always like to order what coffee drink they’re most known for. At home, it’s my little Nespresso machine + a dollop of Oat milk with a sprinkle of Sugar in the Raw on top.
Ready to Make an Investment?
If you are interested in investing with 7e, you can reach out to us directly at invest@7einvestments.com to speak with a member of our team.
