95% of Uninvested Cash Released (Updated October 2023) — My Money Blog

Update October 2023: Peerstreet e-mailed creditors on 10/18/23 that you can get 95% of your “investable cash” back by logging into your account and manually requesting a withdrawal. It will not be done automatically, so be sure to make that request! I successfully received my funds on 10/24/23, about $100 in interest that I didn’t sweep out before their sudden bankruptcy.

On October 17, 2023, the bankruptcy court approved PeerStreet’s motion to allow retail investors to withdraw 95% of their Investable Cash balance held in PeerStreet’s retail customer “FBO” (for the benefit of) account (the “Retail Customer FBO Account”).

[…] The order provides for a three-day grace period for PeerStreet to re-enable the platform to permit the withdrawal of these funds. Starting on Friday, October 20, 2023, PeerStreet investors can log on to their PeerStreet account at peerstreet.com and withdraw 95% of the amount attributable to that investor (“Withdrawable Cash”). The withdrawals will be processed via ACH and investors should receive their funds into their bank accounts within 3-5 business days after their request.

This Business Insider article (paywall) covered the bankruptcy and also included some interesting information. It pointed out how having Michael Burry as an early investor helped their profile, and Andreessen Horowitz was also an investor with their funding totaling over $120 million! Michael Burry is also a creditor to the tune of $600,000:

Burry declined to comment for our story, but bankruptcy filings show that he, too, has a lot to lose. In addition to his investment in the company, he was a user of the site with over $600,000 in investments and about $9,000 in cash in his PeerStreet account.

The article also speculates that Peerstreet was partially a victim of its own success:

According to Ippolito, it’s a common story: A crowdfunding company grows in popularity to the point where deals are fully funded in 30 minutes or less, prompting it to increase the number of deals on the platform. Skyrocketing demand for deals comes with “a temptation to reduce the underwriting,” he said.

Unfortunately, other than this, I haven’t learned any new actionable information from browsing Reddit and other internet forums, other than the process is still moving forward. There is a contingent pushing for the outstanding loans to be transferred to a third-party servicer and have them “run out”.

Original post:

PeerStreet, a startup that tried to scale up real-estate backed “hard money loans” and was open to “accredited investors”, abruptly filed for Chapter 11 bankruptcy in late June 2023. If you log into your investor account, you’ll see the following notice:

Peer Street, Inc. and its affiliated companies (“PeerStreet”) filed for protection under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware on Monday, June 26, 2023.

Are we creditors? I would point out that there are multiple “investors/customers” in this situation. There are the investors and owners of the company itself, which include big VC names like Andreessen Horowitz, World Innovation Lab, Colchis Capital, and Michael Burry. Then there are vendors and suppliers where PeerStreet owes them money, their employees who are owed paychecks, and finally us customers of PeerStreet that purchased interests in their securitized loans.

This HousingWire article provides some additional context. An interesting paragraph:

According to the court filings, PeerStreet has an estimated 100-199 creditors, and its assets and liabilities are between $50 million and $100 million. However, as of Monday, the group had $4.4 million in cash – in addition to $18.5 million in its mortgage business.

These low numbers may suggest that PeerStreet note-holders are not considered “creditors”, and the notes that we hold are not considered their assets? I’m pretty sure they have way more than 200 accountholders and have originated over a billion dollars of notes since inception. Ideally, the notes that we hold are separate securities, and PeerStreet is just the custodian.

Next steps? First, I would like to stress that I am not a lawyer, and all of the following is just a best guess on my part as a small-time Peerstreet customer who still has fractional ownership of outstanding loans and some uninvested funds. While I have put a decent amount of my “self-directed play money” into PeerStreet in the past, I am relatively fortunate in that currently I only have two outstanding loans with a $1,000 balance each, along with about $100 in interest payments that I did not withdraw in time. The money still in limbo is less than the $5,000+ in interest that I have already earned on the platform. I feel sympathetic to those with six-figure amounts still stuck at PeerStreet.

Critically, I don’t think this money will disappear, but it will take a long time to figure out. That’s really the main lesson of PeerStreet in general, honestly. The headache of illiquidity. Foreclosure proceedings can take forever. I doubt bankruptcy proceeding are much faster.

The borrowers on my loan are certainly benefiting from this fact. The notes are for a tri-plex and a four-plex in Brooklyn NY, and my suspicion is that they are happily collecting rent from their tenants while not paying a single penny toward the mortgage note. These notes matured in 2018 and 2021! The thing is, the property value has gone up, and will eventually still cover the loan balance. But in the meantime, awesome cashflow numbers for them! Not very ethical, but that’s another lesson as well. They have no incentive to hurry things up at all. Who knows when these loans would have been paid back even if PeerStreet stayed in business! As such, it took me a few weeks to get up the energy to read through all these boring bankruptcy documents.

Stretto is the “bankruptcy management solution provider” that is coordinating the process. Here is are pertinent quotes from the Stretto FAQ:

Does this mean Peer Street is going out of business?
While a Chapter 11 case is pending, the debtor may continue to operate its business and remain in possession of its property. Until a sale of its assets, Peer Street will preserve the value of all of its assets for the benefit of its stakeholders, including identifying additional assets that can be monetized. Peer Street’s continued operation after a sale of the business depends on the structure of the sale. While in chapter 11, Peer Street will continue to monitor and service its assets, and customers will continue to have the same access to the Peer Street platform to monitor their investments that they had prior to the Chapter 11 filing. However, withdrawals or returns on investments will be suspended absent further order from the Bankruptcy Court, which would include an order confirming a chapter 11 plan that provides the treatment for all claims against the Peer Street entities.

Have you secured financing during the Chapter 11 cases? How can you be sure you have the financial resources to complete the process successfully?
Peer Street has sufficient cash on hand and from anticipated collection to fund its day-to-day operations during the Chapter 11 process. To support ongoing operations, we have negotiated with our pre-petition secured lenders for the consensual use of cashflows from our business. This will help to ensure we are able to meet our go-forward commitments to employees and vendors.

[Customers] When will I get my investments/money back?
Any investments made through the Peer Street platform, including cash on deposit, funds invested with respect to the ownership of fractional interest in loans, and funds invested in Peer Street’s other investment opportunities, such as Pocket, Portfolio and/or Opportunity Fund, will only be returned pursuant to an appropriate order of the Bankruptcy Court, which may include an order confirming a chapter 11 plan. Peer Street hopes to pursue confirmation of a chapter 11 plan expeditiously.

You will periodically receive notices from the Bankruptcy Court, including emails sent by Stretto, the Court approved noticing agent in the Chapter 11 Cases. It is important that you review and take appropriate action in response to any notice you receive related to the Bankruptcy Cases.

Peer Street and its advisors cannot give you personal legal advice so you may want to consult your own
counsel.

Do I need to file a proof of claim in the bankruptcy to withdraw my investments?
Yes. If you believe you have a claim against Peer Street, please follow the instructions for filing a proof of claim.

Now, you may recall that PeerStreet told us that they would put the loans in a “bankruptcy-remote vehicle”. So we’re good, right?

What investor protections does PeerStreet have in place?
Investments in loans are held in a bankruptcy-remote entity that is separate from our primary corporate entity. In the unlikely event PeerStreet no longer remains in business, a third-party “special member” will step in to manage pending loan investments and ensure that investors continue to receive interest and principal payments. Additionally, from the time funds are received in an investor account until an investment closes (but not while funds are invested), investor funds are held in an Investors Trust Account with Wells Fargo and FDIC insurance of up to $250,000.

Well, the problem is the part where is says “In the unlikely event PeerStreet no longer remains in business”. Technically, PeerStreet is still in business. Therefore, Peerstreet and the lawyers still have control over the loans and any cash payments. These loans are still backed by real-estate, and real-estate prices have still risen significantly in general over the past few years, so I am still hopeful that most of the money will still be returned.

In the meantime, do we file a claim? My take is that it should not hurt to file a claim, and at least do so before any deadline occurs. Here is the link to file a claim. I don’t see any deadline at this time.

I decided to file a claim electronically to the best of my ability now (mostly so I don’t forget about this entire thing). Again, not a lawyer and I’m not going to hire one for this small amount. I downloaded and saved all of the promissory notes and background information for each of my outstanding loans from the PeerStreet website, and attached them to the claim form as supporting documentation. The debtor for my notes was Peer Street Funding, LLC, EIN 47-1789485 (may not be the same as yours).

There is a newly-formed subreddit called r/Peerstreet_Creditors and Bogleheads thread that may offer more useful information (but know that it may be speculative as well). Please let me know if you know of any other active discussion forums on the topic.