• Fabio De Gaspari

RE Crowdfunding Deal analysis: Rendity, Colerusgasse 21

Updated: Jan 15

Current investment markets are living an ebullient risk attitude, where retail investors are flooding whatsoever risk opportunities to escape the financial repression caused by central bank policies. The same desperation for yield is lived by institutional players, where 18 trillion of bonds are yielding negative rates. Just to give an idea 4/5 of developed bond yields are trading below 1%.


This is translating in a yield compression also for illiquid or alternative financial opportunities and probably some wrong risk compensation for the investors.


Real estate crowdfunding deals published across Europe since the summer are seeing a strong interest, large campaign are being funded in a few hours while smaller ones are closing in minutes, with a run to be able to partecipate. Just to have a clearer picture, Crowdproperty, a good UK platform, has introduced a limit to the maximum ticket investable in the first hours to permit a broader access to clients.

At the same time recent born platform, both lending than equity, are pushing hard to issue new deals and raise money, attracting whatever type of deals and developers with dubious track record.

Everyone has to remember that a platform is a marketplace gaining from the amounts raised, with large CAC and marketing efforts needed, other than fixed costs, to manage the two sides of the business and, most of them being start-up, they are pressed to offer (in 2020 it's difficult to be picky).


But while it's reasonable to be skeptic about investing in platform with small ticket, minimum track-record, amateur team and low capital, directing to biggest brands is not a receipt for success or to be sure to invest in well structured operation, with reasonable risk/reward profiles.

I'm not a fan of the "diversify as much as you can" and get the average. If i don't understand the deal, if i don't have the necessary disclosure and transparency, i don't proceed.

Invest in a professional platform obviously for me is a condition "sine qua non" to look through the deal.

But recently i've observed that "level" of opportunities listed in the same platform is very fluctuating. This is what I noticed analysing the current invest opportunity listed on Rendity, the biggest Austrian platform and one of the most acclaimed in DACH.


The platform offers lending deals, with two different typology: loans for development deals (opportunistic) and loans for renovation/repositioning of rented properties (value-add).

The current deal offered is called Colerusgasse,21, a medium sized ground up development consisting in 40 apartments and 21 parking within a unique building, a residential complex with common areas and size from 100 to 146mq, for a total of 2194mq. The renderings are of good quality and the potentiality of the project is valid. Located in Vienna, where the prices have risen a lot, the demand is still there.




Looking at the documents, there isn't a layout of the the apartments, a planimetry and neither an explicit selling price for sqm. A revenue breakdown analysis is fundamental to validate the coherence of the project. Considering a GDV of 10,6 mln it's not easy to get the right sellin price because we don't know how to value parking spaces: however doing a simple division (10,6mln/2194sqm) I get a 4830 euro/sqm, more than 10% higher than published average of 4200 euro. I don't want to digress too much on this, but it's just to be conscious that the business case is for an above average price.


But, what's the investment offer?

The developer, with a new SPV (be conscious that this is the borrower!) with a capital of 10.000 euro, is raising 1.1 mln euro subordinated loan with a maturity of 30 months and a fixed interest rate of 6.8% payable yearly. This is a mezzanine loans, behind the 7,1 mln bank senior loan and above the 600k equity offered by developer.



The total development costs inclusive of finance are 8.8mln.

The profit on costs after finance is 20,5%, a good average value to testify the validity of the development.


I'd like to spend more time about the land, price etc. The project states that the land is yet under property and the licenses obtained, but with a price tag of 2,7mln and an equity of 600k, 2.1mln are missing. What does it mean? That the land is largely still financed or that a prelimary contract has been signed or some other options. This point is honestly unclear for me; then there's no photo/image of the land and of the neighborhood, i'd had preferred more disclosure.

If the crowdfunding offer will be subscribed, the bank will cover also the remaining part of the land costs (2.7-0.6-1.1= 1mln), all the construction costs, soft costs, finance costs and commissions.



Here the English version.


Financial Structure

The deal is highly leveraged, the equity is only 7%, the mezzanine (crowdfunding loan) 13% and bank loan an 80%.

Planning costs are on the low side whilst financing costs are really low! It's not clear if sub loan interests are included (I guess so), but with an interest costs of about 187.000 euro for this, only 145k are remaining to pay 7,1 mln in two years to the bank. I understand that for a development loan the maturity is shorter, but it means a rate of 1% yearly!!!! WOW


Fee= 35k for an offer of 1,1 mln is less than 3.5%. So Rendity is doing a discount to their declared level of 5.5%? And what about yearly running costs of 1,25%? I can't find an answer in the documents....


Sales= this is another big question mark for me. There's no hint to the level of pre-sales reached, it seems that this process isn't yet started looking at Project Milestones (the box is unticked)











whilst in the Rating section is signed at more than 20% (last line, Pre-sales).


It's easy to understand the risk profile for a development loan in highly dependent on the percentage of pre-sales reached. Another missing point in my view is the timeline of the deposits, why in the Source section is not considered the financing from client deposit arrangements?


Guarantee: there's no encumbrance for the crowdlenders, only a personal note from the developer as private person (can someone shows wealth details of this man?). Obviously is a subordinate loan with a 80% senior loan above. It's a risky position in the capital stack!


In the business plan is not contemplated any contingency, there's no scenario or sensitivity analysis provided. What's going to happen in case of delay??? Or worst, default? What's the penalty rate. How is the yearly interests going to be paid? i don't see a serious cash-flow model that explain me the whole process.


The developer seems experienced in this residential space and area but with market at top prices what's their plan B?


Conclusions

This type of deal with this financial structure is highly risky. The mezzanine loan is above equity, but the level of equity mattress is really thin! In a deal like this you would require at least a partecipation component and/or a definitively higher interest rate.

We're talking about development finance but in this case all the money is provided upfront: there's no drawdown based on works completed under control of a surveyor!!!!

The platform is offering similar development projects but i think that they price the risk of each one in a too narrow range, without compensanting correctly the risks.

In this case is a NO for me, for many reason and for a lack of transparency in too many points.

To invest in a 30 months sub loans in a development project with a 7% equity is not for faint hearted people.


I've tried to get some clarifications from the customer service without success. I've seen other past deals listed that were surely attractive. Not this, not for me.

Also the fundraising is proceeding slowly, maybe i'm not the only one to have some doubts..





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