FAP Special Report September 2016 REAL ESTATE CROWDINVESTING

Transcription

1 FAP Special Report September 2016 REAL ESTATE CROWDINVESTING

2 CROWDINVESTING DEFINED. The term crowdfunding refers to the financing of companies, products, projects, etc. by a group of private persons, which allows everybody to participate from an investment contribution of x. Conventionally organised online via the internet, platforms offered by numerous companies allow project initiators to present their ideas to the public and raise capital. The following FAP relates to the crowdinvesting market for German real estate projects. Crowdinvesting is a subtype of crowdfunding that includes financial reward or participation of the crowd in the financial success of the project financed. Applicable real estate projects currently comprise: development projects, modernisations, refurbishments, value-add and, in some cases, financing of existing property. 1 Footnotes for the document are listed on page 12. 2

3 CROWDINVESTING IN THE GERMAN REAL ESTATE MARKET More than 50% of the platforms implemented their first real estate project via crowdinvesting in As of September 2016, 18 crowdinvesting platforms were identified that have demonstrated a presence in the German market for crowdinvesting in real estate within the last 4 years. First real estate project investment by crowdinvesting platforms Five of these platforms were excluded from our research owing to their nascent stage, early withdrawal or similar, leaving 13 participants that could be drawn upon for current consideration. Ten of the 13 platforms (77%) currently focus purely on real estate. In 2016, 7 platforms (54%) have already successfully completed investment stages and implemented projects. 8% 8% 54% 30%

4 DISTRIBUTION OF INVESTED VOLUME 2015 The capital invested via crowdinvesting across 8 platforms in 2015 totalled approx. EUR 22.7m. Breakdown of invested volume by provider 2015 A B C D E F Remaining providers EUR 17.5m (approx. 77%) of this was arranged via only 3 platforms. Two of these providers do not regularly focus on the real estate sector but rather on financing companies / start-ups. We refer here to the financing of a special project. The EUR 7.5m of capital invested in this project has a corresponding impact on the distribution. A total of 16 deals were completed. The average crowd capital volume per deal was approx. EUR 1.7m. Adjusted for the special crowdinvesting project, this figure falls to EUR 0.9m. 3 30% 8% 2% 33% 14% 11% % 4

5 DISTRIBUTION OF INVESTED VOLUME 2016 The capital invested across 7 crowdinvesting platforms in 2016 to date totals approx. EUR 19.1m. Breakdown of invested volume by provider up to September 2016 EUR 15.3m of this (approx. 80%) was arranged via only A B C New provider 1 New provider 2 New provider 3 New provider 4 3 platforms. A total of 28 deals have been completed. The average crowd capital volume per deal to date is approx. EUR 0.6m. 4 44% 22% 6% 15% 7% 5% 1% 2016 The composition of the top 3 has changed since

6 GROWTH IN THE NUMBER OF COMPLETED PROJECTS Of the 47 deals taken into account since 2012, 60% were completed in 2016 alone. DEAL GROWTH The successfully completed investments break down across the platforms as follows. Nine platforms (69%) have completed 1 to 2 projects to date. The remaining 4 platforms (31%) have completed between 3 and 15 projects during the same period. 2% 2% 2% 34% 60% End of investment stage 6

7 GROWTH IN PLACED CROWD CAPITAL COMPARISON OF 2015 & 2016 As of September 2016, the capital placed had already reached 84% of last year's total volume. In the same period, the number of project deals rose by 75%. Including projects currently available for investment, the volume invested by September 2016 was already 24% greater than last year's total placed amount of EUR 22.7m m 28.2m PROJECTION 20m 15m 22.7m 19.1m BY SEPTEMBER incl. projects currently available for investment 10m 5m 7.5m of which was special projects NUMBER OF DEALS

8 SOFT FACTS I The subordinated capital raised is normally allocated as a subordinated loan or in an equity-like form. Owing to the obligatory prospectus requirement, the predominant maximum capital volume raised for larger capital volumes is currently EUR 2.5m per project. In most cases, the capital is introduced into the relevant project company of the project initiator and ring-fenced. The selection of projects by crowdinvesting platforms is generally based upon the following points: n Internal platform due diligence (possibly supported by internal or external legal consultants, surveyors, building controllers) n Track record of the developer n Building law status n Marketing and exit strategies Forms of security generally include: n Personal guarantees of the project initiator n Assignment of project profits n Settlement via an escrow process This has the following advantages and disadvantages for developers: + Capital available for very small tranches + Good marketing impact for the project + LTC + 95% - Investment target may be missed or the deadline exceeded - No guarantee of placing in some instances - Lack of transparent interest rate structure versus interest rate of 3.5-7% for capital providers 8

9 SOFT FACTS II Sectors: n Primarily residential n Increasingly also offices, retail, logistics, nursing homes and student/micro-apartments Risk categories: n Development projects, modernisations, refurbishments, value-add n Some financing of existing property n General emphasis on value-adding projects Regional focus: Project selection is strongly dependent on the individual, platform or associated team and network. It is not possible to identify a regional focus across all providers of crowdinvesting platforms. The projects offered are distributed nationwide across A-, B- and C-cities. Background: The creation of the platforms is attributable to the following groups of initiators, mostly with a real estate or financing background: Developers Property managers Financial service providers Internet companies Start-ups Structural engineers Fund managers Some crowdinvesting platforms set themselves apart from the concept described. Crowd capital is now also used as a participation via an international platform alongside professional, institutional investment houses, for example. 5 9

10 TRANSACTION VOLUME AND INVESTORS In 2015, 8 platforms achieved a combined investment volume totalling EUR 22.7m. This equates to an assumed approx. EUR 130m achieved market value volume. By September 2016, the capital raised via crowdinvesting platforms plus current projects available for investment totalled EUR 28.2m. This produces an estimated implemented market value volume of EUR 335m. According to the FAP Mezzanine Report 2016, 85% of the traditional, subordinated or mezzanine capital providers analysed currently have no interest in investing via crowdinvesting platforms. Principal reasons: n High interest rate expectations of traditional capital providers n Capital tranches via crowdinvesting are generally significantly too small 85% 10

11 CONCLUSION There will be consolidation in the market for crowdinvesting in real estate. The number of platforms will change in the foreseeable future. Platforms with an existing track record in real estate are likely to be in a position to provide capital more easily and in greater volume going forward. We also expect a higher degree of specialisation within crowdinvesting. The further evolution of crowdinvesting combined with traditional forms of investment will open up new avenues. Despite the fact that crowdinvesting has a strong presence, this form of investment is still in its infancy. Compared with the provision of mezzanine capital, the market size is still insignificant. However, owing to the flexibility of the crowd to create other alternatives in future, we regard crowdinvesting as an interesting and useful complement to the current subordinated capital market. Whether there will be regulatory intervention in this young market segment for real estate investment remains to be seen. 11

12 APPENDIX Footnotes: The data used was gathered directly via the crowdinvesting platforms. From 2012, we identified 47 completed projects and a further 10 available for investment up until 5 September Data was analysed from a total of 18 platforms that have had a presence in the German real estate crowdinvesting market in recent years or continue to do so. The respective projects were allocated in whole to the year in which the investment stage was successfully completed. Where essential details were missing, the projects/platforms were not considered. 1 Cf.: NB: the year of formation and year of the first real estate investment did not have to be one and the same. 3 All crowdinvesting projects completed by the end of 2015 were considered. 4 All implemented projects whose investment stages were completed by 5 September 2016 were considered. 5 Cf.: Feb/17/real-estate-investment-platform-brickvestlaunches-and-closes-first-deals/ 12

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