California-based real estate investing platform PeerStreet, Inc. and 14 affiliated debtors filed for protection under Chapter 11 of the U.S. Bankruptcy Code in a court in Delaware on Monday, citing a challenging mortgage market and struggles to raise capital with venture capital funds.
“Through its bankruptcy filing, PeerStreet will seek to sell substantially all of its assets, including, but not limited to, its mortgage loan assets and technology platform, in a series of transactions intended to maximize value for all of Peer Street’s stakeholders,” the firm said in a statement.
Founded in 2013 by Brew Johnson, Brett Crosby and Alex Perelman, PeerStreet developed a marketplace connecting lenders and borrowers seeking capital to investors looking for real estate-related debt. The business attracted investor Michael Burry, one of the featured players in “The Big Short.”
The company sources loans for private lenders and brokers, which are offered for sale to institutional investors or posted on the company’s online platform. In addition, PeerStreet acts as a master servicer and manages loans on behalf of investors.
David Dunn of advisory firm Province, the chief restructuring officer for PeerStreet, cited in court filings that surging rates, reduced demand for mortgages, and declining institutional buyers’ appetite for below-current-market-rate loans led to the Chapter 11 case.
PeerStreet, which has a subsidiary mortgage lender and servicer, has originated only $5.4 million in mortgage loans in 2023, compared to $385 million in 2022 and $695.8 million in 2021, Dunn wrote. For the 12 months ending December 2022, PeerStreet and the other debtors had total revenue of approximately $37.4 million, down 23.2% from the year prior.
“In addition, in 2022, one of PeerStreet’s historic sources of funding – venture capital – declined markedly. As a result, PeerStreet was not able to access material funding to mitigate the loss of revenue caused by market conditions,” Dunn stated in court filings.
HousingWire reported that PeerStreet raised $30 million in 2018 and $60 million in 2019.
The company attracted big names among its investors, including Silicon Valley venture capital firm Andreessen Horowitz, which led its Series A funding round of $15 million in 2016. Burry was one of PeerStreet’s first investors in 2015.
PeerStreet and the other debtors had 28 employees when it filed for Chapter 11 on Monday, compared to 281 at the end of May 2022. Its workforce was reduced through four rounds of furloughs and layoffs – May 2022, July 2022, October 2022 and February 2023.
The company asked the court to authorize the payment of $130,000 in unpaid wages and $100,000 to critical vendors, among other requests.
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.
Piper Sandler will be the broker responsible for selling PeerStreet’s assets.