The last article delved into the resurgent popularity of modular builds. Below, we analyse the importance of strong origination of loan opportunities. Next, we’ll take you through why we don’t think you should be paying lender fees – and why we don’t charge them.
It can be tempting for investors with significant capital to deploy to try and source their own deals. As a result, we sometimes hear that such-and-such network has built itself a portfolio of ten or so properties. And, because they’ve gone direct, they have saved themselves the (modest) spread between lender and borrower rates that keeps our business ticking over.
CrowdProperty would be the last to criticise anyone for wanting to cut out the middleman. After all, we offer our lenders optimal rates by cutting out brokers and advisers - all of whom would otherwise take their not inconsiderable cut. But, as we keep saying, what you get with CrowdProperty is far more than an online trading app. You get expertise, brand recognition and the large market scope that comes with this. Indeed, what we’re really about is finding, curating and presenting the best projects, or lending opportunities, out there.
This is important because when you’re looking for something, especially an investment, it’s a good idea to have as broad a scope as possible. Then you get more data to compare, contrast, learn from and make superior decisions.
CrowdProperty has done a lot to learn from, even excluding the founders’ decades of experience before we set this up. We’ve had roughly £1.5bn worth of deals pass under our scrutiny. Of that, we’ve lent a little under £50m. The rest we filter out. When you’re panning for gold, you have to sieve out a lot of grit to get to the good stuff.
Deal flow is everything – or as close to everything as makes no difference – as the headline says.
There’s a comparison here with the competitive world of private equity. Consultancy EY, which advises private equity firms, reckons that success is born from “casting wider nets in the search for opportunities and expanding their networks in the search for new deals”1. As such, successful private equity firms tend to be the ones with an edge on origination, better able to locate the best deals. Volume provides more market information, and therefore the insight to verify quality and select carefully in private equity markets.
That is just as much the case for property development. Backing property professionals undertaking projects makes the complexity of different types of property proposition even greater. You need to know what project is best to back from a large sample, not rely on finding one and hoping that you’ve landed a good one.
So how is that done? Importantly, you need a brand that attracts strong deal flow. And that is what we have done uniquely – building a direct-to-developer brand that attracts billions of pounds of applications. We’ve seen £1.5bn of applications and funded just under £50m. That’s selective. Plus we’re currently reviewing around £150m per month of directly originated applications, giving us more and more data every month to ensure that we are selecting the best projects for the platform.
This creates a virtuous circle, as a bigger universe of projects from which to originate provides more data to base our selection decisions on, which therefore have a higher probability of success. CrowdProperty consequently has a 100% capital and interest payback track record. That, in turn, means that more people want to bring us their projects. And so it goes – onwards and upwards.
So, you could try and originate your own property development loans. But, as a serious investor, you’ll know that just managing your overall portfolio is a specialist skill in itself. The canny investor will therefore want their investments sourced by the best in their respective asset classes. And that is a job that we take seriously.
We believe the figures speak for themselves as to how effectively we do that and as the CrowdProperty virtuous circle whirs, we’ll continue to offer our lenders the best, carefully selected and validated from a very large bunch.
1 Can private markets boom if public markets bust?, EY Global PE Watch 2018