Meltdown of some Yieldstreet real estate funds raises eyebrows from financial advice industry

Yieldstreet, which launched 10 years ago with the mission to widen access to alternative investments to Mainstreet investors, is under the spotlight this week after CNBC.com on Monday reported that some customers who bought into real estate deals are facing losses of up to 100%.

Indeed, the Yieldstreet real estate funds turned out to be far riskier than some clients believed them to be, according to the report.

Yieldstreet, which has a FINRA registered broker-dealer and registered investment advisor with $1.86 billion in client assets, bills itself on its website as a “Leading Alternative Investments Platform." It has 500,000 clients.

The online company was founded 10 years ago by Michael Weisz and Milind Mehere, according to the report, and the company has several well-known venture capital backers.

“These problems at Yieldstreet look like customers investing in things they don’t understand,” said one senior alternative investments executive who spoke to InvestmentNews privately about the matter. “And they’re investing without the proper financial advice, based on the pitch of higher returns.”

“This is what you get with the so called democratization of private equity investments for the retail investor,” said Jake Zamansky, a plaintiff’s attorney. “My view is, these look like private equity investments that institutions want no part of, so they get dumped onto retail investors with the pitch, 'hey, invest like the 1%.'”

A call to the company for comment on Tuesday afternoon was not immediately returned.

According to the report, of 30 deals that CNBC reviewed information on, four have been declared total losses by Yieldstreet. Of the rest, 23 are deemed to be on “watchlist” by the startup as it seeks to recoup value for investors, sometimes by raising more funds from members.

Yieldstreet said some of its real estate funds were “significantly impacted” by rising interest rates and market conditions. Rising interest rates are bad news for real estate investors because the cost of capital increases.  

Justin Klish, a 46-year-old financial services worker living in Miami, in 2022 logged on to Yieldstreet’s platform, where a pair of offerings jumped out to him, according to the report.

“He invested $400,000 in two real estate projects: A luxury apartment building in downtown Nashville overseen by former WeWork CEO Adam Neumann’s’s family office, and a three-building renovation in the Chelsea neighborhood of New York,” according to the report. Each project had targeted annual returns of around 20%.”

“Three years later, Klish said he has little hope of ever seeing his money again,” according to the report. “Yieldstreet declared the Nashville project a total loss in May, according to an investor letter, wiping out $300,000 of his funds. The Chelsea deal needs to raise fresh capital to avoid a similar fate, according to another letter. Both letters were reviewed by CNBC.”

“I lost $400,000 in Yieldstreet,” Klish told CNBC. “I consider myself moderately financially savvy, and I got duped by this company. I just worry that it’s going to keep happening to others.”