Investment platform Yieldstreet is facing mounting trouble in its real estate portfolio, resulting in defaults and total losses for investors of the startup that aimed to democratize access to private market assets, according to an investigation by CNBC.
CNBC reviewed information on 30 Yieldstreet real estate deals, finding that four had been declared total losses and another 23 were watchlisted. Investors put more than $270M into the projects, which include apartment complexes and developments in markets across the Northeast and Sun Belt, and recognized $78M in defaults during the last year.
The remaining three deals reviewed by CNBC are “active” but have stopped making scheduled payouts. There are at least 55 projects that Yieldstreet offered investment into from 2021 to 2024, the timespan most impacted by interest rate hikes starting in 2022.
The upheaval echoes the calls to shut down investment startup CrowdStreet, minus the misappropriation of funds invested in Nightingale Properties offerings that sent former Nightingale CEO Elie Schwartz to prison for seven years.
A Google search of CrowdStreet produced a top sponsored result urging searchers to “switch to Yieldstreet.”
CNBC spoke to Yieldstreet investors, including Miami-based financial services worker Justin Klish, who said he lost $400K by investing in two real estate projects and filed a U.S. Securities and Exchange Commission complaint alleging the company misled investors.
“I consider myself moderately financially savvy, and I got duped by this company,” Klish told CNBC. “I just worry that it’s going to keep happening to others.”
Yieldstreet was founded in 2015 by Michael Weisz and Milind Mehere with significant support from venture capital.
Weisz became CEO of Yieldstreet in 2023 but was replaced in May by Mitch Caplan, former CEO of E-Trade Financial Corp., who joined Yieldstreet’s board in 2021.
Investor updates from Yieldstreet are labeled confidential, which is common practice but discourages investors from consulting with each other.
Nashville’s Stacks on Main is owned by Adam Neumann’s Flow.
The company, in some cases, asked investors for rescue funds. It secured a $3.1M loan for the Stacks on Main, a luxury apartment building in downtown Nashville that has faced a cash flow deficit for its floating-rate $60M mortgage since at least June 2023. The community is overseen by Flow, an apartment startup from former WeWork CEO Adam Neumann’s family office.
The $3.1M was depleted within months, and Yieldstreet declared the investment a total loss in May.
“We are reaching out to share difficult news,” Yieldstreet’s letter to investors said, according to CNBC. “Following multiple restructuring attempts, the property has been sold to Tishman Speyer … resulting in a complete loss of capital for investors.”
The project had a publicly listed rate of return of 0% until CNBC inquired. The company then changed the return to -100%, the article states. Yieldstreet’s plunging real estate returns in recent years have been publicly disclosed, falling from a 9.4% annual return rate in 2023 to 2% in its most recent update.
Yieldstreet also became a registered broker-dealer this month. CrowdStreet is facing a $1B lawsuit from Nightingale Properties investors who claim that the firm operated as an unregistered broker-dealer, failing to protect investors but selling and marketing securities and collecting fees.
Yieldstreet makes money by charging annual management fees of about 2% of invested funds, so it is unclear whether it suffers financial loss from the defaults, CNBC reported.
The company’s private market portfolio includes $424M of real estate investments, according to the latest portfolio snapshot from early 2023. The second-largest piece of the portfolio is $263M of private credit investments.
