As Yieldstreet attempts to distance itself from its troubled past with a new name and advertising campaign, customers are faced with an increasingly dire present reality.
The private market investment startup, newly rebranded Willow Wealth, notified clients last week of new defaults on real estate projects in Houston and Nashville, Tennessee, CNBC revealed.
The letter, obtained and verified by CNBC, lists about $41 million in new losses. These follow an $89 million maritime loan elimination disclosed in September and a $78 million loss disclosed in a CNBC report in August.
In total, Willow Wealth investors suffered losses of at least $208 million, CNBC reported.
Willow Wells also removed 10 years of past performance data from public view in recent weeks. A graph on the company’s website showing an annualized return of -2% on real estate investments from 2015 to 2025 (down from a 9.4% return just two years ago) has been removed.
“They needed to change the name,” said Mark Williams, a professor at Boston University’s Questrom School of Business. “They’re trying to do 2.0 to start things over because their old name had negative value. Also, removing statistics makes it harder to reveal poor performance. This is alarming.”
The high-stakes rebrand is the latest chapter for a company that has sought to empower retail investors, but instead left some investors with heavy losses and years of uncertainty.
Backed by a prominent venture firm and backed by aggressive online marketing, Willow Wealth, under its former name, was best known among a wave of U.S. startups that promised to expand access to alternative investments, the domain of institutions and wealthy families.
However, the continued failure of the company’s real estate funds shows that the private market poses risks for individual investors. By their nature, private investments are not traded on exchanges and do not have standardized disclosures. Investors are therefore particularly reliant on private fund managers to stay informed and protect their interests for years while their funds are locked up in trades.
Private markets have gained attention this year after President Donald Trump signed an executive order allowing people to invest in retirement plans.
Some critics argue that opaque and illiquid investments with high management fees are not suitable for ordinary investors. black rock and Apollo Global Management View retail as a huge pool of untapped capital. Retirement giant Empower announced in May that it would allow personal assets in participating employers’ 401(k) plans, with support from companies like Apollo and Apollo. goldman sachs.
New mascot, same pitch
Against this backdrop, Willow Wealth CEO Mitch Caplan, a former head of E-Trade who took over in May, said the company is moving toward a new model. Instead of offering only deals raised by startups, it will also sell private market funds from Wall Street giants such as Goldman and Goldman. carlyle group.
The company is not disclosing past offering results because of the switch to third-party managed funds, said a person familiar with the matter, who asked not to be identified to discuss internal strategy.
A Willow Wealth spokesperson said: “Transparency is a top priority for us and we consistently provide each manager with strategy-specific performance information at the offering level to support informed decision-making.”
Regarding CNBC’s report on new real estate defaults and mounting losses, a Willow Wealth spokesperson said it was a “rehash” of news about “an investment from five years ago.”
“The investments in question represent only a small portion of our overall portfolio and do not reflect the current nature of our offering or business focus,” he said.
The company did not disclose the amount of assets under management.
The startup, founded in 2015 by Michael Wise and Milind Mehre, who remain on Willow Wealth’s board, told clients that private investing offers both higher returns and lower volatility than traditional assets.
Despite the rebranding, Willow Wells’ pitch hasn’t changed much.
In a new ad campaign, the character Hampton Dumpty says he has “learned a thing or two about the crash” and is using Willow Wealth to diversify his portfolio with private market assets, including real estate.
The mascot, a play on the nursery rhyme “Humpty Dumpty,” tells viewers that “portfolios that include private markets have outperformed traditional portfolios for the past 20 years.”
Compound interest fee
The company now features a graph on its revamped website showing how a hypothetical portfolio of private equity, private credit and real estate will outperform traditional stocks and bonds over a 10-year period ending in 2025.
However, this graph does not include the impact of fees. Fees are typically much higher for individual investments than for stock ETFs or mutual funds. The company also said in its disclosure document that customers cannot actually invest in publicly traded private market indexes.
While most equity ETFs charge less than 0.2%, Willow Wealth typically charges 10 times that amount, or 2% annually on unreturned funds, for its real estate products, according to product documents.
Willow Wealth also claimed a series of lump sum payments related to the creation of the fund, including structuring the deal and arranging financing.
Willow Wealth’s new products will have higher fees. The company charges an annual fee of about 1.4% for access to a portfolio made up of Goldman Sachs, Carlyle and U.S. private funds. step stone groupAccording to the website.
These companies also charge their own fees, which bring the total annual cost per fund to about 3.3% to 6.7%, according to provider documents.
This makes Willow Wealth products some of the most expensive products in the personal investing world.
“This is difficult news.”
For customers who aren’t ready to accept losses yet or whose funds are on a “watch list” where the company is on guard against potential defaults, YieldStreet’s conversion to Willow Wealth looks like an effort to avoid accountability, customers told CNBC.
Following last week’s disclosure, nine of the 30 real estate deals CNBC has tracked since August have defaulted. Boston University’s Williams said the 30% failure rate is high even by the standards of the private equity world.
The private credit space is more opaque, and average default rates are difficult to pinpoint, although some in the industry estimate typical default rates to be between 2% and 8%.
The projects Willow Wealth has put its clients into, whether they’re apartments in hot downtown areas, established cities or single-family homes dotted in emerging cities in the South, have struggled to meet revenue targets and delayed loan payments.
Willow Wealth blamed the failure on the Federal Reserve’s 2022 rate hike cycle, which made it difficult to repay floating rate debt.
Among the newly disclosed defaults is a group of funds tied to a 268-unit luxury apartment building in East Nashville called Stacks on Main.
Investors, expecting the advertised 16.4% annual return, put in a combined $18.2 million into the two funds, according to documents reviewed by CNBC. They then added another $2 million in member loans intended to stabilize the deal.
Stacks on Main apartment complex in Nashville, Tennessee.
Provided by: Google Maps
After selling Stacks on Main on Nov. 25, Willow Wealth told clients in a letter dated the same day: “Your stock investment is expected to suffer a total loss.” Investors in member loans can suffer losses of up to 60%, the company said.
Willow Wells told customers: “We understand this news is difficult to receive.” “We share your disappointment.”
Documents related to the 2022 transaction listed Nazareth Capital, the family office of former WeWork CEO Adam Neumann, as the deal’s sponsor. Real estate sponsors typically source, acquire, and manage transactions on behalf of investors.
At the end of his tenure at WeWork in 2022, Neumann founded real estate startup Flow, taking over some of the real estate deals from his family’s office.
In public comments to the press over the past year, Flow representatives have sought to distance the company from its then-Yield Street woes.
However, Nazareth purchased Stacks on Main in July 2021 for $79 million and transferred a majority stake to members of YieldStreet through a joint venture, according to a 2022 investment memo.
Importantly, the deal left the joint venture with $62.1 million in debt, a burden that CNBC later learned was the cause of the deal’s failure.
Israeli-American businessman Adam Newman speaks at the Israeli American Council (IAC)’s 8th Annual National Summit on January 19, 2023 in Austin, Texas.
Shahar Azlan | Getty Images
A spokesperson for Mr. Newman told CNBC: “This building is majority owned by Yield Street, and Mr. Flo or anyone associated with Adam has never operated this property.” “In any event, the building has been sold and Flo is no longer a minority shareholder or has any interest in the property.”
Mr. Nazareth was also listed as a sponsor of another Nashville project planned for private investors, the 2010 West End Avenue apartment complex. The project resulted in losses of $35 million across the two funds, a wipeout that CNBC previously reported.
In addition to the Nazareth-related transactions, there were also other defaults.
A project called the Houston Multifamily Equity Fund, which consisted of suburban Texas apartments, resulted in the loss of all $21 million in customer funds, the startup told investors in a Nov. 25 letter.
Willow Wells said the property “was unable to generate sufficient income to meet monthly debt payments and operating costs” and was foreclosed on, resulting in a “complete loss of capital.”
“High risk” trap
Willow Wealth investors’ losses could be even higher.
For example, the company told investors that an $11.6 million loan taken out by a Willow Wealth client for a multifamily project in Portland, Ore., is “currently in default” after an appraisal revealed that the loan owed more than the property was worth.
Willow Wealth is seeking to restructure the borrower’s loans so that it does not sell the property at a loss, the company said in a letter to investors.
The company also warned investors that two projects, consisting of an apartment complex in Tucson, Ariz., and single-family rental homes across southern states, could result in future losses of an unspecified amount, according to a separate letter. Investors totaled more than $63 million in these deals.
Williams, a Boston University professor and former Federal Reserve examiner, said he taught a class this fall about how Willow Wealth and other fintech companies failed to protect their customers.
“They claimed to democratize access to the types of transactions that only the wealthy have,” Williams said. “In reality, they set a high-risk trap for investors.”
