Although I’m not currently invested through Property Crowd, I’ve always been intrigued but bond investing has never been on my radar. I really wanted to wrap my head around secured bonds so in a quest to understand their business model and investment offerings, I invited myself to Property Crowd’s London office to have a sit down chat with Rohin Modasia, CEO of Global Alternatives, who own and operate Property Crowd.
I was quite impressed with Rohin’s vision for Property Crowd and their unique secured bond offerings. I asked Rohin he’d be ok answering some questions on video to which he agreed.
After my visit, here are some of my Property Crowd’s observations:
- Established in 2014
- Profitable company, well funded for growth
- Property secured backed bonds on large developments usually unavailable to the public
- Sponsoring lender required to have at least 25% skin in the game, reducing risk
- Not a peer to peer lending company
- Utilises panel of specialist loan lenders to source loans
- Rigorous lender due diligence focusing on underwriting standards, business and officers
- Doesn’t underwrite, originate or manage loans. Leaves that to specialists.
- Offers competitive interest rates of up to 11%
- IFISA available
- Minimum investment is approximately £800 per deal
Rohin certainly made a strong case for this unique form of bond investing, due to Property Crowd’s experience in sourcing the correct opportunities while making sure the sourcing lender has plenty of skin in the game to reduce investment risk.
Here is the complete Q&A:
Q: When was Property Crowd established?
A: Property Crowd was launched single-handedly by Scott Trapnell in mid-2014 and successfully completed a £1m equity deal which was the first meaningful ticket size crowdfunded in the UK at the time.
We saw the opportunity to scale the brand and platform with our independent marketplace model. Global Alternatives acquired Property Crowd in full and Scott joined our team. We re-launched a wholly-upgraded platform based on our securities exchange framework in 2017.
Q: Tell me about the investment product Property Crowd offers?
A: Property Crowd offers short term senior and mezz loan investments secured on property assets. All loans listed are professionally originated and managed by specialist lenders that we have approved to join our panel.
Property Crowd is an independent marketplace through which individuals and small corporates invest in loans on a self select basis – across specialist lenders, across sectors, across strategies, and soon, across geographies.
Q: Being that Property Crowd’s bonds are shorter term, what advantage does this offer to investors?
A: The glaring advantage of the short term bonds is that investors earn extremely strong returns without tying up their capital for extended periods. This shorter liquidity cycle also means it is much easier for investors to diversify.
Q: How do you identify the right deals to offer investors?
A: This is the most important difference between Property Crowd and its competitors.
Unlike any other crowdfunding or peer to peer platform in the market, Property Crowd is strictly independent of the origination and management of secured loans. We have a carefully-curated panel of specialist lenders who are in the business of writing bridging and development loans with their own capital.
These lenders have satisfied our DD and qualification criteria, meaning that their track record, qualifications, and underwriting meet our standards. Many lenders have failed our approval process.
So our panel lenders identify the lending opportunities first and then bring them to us to raise up to 75% of the capital required to fund that loan. At that point, we reject approx half of the opportunities presented to us by our panel lenders based on our assessment which is risk management driven.
For deals that do proceed for placement on Property Crowd, the sponsoring lender must fund a minimum of 25% of that loan on a strictly pari passu basis – this is real skin the game. Or model ensures that our panel lenders are willing to eat their own cooking before they serve it to investors on our platform.
Q: With the uncertainty of Brexit, where do you see the UK property market heading in 2019?
A: Without having a crystal ball, I’m afraid your guess is as good as mine.
Q: How is Property Crowd positioned to weather the possible Brexit storm?
Well, we have actually been running scenario analyses in the last few months to ensure not just that we can weather a Brexit storm but to actually capitalise on the market opportunities that we expect may arise.
Q: Is Property Crowd profitable? If not, when do you expect this. Are you well funded in the meantime?
A: Property Crowd is a profitable platform and ready to scale. As we grow our team at Global Alternatives we will start to press on the pedal and you may see Property Crowd take a leading position in the UK pretty quickly. Until recently, Property Crowd was a proof of concept for our business.
Q: Having enough investor funds to finance property deals and having enough offered deals is a difficult balance. How does Property crowd attempt to achieve this balance?
A: I couldn’t agree more. One of the reasons we haven’t tried to scale Property Crowd too early and too aggressively is precisely because we want to have the appropriate resources and value propositions in the market before we press on the pedal. You will start seeing this happen now.
Q: Peer to peer lending is still seen by many financial advisors as a risky investment. What would you tell someone who is on the fence?
A: We view peer to peer lending with respect to property platforms as very risky. By contrast, Property Crowd is a securities platform operated by Global Alternatives. It is not a peer to peer platform and never will it be. In our opinion, P2P in its current form may not exist for much longer as it has proven to be a regulatory regime and a business model that simply is fundamentally flawed. These inherent flaws add hidden risks which investors and financial advisors are generally not aware of but you can see some of these now manifesting.
Q: What steps do you take to protect or indemnify lenders against personal legal action by loan borrowers?
A: This is one of the flaws of the peer to peer model that I alluded to earlier. In fact, the stupidity of such a situation is really astounding. Nothing like that can happen to investors on Property Crowd.
Q: Many lenders are concerned about the accuracy of property valuations. When defaults occur, some recovery amounts are far lower than valuations resulting in lender capital losses. How do you address this issue?
A: Our model of professional and independent origination of loans, where our panel lenders have skin in the game in every deal, ensures that loans are originated and underwritten competently and with long term commercial common sense.
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** This page is for information purposes only. As with any financial investment, peer to peer lending involves risks and it’s possible to lose money. Never invest more than you can afford to lose. If you are unsure about investing, it is advisable to consult a financial professional **