Yieldstreet investors rack up more losses as firm rebrands to Willow Wealth
Like Yield Street He tries to get away from his difficult past with a new name and advertising campaignits customers face an increasingly dire current reality.
Private markets invest in startups, new rebranded Willow Wealth notified clients last week about new defaults on real estate projects in Houston and Nashville, Tennessee, CNBC has learned.
The letters, obtained and verified by CNBC, account for approximately $41 million in new losses. These follow an $89 million maritime loan write-off disclosed in September and a $78 million write-off that CNBC revealed in its August report.
Willow Wealth investors lost at least $208 million in total, CNBC reports.
Willow Wealth also removed a decade of historical performance data from the public in recent weeks. The chart on the company’s website showing the negative 2% annual return on real estate investments from 2015 to 2025 (down from a 9.4% return just two years ago) has been removed.
“They had to change their name” mark williamsProfessor at Boston University’s Questrom School of Business. “Their old names had negative value, so they’re trying to make 2.0 to restart things. They’re also making it harder to expose their poor performance by removing stats, which is worrying.”
The high-stakes rebranding is the final page for a company that sought to empower retail investors but instead left some facing deep losses and years of uncertainty.
Under its former name, Willow Wealth, backed by leading venture firms and backed by aggressive online marketing, was the best-known of a wave of American startups promising to expand access to alternative investments that were the domain of institutions and wealthy families.
But the ongoing collapse of property funds shows the risks private markets pose to retail investors. Private investments, by their nature, are not traded on exchanges and do not have standardized disclosures. This leaves investors particularly dependent on private fund managers to both obtain information and protect their interests for years to come, while their money is locked in deals.
Private markets came to the fore this year after President Donald Trump signed an executive order allowing investments in retirement plans.
While critics say opaque, illiquid investments with high management fees are unsuitable for ordinary investors, including asset managers Black Rock And Apollo Global Management We see retail as a large untapped pool of capital. Retirement giant Empower announced in May that it would allow participating employers to include private assets in their 401(k) plans, with the help of companies like Apollo and others. Goldman Sachs.
New mascot, same step
In this context, Willow Wealth CEO Mitch CaplanA former eCommerce chief who took over in May said the company was moving toward a new goal. new model. Rather than offering only startup-led deals, it will also sell private market funds from Goldman and Wall Street giants. Carlyle Group.
The company no longer presents the historical performance of its offerings due to a shift to funds managed by third parties, according to a person with knowledge of the situation who asked not to be named to discuss internal strategy.
“Transparency is very important to us and we continually provide strategy-specific performance information to every manager at the offering level to support informed decision-making,” a spokesperson for Willow Wealth said.
As for CNBC’s new report of real estate defaults and mounting losses, a Willow Wealth spokesperson called it a “rehash” of news about “investments from five years ago.”
“The investments in question represent a very small portion of our overall portfolio and do not reflect the current nature of our offerings or business focus,” he said.
The firm declined to say how much of the assets it manages.
The startup was founded in 2015 by Michael Weisz and Milind Mehere, who remained at Willow Wealth. panel A number of executives told clients that private investments would provide both higher returns and lower volatility than traditional assets.
Willow Wealth’s idea hasn’t changed much despite the rebrand.
In a new ad campaign, a character called Dumpty of Hampton He says he “learned a thing or two about crashes” and so used Willow Wealth to diversify his portfolio with private market assets, including real estate.
Mascot, a play on the nursery rhyme Humpty Dumpty, tells the audience “Portfolios that include private markets have outperformed traditional portfolios over the past 20 years.”
Compound fees
On the company’s renewed website table It shows that a hypothetical portfolio of private equity, private credit and real estate outperforms traditional stocks and bonds in the decade to 2025.
But the chart doesn’t include the impact of fees, which are typically much higher for private investments than for stock ETFs and mutual funds. The company also stated in its statement that customers will not be able to invest in listed private market indices.
While most stock ETFs carry fees under 0.2%, Willow Wealth typically charges 10 times that for real estate offerings, or 2% per year on unrefunded funds, according to product documentation.
Willow Wealth also charged a number of one-time fees associated with originating the funds, including structuring the deal and arranging the loans.
Prices for Willow Wealth’s new products are even higher. The company charges about 1.4% annually for access to portfolios of private funds from Goldman Sachs, Carlyle and other companies. StepStone Groupaccording to him website.
These firms also charge their own fees, resulting in total annual costs ranging from about 3.3 percent to 6.7 percent per fund, according to providers’ documents.
This makes Willow Wealth’s products among the most expensive in the retail investment universe.
‘Tough news’
For clients who are still coming to terms with their losses and are left uncertain about the funds the firm says are out in the open.Customers told CNBC that Yieldstreet’s transformation into Willow Wealth appeared to be an effort to avoid responsibility.
Following last week’s announcements, nine of 30 real estate deals reviewed by CNBC since August are now in default. The 30 percent failure rate is high even by the standards of the world of private assets, said Boston University’s Williams.
While the private lending space is less transparent, making it difficult to determine average default rates, some in the industry estimate typical failure rates to be between 2% and 8%.
Whether condos in hot urban centers, established cities, or single-family homes scattered throughout the booming cities of the South, the projects Willow Wealth has placed clients in have struggled to meet income goals and fallen behind on loan payments.
Willow Wealth blamed the failures on the Federal Reserve’s 2022 rate hike cycle, making it harder to repay variable-rate loans.
The newly disclosed defaults include a pair of funds tied to a 268-unit luxury apartment building in East Nashville. Stacks on Home Page.
Investors hoping to achieve the advertised 16.4% annual return put a total of $18.2 million into the two funds, according to documents reviewed by CNBC. They later added another $2 million to the member loan in an attempt to stabilize the deal.
There are stacks at the main apartment complex in Nashville, Tenn.
Courtesy: Google Maps
Willow Wealth told clients in a letter the same day that after selling Stacks on Nov. 25, “your equity investment is expected to suffer a total loss.” The company said those who invested in member loans would lose up to 60%.
“We understand this is difficult news to receive,” Willow Wealth told clients. “We share your disappointment.”
Documents for the 2022 transactions list Nazare Capital, the family office of former WeWork CEO Adam Neumann, as the deal’s sponsor. Real estate sponsors often source, acquire and manage deals on behalf of investors.
After his WeWork tenure ended in 2022, Neumann founded real estate startup Flow, which undertook some real estate deals from the family office.
public comments In statements to news organizations over the past year, Flow representatives have tried to distance the company from Yieldstreet’s woes.
But Nazare acquired Stacks on Main for $79 million in July 2021 and then transferred its majority stake to Yieldstreet members through a joint venture, according to its 2022 investment memorandum.
CNBC found that the transaction burdened the joint venture with $62.1 million in debt, which would later factor into the deal’s failure.
Israeli American businessman Adam Neumann speaks at the Israeli American Council (IAC) 8th Annual National Summit on January 19, 2023 in Austin, Texas.
Shahar Azran | Getty Images
“This building was majority owned by YieldStreet, and the property was never operated by Flow or anyone affiliated with Adam,” a spokesperson for Neumann told CNBC. “In any event, the building has been sold and Flow no longer has a minority interest or any interest in this property.”
Nazare was also listed as the sponsor of an apartment complex in Nashville, another Nashville project that went awry for retail investors. 2010 West Side Boulevard. This project caused a loss of $35 million in two funds, previously reported by CNBC.
There were other defaults as well as deals tied to Nazare.
a project called Houston Multifamily Capital The fund, which consists of suburban Texas apartments, led to the loss of its entire $21 million in client funds, the startup said in a Nov. 25 letter to investors.
“The property failed to generate sufficient income to pay monthly debt service and operating expenses” and was foreclosed, resulting in a “total loss of equity,” Willow Wealth said.
A ‘high risk’ trap
Willow Wealth’s tally of investor losses will likely grow further.
For example, the company told investors that an $11.6 million loan from Willow Wealth clients for a multifamily project in Portland, Oregon, was “currently in default” after an appraisal found the borrower owed more than the value of the property.
Willow Wealth is trying to restructure the borrower’s credit to prevent the property from being sold at a loss, the company said in a letter to investors.
The company also warned investors that two projects — an apartment complex in Tucson, Ariz., and single-family rental homes in Southern states — could result in future losses of unspecified amounts, according to separate letters. Investors invested more than $63 million total in these deals.
Williams is a Boston University professor and former The Federal Reserve bank watchdog said this fall taught Willow Wealth and other fintech firms a lesson in how they fail to protect their customers.
“They claimed they were going to democratize access to the types of deals that only the rich had,” Williams said. “They have essentially created a high-risk trap for investors.”
