It is safe to say that Crowdfunding now has a permanent place in real estate vocabulary. Crowdfunding is a tool to raise capital for investments, the idea being the many people are willing to invest small amounts and that when they do, large amounts can be raised quickly. Although there is an ever growing number of real estate crowdfunding platforms, I recently had coffee with a promoter of the UK’s Property Partner, Arthur Wormington.
With the support of 13000 investors, Property Partner have an asset book of £131 million under management . But it is their Resale market in which over 40% of the portfolio has been re-traded with an average sell time of only 3.9 days that really interests me.
Having been a minority shareholder in a number of direct asset ownership structures, I am acutely aware of how illiquid this type of investment is. There is not a ready market to offer and trade equity stakes in private property owning SPV’s. If fellow shareholders don’t want to take you out, how do you market the opportunity to the broader investor community? The final exit, if you are able to negotiate one will inevitably be at a significant discount.
As I understand it Property Partner ( www.propertypartner.co) identifies, secures and conducts comprehensive due diligence on suitable investment opportunities. Satisfied with the fundamentals, they offer the investment via their platform, crowdfund to raise capital, match this with debt and after closing and complying with regulatory paperwork, you as an investor own a share of that specific asset for as little as £100. As an investor you receive a rental dividend and have a clear line of sight on the value of your investment thanks to the issuing of regular valuation reports. The property is typically put up for sale after an agreed period (5 years) and as an investor you will receive your share of the sales proceeds which hopefully include an element of capital gain.
And, as though this were not interesting enough, Property Partners Resale market offers investors an anytime exit into what appears to be a liquid investor market. This means that your capital is not tied up for the full investment duration, that you are not at the mercy of your fellow shareholders should you want an early exit, and that an open market price will be paid for your shares. The fact that Property Partner is fully regulated by the FCA, provides another layer of comfort. Important as syndication and crowdfunding are viewed with a degree of scepticism in South Africa.
I am not recommending nor promoting investment with or in Property Partner and would remind any potential investor that no matter how good any track record, no matter the operating model or forecast accuracy, invested capital always has associated risk. But I do find genius in their creation of an active, working Resale market for the trading of minority stakes in real estate assets.
This would be a fascinating entry to the South African marketplace.
[Arthur Wormington is currently in South Africa and can be reached at www.propertypartner.co. or +44 7899 952647 ]