Property Crowd offers high returns for investors with larger sums to invest. We speak with Charles Tan
British P2P investors like to lend to real estate owners and developers. Many platforms have specialised in the secured lending space including Assetz Capital, Lendy, Lendinvest and Bridgecrowd.
It is into this competitive environment that Property Crowd launched earlier this year. The platform has chosen to target only professional, sophisticated, or high net worth investors. The minimum investment into each loan is £1,000.
One of the most interesting features of Property Crowd is how they structure their loans. Investors purchase bonds, rather than loan participations. An independent custodian holds all client money and securities. This is an unusual structure in the P2P space, but has several benefits that we think are attractive (see interview below for details).
In general we like the risk / reward profile offered by secured P2P loans. We also think these types of loans are easier to analyse the risks than other types of loans such as unsecured business loans.
Interest rates available on Property Crowd are in the 10-12% region. In many cases the loans are to help developers fund the purchase of a development site for a short period of time (often less than 12 months) prior to obtaining longer term finance. LTVs are similar to those found on other sites – typically between 50 to 70%. The main investment risks we see is if the UK market suffers a fast decline in the real estate market, and if the developers are unable to refinance the collateral assets as expected.
Property Crowd will be of most interest to sophisticated investors who are willing to spend the time reviewing all of the information provided on each opportunity, and have the ability to meet the minimum investment requirements. We expect the IFISA account offered by Property Crowd to be popular for UK investors. This is because the tax savings should be significantly more than the IFISA management charges.
What are your goals for Property Crowd?
Our goal is to position Property Crowd as the go-to platform for professional investors seeking exposure to high quality real estate deals via an efficient yet
Can you give an overview of what a typical Property Crowd investment looks like? What interest rates, collateral, LTV and duration can investors expect?
The deals we’ve offered so far have yielded in excess of 10% (annualised), are senior secured (first charge) against institutional grade UK real estate. LTVs are typically c.70% or less, with maturities of 6 – 12 months. We are exploring the possibility of offering mezzanine and equity deals later this year.
Property Crowd is not open to ‘ordinary investors’. Can you explain who can open an account – what are the requirements regarding net worth, or sophistication?
You are one of the few platforms to offer an IFISA product for UK taxpayers. How does this work and what are the costs?
The process is fairly straightforward, UK investors can apply to open and fund their Property Crowd ISA via our online portal. Investors access the same deals on the same terms, but there is a 0.95% p.a. fee charged on the amount invested via the ISA to cover the added cost of administration.
Your investments are in a bond format. You also have a custodian. Can you explain how that differs from typical P2P investments and the advantages / disadvantages?
Our Prime Custodian model adds a layer of sophistication and protection for professional investors. In a typical P2P platform, in order to make their offering easier and more accessible to retail investors, and partly to reduce the costs of administration, investments are pooled. This carries certain benefits, but also takes away the element of discretion and exposes investors to contagion risk (defaults on other loans dragging down returns) or platform failure (e.g. TrustBuddy in Sweden).
Our bonds are proper securities which are issued and held independent of our platform, this is more costly and time consuming for us as a business, but we believe that this is the model that will stand the test of time. The professional investors will spend more time analysing and understanding their investments on Property Crowd than a typical click-and-invest offering, but they will tell you that the higher returns, granularity, transparency and tail-risk protections justify it.
The interest rates you are paying investors are 3-4% higher than platforms such as Lendinvest who offer similar types of loans. Is this because the deals have a higher risk profile or are
Without wanting to single out a particular platform, it’s fair to say that different platforms operate different business models, and will price their product according to what the market will bear. I would argue that while higher risk typically entails higher returns, the logic does not flow in the opposite direction, i.e. higher returns do not necessarily mean higher risk (it could simply be due to a gap in the market), and lower returns certainly do not mean lower risk either (it could just be the result of higher fees!).
Does Global Alternatives (owner of Property Crowd) subscribe to any of the bonds? What is the business model?
GA does not subscribe to the bonds we offer on Property Crowd, but each bond is underwritten by a group of private investors that include some of the founders and shareholders of the company.
What does the pipeline look like? How much volume do you think Property Crowd will do over the next 12 months?
Hard to say, but after a slow start to the summer, volumes are picking up and I personally think we can aim for £10 million of deal flow on Property Crowd before the end of the year.
Do you see Lendy as a competitor? What do you think are the key differences?
Yes and no. We are all competitors to the extent that we operate in the real estate crowdfunding space, but the kind of deals they do (we don’t do single homes), the kind of investor audience they target (our minimum investment is one of the highest at GBP 1000), the number of defaults (we’ve had none so far), and the way they structure their deals are all very different to ours for reasons already discussed. Larger platforms have the benefit of a huge headstart, and we wish them all the best, but we’re confident in the value proposition of our own platform and believe professional investors will come to appreciate the same with time.