A Letter from the Founders

October 27, 2022


Dear Investors,

Our first investment offering launched for funding on Groundfloor nearly nine years ago. Since then, we’ve been preparing for how developments such as an economic slow down, declines in house prices, and high interest rates could factor into the performance of our investments and the company itself. As such headlines dominate the media today, we thought you would appreciate hearing from us too.


Investment Performance: Year-To-Date

While U.S. public stocks finished Q3 down 24.9% for the year, Groundfloor LROs repaid during that same period delivered average returns of 10%.* The average repayment term increased to 11.0 months, up from our historical average of 8.9 months, but our average loss ratio was 0.16%* on loans repaid during the period. This loss ratio is significantly lower than our historical  average of 0.44% for all 2,400 loans repaid on our platform since 2014.

This stability and relative out-performance is a hallmark of investing in debt securities on Groundfloor.  Especially in uncertain economic times, the type of investment you make matters. Like we're now seeing, the value of equity investments ranging from rental housing to public company stock can change significantly, but debt investments such as our LROs are much less volatile and more predictable. As providers of debt capital, Groundfloor LRO investors are first in line to be paid, just like the bank. That right to first payment is backed by our legal recourse to take over ownership of property through foreclosure when necessary. It’s good to be the bank, especially if you’re seeking relative safety in turbulent times.


Current Portfolio

Going forward, we expect sales prices to soften for some of the 1,200 properties underlying the loans in our active portfolio. Our internal analysis suggests that the markets and price segments we are in are unlikely to suffer broad price declines that are large enough to impair our position on the vast majority of properties we’ve financed. While homeowners and other equity holders may feel pressure, we believe the value of our debt positions should hold firm on a relative basis.

Following market trends, in July we increased rates by 1.00% for investments in all LROs funding from that time onwards. This rate increase is sufficient to offset a potential increase in loss ratio up to 8-10X from currently observed levels without impairing the net returns historically realized on our LROs. While we don’t expect such a deterioration to occur, the increased rate rewards investors for any potential longer loan durations or a higher incidence of extended workouts and foreclosure actions should they be necessary.


Future Investments 

In addition to July’s rate increase, Groundfloor has also amended our lending guidelines by reducing the amount of leverage available to certain borrowers. Additional adjustments to guidelines were made to ensure we will be better insulated from sudden, unexpected changes in market demand or property values. We’ve also increased our level of investment in asset management people, systems, and processes to stay ahead in our ongoing surveillance of markets and collateral.

Market conditions that are difficult for current owners of housing equity actually favor capital providers such as Groundfloor. This may be counterintuitive for some. Not only do we benefit from taking less risk on projects, we also see a greater proportion of deals from experienced developers who are taking advantage of this point in the cycle to find value. Experienced developers also carefully control their development budgets to ensure they maintain profit margins as exit prices compress. Compared to the loans we originated in 2021, we’re currently providing capital for projects that are relatively more promising, with less leverage, and at higher rates.


Prospects For Our Company

While Groundfloor isn’t immune to the impact of market turbulence and no one can predict the future, we’re fortified with the broadest possible base of capital to weather whatever comes our way. Our unique structure frees investors like you from the tyranny of fund managers. Your ability to build your own portfolio of loans tens or hundreds of dollars at a time translates into unique, market leading flexibility and resiliency for Groundfloor as a capital platform. We theorized about that before COVID and the current developments, and we now have the evidence to demonstrate it. 

Retail investment volumes are surging on Groundfloor, as they did during the fear that took hold of markets in 2020. Refugees from Robinhood and cryptocurrencies are now arriving to experience the value of what Groundfloor offers. Investor appetite for Groundfloor LROs and Notes is stronger than ever.  In Q3 we saw a 25% increase in investment volume over the previous quarter. Year-to-date, we’ve already surpassed sales records set last year for both investment products. Meanwhile, we’ve added hundreds of new shareholders and $1.3 million in working capital via our annual equity crowdfunding campaign on Wefunder to help finance our continued growth.

Those figures are a source of pride to everyone at Groundfloor for the trust in us that they signify. Headlines understandably raise fears, but results don’t lie. You can count on us to value and never to take your investments for granted, doggedly pursue recovery of every defaulted loan, and to be unceasingly accountable for how we operate on your behalf. Thank you for continuing to believe and invest in us.



Brian's sig.NickSignature

Brian & Nick





* A previous version of this letter erroneously stated our average returns as 10.1% rather than 10% and our loss ratio through Q3 2022 as 0.15% rather than 0.16%.