PeerStreet Files For Bankruptcy After Mortgage-Origination Business Vanishes

Online real estate investing platform PeerStreet filed for Chapter 11 bankruptcy after its mortgage-origination business essentially evaporated and with less than half of its loan portfolio current on payments.

So far in 2023, the company has originated just $5.4M in mortgages, bankruptcy documents say, compared with $385M last year and $696M in 2021.

As of this week, about $205M of the unsecured mortgage payment-dependent notes PeerStreet holds were outstanding, according to an affidavit filed in the bankruptcy proceedings. Those notes are associated with roughly $220.2M of underlying loans, less than $93M of which were performing.

PeerStreet, based in El Segundo, California, filed for bankruptcy in a Delaware court on Monday. Its trouble seems to stem from the near-universal drop in commercial real estate deal-making that has occurred as interest rates have climbed in the last 18 months.

Venture capital, “one of PeerStreet’s historic sources of funding,” has also dried up, according to the affidavit. The company locked down almost $122M in outside capital since its inception, according to Crunchbase. Venture capital investment has been on the decline and in the first three months of 2023 saw a 53% drop year-over-year globally, Yahoo Finance reported. 

The company, founded in 2014, created a platform that allows users to invest in real estate-backed loans. The attorney for PeerStreet didn't respond to Bisnow’s request for comment. 

The company is often lumped in with the spate of crowdfunded real estate investment platforms that launched in the mid-2010s, but rather than investing in property directly, PeerStreet users invest in loans on offices, multifamily properties or strip malls. Investors in the platform must be accredited, but the threshold is low: Just $1K can get an investor in the door.

PeerStreet’s model involves sourcing loans from private lenders and brokers, then selling those loans to institutional investors or posting them to the company’s online investing platform, its chief restructuring officer wrote in documents filed with the bankruptcy court.

The decline in demand for mortgages that the company references in its bankruptcy filings has reverberated throughout the mortgage industry, so it isn't too surprising that the drop in mortgage demand has been felt immensely by the company. Still, the numbers are stark.

Trouble seems to have begun for the company in the earliest days of the coronavirus pandemic. In March 2020, it laid off 51 workers, according to online tracker layoffs.fyi. PeerStreet also received a first-round Paycheck Protection Program loan from the federal government for approximately $3.7M, which it hasn't repaid.

In May 2021, 75 more PeerStreet employees were let go. More layoffs in May, July and October 2022 and February of 2023 took the company's headcount down to 28 people as of Monday, court filings said. Staff totaled 281 at the beginning of May 2022. 

“Although PeerStreet may attempt to continue operation of its business … the success of the business is unknown at this time,” PeerStreet reportedly told the North Carolina Department of Commerce in submissions related to layoffs it conducted there this year. “Accordingly, no PeerStreet employee who is being laid off should count on being recalled/rehired for employment with PeerStreet.”

After the workforce reduction, the company is also attempting to get out of the lease for its El Segundo headquarters at 2121 Park Place. It is unclear from the filings how much space PeerStreet occupied or what it was paying in rent. The company no longer works out of the space and has moved to “a more cost-effective co-working facility,” court documents say. 

On Tuesday, PeerStreet filed documents asking the court to approve a plan for it to sell off its assets. The company has retained Piper Sandler Loan Strategies to find buyers for its loans. 

“Piper has executed non-disclosure agreements [“NDAs”] with approximately 1,000 investor parties with interest in acquiring mortgage loan assets such as” the kind that PeerStreet would be selling, according to court filings.