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WFP Opportunity Fund - Interperiod Update

May 29, 2020, Newport Beach, California – The WFP Opportunity Fund (the “Fund”), managed by Wilshire Finance Partners, normally reports to investors on a quarterly basis to coincide with the quarterly reconciliation of the Fund’s books and the allocation of income and expenses to investors.  The purpose of this communication is to provide additional interperiod information about actual and potential impacts to the Fund resulting from the impact of the COVID-19 pandemic and other events.  The content of this communication is based on the facts and circumstances as management believes them to be true today.  However, the environment remains extremely dynamic and fast-paced and, although certain impacts have been identified, the full impact of the virus and other factors resulting from the virus on the broader economy, real estate market and the Fund still remains unknown.

 

Prior Communications

 

To keep our investors informed, we have started to create an archive of Wilshire’s investor communications related to the COVID-19 outbreak.  To access those prior communications, click https://wfpfunds.com/coronavirus-covid-19-update/.

 

Subsequent Events

 

The fallout from COVID-19 has impacted the United States and the global economy; including, the real estate sector in the United States.  Certain property types have been under tremendous strain due to, among other things, federal, state, and local stay in place orders, rental forbearance programs and moratoriums on evictions that impact their tenants’ businesses and, as a result, the property’s cash flows.  Retail properties have experienced even greater difficulty, especially where the business activity of the retail property is tied to the health and activity of neighboring properties and businesses.

 

Following the closing of the Fund’s books and reporting on first quarter 2020 results, a loan secured by a retail property went into default.  The property is located in Tyler, Texas across from The University of Texas at Tyler (UT Tyler).  UT Tyeler shut down its campus and required that all classes be taught remotely as of the end of the first quarter of 2020.  The owner of the property was attempting to turn-around the operations of the property and UT Tyler’s decision to shut down its campus in response to the COVID-19 pandemic caused additional negative impacts to the property.  The April 1, 2020 payment made by the borrower was returned for insufficient funds and the May 1, 2020 payment was not made. Wilshire commenced discussions with the borrower about potential payment relief and other loan workout solutions, however, those communications stalled.  The borrower subsequently defaulted repayment of the loan on its maturity date of May 24, 2020.

 

The Fund holds a B Note secured by the property. The structure of a B Note results from a participation in single note where the note is split into a senior tranche (or “A Note”) and a subordinate tranche (or “B Note”).  B Notes typically carry a higher rate of interest and are subordinate to the A Note, but with respect to the borrower, are secured by a deed of trust in first lien position. The structure and relative rights of the holder of the A Note and the holder of the B Note are governed by a Loan Sale and Intercreditor Agreement (the “Intercreditor Agreement”).

 

The split of the note was completed under the original loan structure in 2017.  In accordance with the Intercreditor Agreement, the B Note held by the Fund represented a 20% subordinate interest in the loan and the A Note held by the WFP Income Fund REIT, LLC, a Delaware limited liability company and successor-in-interest to the WFP Income Fund, LLC (the “REIT”), represented an 80% senior interest in the loan.

 

As a result of the defaults and upon consultation with Fund’s external legal counsel and accountants, Wilshire commenced the following actions:

  • Workout Limited Liability Compan A single asset limited liability company (the “Workout LLC”) was formed to hold the note, commence foreclosure, and control the property if it reverts to the Workout LLC through foreclosure.

 

  • Contribution of B Note. The Fund contributed the B Note to the Workout LLC in exchange for a 20% membership interest in the Workout LLC. Concurrently, the REIT contributed the A Note to the Workout LLC in exchange for an 80% membership interest.  Further, each of the Fund and the REIT contributed cash representing their pro rata share of the estimated mandatory advances for the protection and preservation of the property during the foreclosure and collection process.  This resulted in the Workout LLC holding the entire single note secured in first lien position against the property.  To keep the original economics and exposure under the split note intact, the rights, preferences and privileges under the Intercreditor Agreement, including the allocation of gains and losses under the senior-subordinate structure, were retained in the Workout LLC operating agreement.

 

  • Foreclosure Preparation. In connection with the defaults and the preparation in connection with the foreclosure action, Wilshire conducted pre-foreclosure due diligence on the property and the guarantors; including, obtaining current market lease rates and sales comparisons from several in-market commercial Realtors, leasing agents and property managers.  As of the date of this communication, an updated appraisal on the property is still pending.

 

  • Foreclosure. The Workout LLC commenced foreclosure action.

 

Based on the current information received on current lease rates and sales comparisons, the value of the property was significantly lower than the original appraised value obtained in 2017.  As a result, the Fund will write down the B Note and it is anticipated investors in the Fund will incur a loss of approximately 6.59%, which will be reflected in the capital account balances.

 

In addition to foreclosure, Wilshire is taking the following actions for the Fund:

 

  • Legal Action for Recovery. Legal counsel in Texas has been engaged to review and pursue various claims post-foreclosure; including, claim for deficiency against the guarantors under the loan and, potentially, other parties where a claim can be made.  To the extent there are any recoveries from those claims, they may act to offset the losses to the REIT and the Fund.  Any such recoveries will first be paid to the REIT until it has recovered the unpaid principal amount and other sums due under the terms of the A Note, and, thereafter, any remaining recovery will be paid to the Fund under the terms of the B Note.  There are no certainties in litigation and therefore Wilshire cannot provide any representations or guarantees about amount and timing of a recovery of all or a portion of the losses, if any.

 

  • Negotiation. Notwithstanding the legal action that will be taken, Wilshire will continue to attempt to communicate with the borrower to seek alternative solutions which will help maximize any recovery.

 

  • Loan Loss Reserves. To rebuild the capital impacted by the losses and replenish the reserves, Wilshire is adjusting the accrual for the Loan Loss Allowance in the Fund follows: The quarterly accrual for a loan loss reserve in the WFP Opportunity Fund will be increased to 0.625% per quarter (or approximately 2.5% per annum).

 

Wilshire will continue to assess the market and the adequacy of the reserves on a move forward basis and may make further adjustments, which may include specific reserves against particular problem assets.  That said, there can be no assurance that the present or future amount of the Loan Loss Reserves will be sufficient to cover any and all losses which the Fund may experience.  After the current conditions have subsided and the real estate market has normalized, Wilshire may distribute excess reserves, if any, to the then-current investors in the Fund as a special dividend.

 

  • Redemptions. After careful consideration, while Wilshire believes the impact of the current environment on the Fund has not been fully realized, Wilshire also recognizes our investor’s need for liquidity.   Therefore, the moratorium on redemptions will be modified as follows:

 

    • Generally. Redemption requests will be subject to the following limitations and restrictions:

 

      • Redemptions will be subject to a ten percent (10%) holdback of the total amount requested; and

 

      • All requests will also remain subject to the requirements and restrictions in the operating documents of the Fund; including, without limitation, restrictions required to maintain regulatory compliance, ensure a sufficient level of capital in the funds, and strive for a level of stability in the funds for all investors with those investors.

 

    • Bona Fide Healthcare Emergencies. To the extent there is sufficient cash in the Fund and any such redemption will not cause the Fund to be out of compliance with the Fund's organizational documents, Wilshire will attempt to honor and accelerate requests for redemption arising from bona fide healthcare emergencies to the extent possible. Such investors will be required to provide a hardship letter together with documentation supporting their request.

 

Rest assured that Wilshire takes our investors need for liquidity seriously.   Therefore, the approach Wilshire is taking on redemptions is driven by the need to maintain compliance with a number of rules and regulations impacting the Fund, make prudent decisions within the portfolio of the Fund, and address the potential impact on all investors in the Fund.  Wilshire intends to continue to assess and, as necessary, adjust the redemption restrictions on a weekly basis.

 

With respect to your investments in and the performance of the Fund, Wilshire remains cautiously optimistic about the other loans in the Fund’s portfolio and the performance of the Fund.  However, we cannot provide any representations guarantees about how the current and future environment will impact the underlying investments in the Fund.  We do believe, however, that there are several factors that will help buffer potential future impacts to the Fund; including, diversification, non-correlation, and not using leverage against the portfolio.  Therefore, we believe patience will be required during this interim period on a lot of levels, including, on the investment front.  Like the recovery in real estate values we experienced after the great recession, having a longer investment horizon is one way to consider and address the near-term impacts to the market and the funds.

 

As addressed in prior communications, WIlshire is taking and will continue to take proactive measures to help the Fund weather the current market conditions.  However, we cannot provide any representations or guarantees about how the current economic environment will impact the underlying investments in the Fund and therefore the Fund’s performance.  Prior communications from management about the potential impacts resulting from the COVID-19 fallout may be found at https://wfpfunds.com/coronavirus-covid-19-update/.

 

For more information on Wilshire Finance Partners or the WFP Opportunity Fund please call (866) 575-5070 or visit www.WilshireFP.com.

Read More 

WFP Income Fund, LLC 
• Monthly Cash Flow
• Short Term Fixed Income
• Stable Nav
• No Loads or commissions
• Not correlated to the stock or bond markets
• Not interest-rate sensitive

WFP Opportunity Fund, LLC 
Higher Risk-Adjusted Returns
• Monthly Cash Flow
• Short Term Fixed Income
• No Loads or commissions
• Not correlated to the stock or bond markets
• Not interest-rate sensitive

About Wilshire Finance Partners and our investment alternatives. 

Wilshire Finance Partners, Inc. (“Wilshire”) specializes in real estate finance and investments and is the manager of the WFP Income Fund, LLC (“WFP Income Fund”) and the WFP Opportunity Fund, LLC (“WFP Opportunity Fund” and collectively with the WFP Income Fund, the “Funds”). The WFP Income Fund invests in a diversified pool of residential, multifamily, and commercial real estate-related short-term bridge loans secured by first trust deeds and mortgages. The WFP Opportunity Fund invests in a diversified pool of residential, multifamily, and commercial real estate-related short-term bridge loans, participating loans, real estate joint ventures, and direct real estate investments. Wilshire commenced operations in January 2008 and launched the WFP Income Fund and the WFP Opportunity Fund in September 2013.

 

The WFP Income Fund is approved for both retirement and non-retirement accounts on the following alternative investment platforms:

 

  • Charles Schwab; (SSID Number available through an Advisor)
  • Fidelity Investments (National Financial Services or NFS); CUSIP Number 94699K534
  • Pershing as WFP INCOME FUND LLC; CUSIP Number 929LP9220
  • TD Ameritrade as WFP INCOME FUND LLC NSA; CUSIP Number 93099B102
  • Wells Fargo Advisors; No CUSIP number required

 

The WFP Opportunity Fund is approved for both retirement and non-retirement accounts on the following alternative investment platform:

 

  • Charles Schwab; (SSID Number available through an Advisor)
  • Fidelity Investments (National Financial Services or NFS); CUSIP Number 94699B948
  • TD Ameritrade as WFP OPPORTUNITY FUND NSA; CUSIP Number 93099C100

 

In addition, each of the WFP Income Fund and WFP Opportunity Fund are approved for self-directed retirement accounts and various other platforms without the need for the CUSIP number, including, Community National Bank, Equity Trust Company (Sterling Trust), Millennium Trust Company, Pensco Trust Company, Provident Trust Company, Strata Trust Company and Shareholder Services Group.

 

Each of the WFP Income Fund and WFP Opportunity Fund is open to investors, wealth managers and individual investment advisors under the above referenced platforms using standard subscription and transfer procedures.

 

Investors and advisors may also invest directly through Wilshire.  Individual investors not using a third-party advisor may be required to meet additional requirements of the platform providers.

 

Safe Harbor Statement

 

This communication is not an offer to sell or the solicitation of offers to purchase the securities of either of the Funds, individual loan or trust deed investments, or otherwise (individually and collectively, the “Securities”). The purpose of this communication is to provide an overview of the respective Securities and their private placement. Persons interested in learning about the Securities and their private placement will be provided with the respective Private Placement Memorandum (inclusive of exhibits thereto and any supplements, the “Memorandum”), which provides a description of the Securities, the terms of their private placement, a discussion of risk factors, a copy of the limited liability company operating agreement for the fund (as applicable), a subscription agreement and other information related to the Securities.

 

This communication contains certain forward-looking statements regarding the Securities and the investment objectives and strategies of each of the Funds. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire, as the manager of the Funds. Although Wilshire believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire, any placement agent, or any other person, that the objectives and strategies of the respective Securities or the Funds will be achieved.

 

Investments in the Securities may only be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein. Each of the Securities is being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act) and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The Securities Exchange Commission has not passed upon the merits of or given its approval to the Securities, the terms of the offering, or the accuracy or completeness of any offering materials. Each of the Securities is subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the Securities. Past performance is not indicative of future results. Investing in any of the Securities, including the Funds, involves substantial risk, including loss of investment, and is not suitable for all investors.

 

Contact:

Wilshire Finance Partners, Inc.

Donald H. Pelgrim, Jr.

(866) 575-5070

dpelgrim@wilshirefp.com

Source: Wilshire Finance Partners, Inc.

DISCLOSURES

Wilshire Finance Partners, Inc. specializes in real estate finance and investments and is the manager of the WFP Income Fund, LLC (the “Income Fund”) and the WFP Opportunity Fund, LLC (the “Opportunity Fund” and collectively with the Income Fund, the “Funds”).  This communication is not an offer to sell or the solicitation of offers to purchase the securities of either of the Funds or otherwise. The purpose of this communication is to provide an overview of the respective Funds and their private placement.  Persons interested in learning about either of the Funds and their private placement will be provided with a Private Placement Memorandum (inclusive of exhibits thereto and any supplements, the “Memorandum”), which provides a description of the respective Fund, the terms of its private placement, a discussion of risk factors, a copy of such Fund’s limited liability company operating agreement, a subscription agreement and other information related to the respective Fund.  This communication contains certain forward-looking statements regarding each of the Funds’ investment objectives and strategies. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire Finance Partners, as the manager of the Funds.  Although Wilshire Finance Partners believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire Finance Partners, any placement agent, or any other person, that the objectives and strategies of the respective Funds will be achieved.  An investment in either of the Funds may be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein.  Each of the Funds securities are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act.  Neither the Securities Exchange Commission nor any state agency has passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials.  The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the securities.  Past performance is not indicative of future results. Investing in the Funds involves substantial risk, including loss of investment, and is not suitable for all investors.

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