An Alternative Way To Get Burned
Bloomberg Businessweek|May 11, 2020
YieldStreet pitches investments you can’t get elsewhere. That’s not always a good thing
By Claire Boston

The online investment platform YieldStreet came on the scene in 2015 with a bold proposition: It would allow individual investors to make the kind of unusual, potentially high-yielding investments normally reserved for institutions and the very rich. These alternative assets include pieces of investments in real estate, art, and even ships. Although the company caters only to accredited investors—those who earn more than $200,000 annually or have a net worth of at least $1 million—that’s a bar many affluent professionals can clear. Investors have plowed around $1 billion into deals through YieldStreet.

The company warns on its site that its investments carry higher risk than normal stocks or bonds. But recently some YieldStreet investors have found out how wild those risks can be.

A handful of the site’s investments in old oceangoing vessels have fared particularly badly. In such a deal, investors might lend money to an entity that buys ships near the end of their useful life. The borrowers sail the vessels to deconstruction yards in places such as India and Pakistan, where they sell them to a demolition company, presumably at a profit, for the scrap value. The deals often are structured so investors receive upfront interest payments soon after closing, with principal repaid in full six months later.

From June 2018 to September 2019, YieldStreet units arranged six marine loans worth $89.2 million to finance the purchase of ships. The borrowers were related companies whose unnamed parent corporation, based in Dubai, was described in a deal memo as “one of the premier buyers of recycling tonnage worldwide,” owned by a family with over 40 years’ experience in the deconstruction industry.

In an example of one of those deals, YieldStreet clients could participate in a $12.65 million loan with a projected 10.25% interest rate over a six-month term, after YieldStreet’s 1.25% management fee and a 0.5% origination fee. Prospective investors received a 16-page memo explaining marine finance, the deal’s structure, and the risks, such as an economic downturn, terrorist attacks, piracy, or an oversupply of ships, which could hurt scrap values. Investors also had some protections, according to the memo. Three ships would be collateral, and with a scrap value of $15.8 million, there was an extra safety cushion above the loan amount. The ships also were insured.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BLOOMBERG BUSINESSWEEKView All

Young U.S. Jews Shift on Israel

Millennial and Gen Z progressives question American support of Israeli policies, a point of tension for the Democratic Party

4 mins read
Bloomberg Businessweek
June 14, 2021

Fever Pitch

A British tonic maker aims to conquer the U.S. with its premium mixers

4 mins read
Bloomberg Businessweek
June 14, 2021

Welcome to the Trump Coast

The former president’s strategic retreat to Mar-a-Lago has helped turn Florida into a new home base for Republicans

10+ mins read
Bloomberg Businessweek
June 14, 2021

THE SEDITION HUNTERS

Amateur sleuths pore over photos and videos online to ID Capitol rioters

6 mins read
Bloomberg Businessweek
June 14, 2021

The FOMO Economy

From AMC to Dogecoin to houses, buying seems driven as much by anxiety as by hope

7 mins read
Bloomberg Businessweek
June 14, 2021

KING OF CARDS

Sports trading cards are having a moment. And no one promotes the industry like Ken Goldin

10+ mins read
Bloomberg Businessweek
June 14, 2021

Pay Attention to the Man Behind the Curtain

Vladimir Putin’s tolerance for criminal hackers will be on the agenda when he meets with President Biden on June 16

4 mins read
Bloomberg Businessweek
June 14, 2021

It's TEQUILA O'CLOCK In NYC

Jimmy Buffett’s Margaritaville is a hit song, a chill state of mind, a billion-dollar marketing empire, and the new best worst attraction in Times Square

10+ mins read
Bloomberg Businessweek
June 14, 2021

Is Streaming the Limit for Sky?

As its content providers start online services, the broadcaster pivots to create its own shows

5 mins read
Bloomberg Businessweek
June 14, 2021

A Pop-Up Store Hits the Road

Cuyana’s store-on-a-truck is a cost-effective way to quickly test locations and products

3 mins read
Bloomberg Businessweek
June 14, 2021