[Summary/Discussion] New Silver Series 2

Hello everyone! We are New Silver are ready to launch DeFi’s first real estate revolving pool. When investing in New Silver Series 2, you will be financing real estate across 39 states of the USA. Here’s a summary of the pool:

Summary

We are pleased to offer prospective investors the opportunity to gain exposure to real estate backed loans originated by New Silver Lending LLC. New Silver Lending LLC (“New Silver” or the “Asset Originator”) has launched NS Pool LLC (the “Issuer”), a Delaware limited liability company, which will offer for sale to investors tokens, as described below, corresponding to certain payment obligations owed to the Issuer by various real estate developers.

The Issuer will issue two tranches of ERC-20 tokens: New Silver Series 2 DROP Tokens with the token ticker symbol NS2DRP (“DROP” or the “DROP Token(s)”) and New Silver Series 2 TIN Tokens with the token ticker symbol NS2TIN (“TIN” or the “TIN Token(s)”), which will be offered for sale to investors on the terms described herein and in the New Silver Series 2 DROP and TIN Subscription Agreements provided to prospective investors.

The DROP Token will be a senior token that generates a fixed rate of return when deployed in financings. The TIN Token will be a subordinated token that will be subject to the first losses up to their full value, thereby acting as a buffer against losses to investors in the DROP Tokens. Issuer will target a 5% APR for DROP (the “DROP APR”) and the ratio of DROP to TIN will have a minimum ratio of 15% TIN. The TIN Tokens will also be purchased by New Silver and Centrifuge to demonstrate their confidence in the asset pool.

Issuer will use Centrifuge, Inc.’s (“Centrifuge”) blockchain protocol system, known as the Tinlake Protocol, to mint the DROP Tokens and TIN Tokens. Issuer’s use of the Tinlake Protocol will be subject to the terms and conditions of that certain Tinlake Protocol Service Agreement, dated as of November 20, 2020 (the “TPSA”), between the Issuer and Centrifuge.

Summary of Terms

About the Asset Originator

Founded in 2018, New Silver is a technology-enabled non-bank lender primarily focused on providing commercial purpose, real estate-backed financing for the United States “fix and flip” sector with a concentration on single-family residential assets. Fix and flip loans allow real estate investors to finance both the purchase and the construction, or in some cases, refinance an existing investment property with sufficient equity.

New Silver’s proprietary technology automates loan originations and speeds up underwriting, while using data science to reduce risk. Furthermore, New Silver’s FlipScout tool uses intelligence in order to help find projects with the highest return on investment.

To date, the company originated over $35mm loans and has had no foreclosures. Prior to COVID-19, the company was originating $3-5mm per month, and took a pause during the pandemic to assess market risk. As of the date of issuance, the management team is confident in the single family residential (SFR) sector - consumer mortgage rates are at all-time lows, mortgage applications are near their all-time highs and increasing while home mortgages in forbearance are decreasing and foreclosures for the year are lower than in the past years. While the commercial real estate market may be temporarily affected by the pandemic, the management team feels strongly that the SFR market is substantially different and will continue to have a scarcity of supply thus driving demand and price appreciation. New Silver anticipates originating around $50M in the next 12 months.

Asset Pool Description

The Issuer will be financing fix and flip loan requests on New Silver’s platform. The Issuer anticipates financing less than 10% of the overall loan requests coming through their platform with an average loan amount of $190,000. The property types are classified into “Single Family 1-4 unit” or “Multi-family 5+ unit”. Presently, these are the maximum leverages allowed by New Silver to be considered for financing:

  • Maximum Loan To Purchase Price - 85%
  • Maximum After Rehab Value - 75%
  • Maximum Loan to Project Cost - 85%

NS2 will be a revolving evergreen pool. Upon repayment by the Borrowers the Issuer will distribute any capital requested for withdrawals and then will redeploy the remainder into new loan requests. NS2 will be open for investment and withdrawal on a regular basis based on the frequency of an Epoch as determined by the Issuer and defined by the Maximum Epoch Duration. The total value of the pool is expected to grow steadily.

DROP investors will not receive any payments of principal or interest in respect of any DROP Tokens until such time as the Investor elects to redeem such DROP Tokens. Until such redemption, all amounts payable to the Investor in connection with the DROP Tokens will be either (i) held in cash by the Issuer, free and clear of any liens or encumbrances, or (ii) deployed by the Issuer to fund the generation of new Underlying Assets.

DROP Tokens will generate a fixed 5% DROP APR and will be senior in right of re-payment and redemption to TIN Tokens, which will represent at least 15% of the pool. New Silver and Centrifuge have agreed to invest among other investors in the TIN tranche to demonstrate their confidence in the asset pool.

The offering will be made available to accredited U.S. investors and international investors through a private placement under Regulation D and Regulation S of the U.S. Securities Act of 1933. The Issuer intends to utilize Section 506©, which allows for general solicitation of the offering. Each U.S. investor will be required to have their status as an “accredited investor” verified prior to their initial purchase of DROP Tokens or TIN Tokens and periodically thereafter. Verification will be performed by Centrifuge or a third-party designee. This offering is not available to residents of the Commonwealth of Massachusetts. For international investors, local laws and regulations will apply.

Fix and Flip Loans

Proceeds of this offering will be used to finance commercial purpose, fix and flip loans (also referred to as rehab loans). Fix and flip loans allow real estate investors to finance both the purchase and the construction, or in some cases, refinance an existing investment property with sufficient equity.

When a borrower submits a loan request via New Silver’s online platform, New Silver makes use of its proprietary technology and data to underwrite the loan in real time, and offers the borrower conditional approval, terms and rates. Upon terms acceptance by the borrower, New Silver orders a third-party appraisal of the property. The appraisal confirms both as-is and after-rehab values. Furthermore, New Silver collects and reviews due diligence information on the borrower and borrowing entity. Upon final approval, a real estate closing with a partner attorney is initiated. The attorney reviews the title and puts together the closing package as required by state regulations.

In the majority of cases, the total loan amount is split into (1) the Purchase Loan and (2) the Construction Loan. The Purchase Loan is used to finance the purchase of the property and is advanced at the closing. The Construction Loan is used to reimburse the construction costs.

Loan servicing includes management of the construction loan draw process. When the borrower completes a certain amount of construction work, they request a draw from New Silver. New Silver verifies the work has been completed using a third-party inspection service. Upon verification, New Silver reimburses the borrower for part of the Construction Loan, so that the maximum Loan to Value and/or Loan To Project Cost does not exceed loan terms. This process is repeated until all of the construction funds have been disbursed.

At loan maturity or a liquidity event, the loan is paid off in full (principal and any outstanding interest).

Due Diligence

The founding team combines 20+ years of experience in the real estate industry and technology. The team has developed a fast, user-friendly online approval process as well as proprietary underwriting technology that uses a data driven risk mitigation approach.

Below is a list of various data points and due diligence information considered when underwriting each loan (these data points are subject to change)

  1. FICO score of the borrower: FICO score provides a historical risk score on each of the borrower guarantors
  2. Verification of experience: Borrower experience is determined in the number of rehab projects the borrower has successfully carried out in the past
  3. Borrower Liquidity: New Silver checks borrower’s bank statements to ensure they have enough to cover the closing, third party fees and at least 3 months of interest payments
  4. Appraised Property Value: This appraisal is carried out by a third-party appraiser on site. This includes the As-Is and After Rehab values in cases where construction will be required.
  5. Automated Property Valuation: this is an automated, API based property valuation from one of New Silver’s partners (primarily Clear Capital)
  6. Average Days on Market in Zip Code: how many days a property stays on the market in a given zip code.
  7. Monthly Sales Count by ZIP Code: how many properties are sold per month in a zip code.
  8. Standard Deviation from Median Sales Price in Zip Code: how different is the sale price of this property from the median in a specific zip code
  9. Median sale price for zip code to ARV %: how different is the After Rehab Value of a property compared to others in the zip code
  10. FHFA HPI Maximum Yearly Decrease 2006-2018 in County and State vs National
  11. ZHVI (Zillow Home Value Index)
  12. Census Data: Various census data such as average household income and town population.
  13. Borrower and entity background: background criminal and civil litigation check on borrower and entity
  14. Entity Good Standing: certificate of Good Standing from the state
  15. Corporate docs: various corporate documents such as Operating Agreement
  16. OFAC sanctions list
  17. Insurance: adequate liability insurance is required
  18. Flood zone: if the property is in the flood zone, flood insurance is required

Default Procedures

Real estate is one of the oldest asset classes, and thus, extensive regulation and precedent has been set around the handling of potential defaults. We describe the possible default scenarios here. These steps are handled by New Silver in conjunction with their loan servicer or legal partner.

Resolution Steps:

  1. Notice of default is sent to the borrower
  2. Contact with the borrower is made, a loan workout is initiated (forbearance modification). Payments resume after workout completes.
  3. In the event the borrower is unable to make further payments, steps are taken to take over the property without going through courts - options are deed in lieu or taking over control of the borrower’s legal entity.
  4. In the event the borrower is unresponsive or unwilling to take the necessary steps, a foreclosure process is initiated. This process is different in each state and could take up to 6 months or longer to complete.

1: DROP will only generate a fixed return (the “DROP APR”) while being deployed in actual financing. The IRR will be less than the DROP APR caused by the cash drag of Dai being invested in the pool but not being deployed in actual financing.


FOR DETAILS PLEASE CONTACT NEW SILVER: investors@newsilver.com

DISCLAIMER: Nothing contained in this executive summary is to be construed as a solicitation or offer, or recommendation, to buy or sell any interest in any note or other security, or to engage in any other transaction, and the content herein does not constitute, and should not be considered to constitute, an offer of securities. No statement herein made constitutes an offer to sell or a solicitation of an offer to buy a note or other security.

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