Blog Post No. 152
Navigating Development Finance through a Prime Investing Platform – Uma Rajah
Uma graduated with a Masters in Engineering from Cambridge University and gained valuable experience in product innovation. After earning an MBA from INSEAD, she co-founded a social purchasing start-up and later held several Head of Product roles in FinTech. Her expertise led her to co-found a company that brings FinTech innovation to the prime property lending market.
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This week we interview Uma Rajah, co-founder of an investing platform for prime areas of development. Uma’s background in financial technology was essential for the business’s creation. It was launched to meet the funding gap in the market, as regulatory changes made it unappealing for banks and building societies to lend to property developers after the financial crisis.
Listeners will gain insights into the world of development finance, including how development founders look at borrowers and how Uma’s company vets borrowers to ensure that they have the capability to deliver assets that will be worth a certain amount at the end of the project. The podcast provides valuable information for property developers and investors who want to learn more about the lending process and the importance of finding the right lender for their projects.
The unique perspective on credit risk comes from its understanding of projects in a different way than typical lenders, allowing them to provide a more flexible and entrepreneurial approach. The company’s expertise protects investors and adds value to borrowers, making it an ideal choice for those looking for a lender with a strong track record. The platform provides loans to property developers working on projects in prime Southeast England areas, including central London, Mayfair, Belgravia, Chelsea, Knightsbridge, Kensington, and others. The platform also lends in prime regions outside of London, such as Wimbledon and Hampstead, as well as prime home counties like St. George’s Hill, Wentworth, and Windsor, Ascot.
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Farnaz Fazaipour 0:34
Hello, and welcome to London Property – home of super prime. I’m your host Farnaz Fazaipour. And today we’re in conversation with Uma Rajah, the co-founder of Capital Rise, welcome to the show.
Uma Rajah 0:44
Thank you for having me.
Farnaz Fazaipour 0:45
We’re going to do a two part series with you today because Capital Rise is both useful for developers and investors. So with the first part where I’m going to first of all explain that Capital Rise is an investing platform for prime areas for development. Correct. So let’s, first of all, have you do a bit of an introduction about the platform. Sure. And your background from FinTech and who is your co-founder.
Uma Rajah 1:15
Okay, great. So, Capital Rise, was founded in 2016. That’s when we started trading. And basically the business has two sides. So we provide loans to property developers that doing projects in prime areas of the SouthEast of England. That means the majority of our loan book is in prime central London, in Mayfair Belgravia, Chelsea, Knightsbridge, Kensington, those various. We also have loans in prime, out of London, so that’s what will lend in Wimbledon, Hampstead, those sorts of locations. And the third area is in the Home Counties and the prime Home Counties. So that’s where we’ve got loans in St. George’s Hill, and Wentworth, in Windsor, Ascot, those sorts of locations.
Farnaz Fazaipour 1:50
All are great hotspots that we want to live in.
Uma Rajah 1:53
Farnaz Fazaipour 1:54
So before we go into the details of what developers should know about your business, can you tell us a little bit more about how your co-founder helps you in when you’re making these decisions and judgments?
Uma Rajah 2:08
Yeah, so let’s take tell you a bit about the background of the business. So I’m, as you mentioned, one of the three founders, my background is very much going to financial technology. The reason for that we’ll talk about later is one of our sources of capital, as we have a digital platform where individual High Net Worth investors can invest in our loans. But the other two founders of the business are Alex Michelin, and Andrew Dunn. Now, Alex and Andrew are founders of a business called Finchatton, which people in our sector will will know very well. They’re a very high-end resi property developer, they’ve been going 20+years. And they’ve developed over 2 billion pounds worth of real estate over that time, over 120 projects. And they had the idea to set up a lending business, because they could see, as developers a couple of things. One, raising money for your projects is typically one of the most painful parts of a developer’s day job. And it only got harder after the financial crisis. Because typically banks and building societies we’re providing all of that type of financing to our industry, up until the financial crisis. And since then a lot of regulatory changes have come in, which make it very unappealing for them to continue to lend to property developers as a result, their allocation has reduced over time. And that’s left a funding gap in the marketplace, which alternative lenders like us were set up to try and meet that gap. So they decided to launch a lending business and with a very specific focus on the primary market, because that’s the part of the market that we know very well. And through, you know, their experiences being hands on developers, we felt we had a real edge in terms of our ability to originate loans in this space to underwrite them, the level of rigour that we look at each opportunity with I think, is on a different level, compared to a standard bank. And we understand this part of the market, I think very, very well, because of the experience of our founders, and on credit committees is myself, as well as Alex and Andrew and Martin and some other individuals. But essentially, we are sanctioning and reviewing every credit proposal that comes across our desk. And we also incidentally, we all invest in every loan that we do. So as founders, we invest in every single loan as a way of showing our investors and and our borrowers that we completely have a huge amount of faith in each project that we choose to proceed with.
Farnaz Fazaipour 4:26
And from from a developer’s point of view, I guess that really helps them but then presumably, you can also offer some guidance.
Uma Rajah 4:33
Yes, it’s interesting. So one of the things that I think makes this quite unique as a lender, is we understand these projects in a different sort of level to a typical lender. And quite often we’ll have projects that are traditional lender will say, Oh, no, doesn’t take this box doesn’t take this box doesn’t take this box, we can’t look at it. Whereas we’ll look at every project, you know, where the developers eyes and so we’re much more entrepreneurial in terms of how we look at credit risk. We’re more flexible And I think the fact that we’ve been in their shoes and are in their shoes, you know, on a daily basis in the case of Alex and Andrew, that gives us a very unique perspective when it comes to analysing individual projects. And absolutely, sometimes our borrowers will say to us that they really benefit from having that other set of eyes to say, well, you know, have you really thought about that layout? Is that really the optimum layout for this project? Or have you really thought about how you’re going to market this at the end? Have you really thought about, you know, those appropriate ceiling heights for a property that you want to get this sort of value for in this location. So I think we have a real depth of expertise, which both protects our investors, because it means that we look at things very carefully. But it also hopefully adds a lot of value to our borrowers when they come to us.
Farnaz Fazaipour 5:45
And also, you know, it’s such a small world at the top end of the market that some of these people you would already know, some of their track record. So yeah, some of the due diligence that you need to do if you’re just getting somebody called off the street is kind of already built in like, oh, yeah, okay, well, I know these guys, they’ve done that project, and so on. So familiarity.
Uma Rajah 6:03
Exactly. And I think that’s one of the reasons that helps us sort of originate business in this area is because like you say, it’s not a massive, massive market with millions and millions of potential customers that we could be lending to. It’s a relatively kind of smallish medium sized market. And a lot of the parties are known to each other, we know people that do know them. So yeah, and that and reputation goes a long way. You know, when we’re lending to people, we want to know that they’ve got a strong track record. It’s not their first rodeo, they’ve delivered projects successfully in the previous years. And we know that the quality of their work is good. And you’ll get a lot of that from just being in the same network as them.
Farnaz Fazaipour 6:42
Now for the sort of less experts in the development finance world, can you tell us some of the characteristics of development finance, because it is obviously a higher risk, and it’s more expensive to borrow etc? Can you just tell us some of the characteristics in the current marketplace? And then we’ll go to talk about how your market share plays in that? Yeah.
Uma Rajah 7:01
So I think, typically, when you look at development, finance, what does the development funder look at, you look at firstly, your borrower. So you want a borrower that knows what they’re doing that has a strong track record, you know, for let’s pretend a typical project for us is, we’re lending money to a developer, they’re going to go and buy a site for, let’s say, kind of 3 million, they’re going to put a couple million in, we’re going to help them develop it out, and they’re going to sell it at the end, you know, we need to make sure that they have the capability of delivering an asset that’s going to be worth whatever it might be at the end. And that they’ve proven that in more than one occasion, we’ll do site visits, we’ll see previous projects that they’ve done, we’ll go and visit the target site to get really comfortable that this is a suitable project for that individual, we’ll also do financial analysis on them, because we need to know that they’ve got sufficient skin in the game at the start of the deal. But also, they’ve got the financial resources to put the amount of money that they need to put into the project, both if it goes well. And also things don’t go to plan. So if there are cost overruns, and so on, that they have the ability to fund those, we’ll look at the project itself in detail. So we’ll look at what the actual asset is, we’ll look at the location of the asset. Do we think that property in that location is going to sell for that quantum? And we’ll look at the plans in a lot of detail as well. So you know, is it a multi unit luxury apartment scheme in said home counters, we’ll look at that asset. And so you know, is there a market for that we’ll get an independent project, an independent valuation done most of our valuations done by strat saddles, Knight Frank. So that’ll give us a good sense of what the value of the asset is now and what it could be worth once it’s completed. It’ll also give us a really good idea of comps. So you know, is there comparable evidence that would support both those values? If it’s a development project, then we then do a lot of scrutiny on the project itself. So have they allowed a sensible timeline for this project has a suitable budget been allocated? We’ll hire an independent project monitor who will provide an initial report, and then they will be staying with that project during the course of the development. And what that does is that makes sure that we’re lending against what is a sensible timeline and a sensible budget. And as the project progresses, we’re keeping a close eye on both of those key factors. Because clearly, with a development project, what are the some of the key risks there are three key risks. At the end, the project is completed, but the property sells for less than I expected, the costs ended up being much more than anticipated. And the third one is that it takes longer than that mean takes longer than we thought is that time on budget, isn’t it? Absolutely. So those are some of the key things that we have to think about as a lender to make sure that we are mitigating some of those key risks. And then the next area really is we do a lot of due diligence, sort of stress testing the loan. So if everything goes to plan should all be fine. And we’ve taken all of our industry experts help to help us get comfortable with that underwrite But obviously, once the project starts to run, things can go slightly awry, and how much of that stress can we absorb. So we’ll do some sensitivity analysis to look at how that project would look. If, for example, it takes 612 18 months longer than planned to execute, what happens if the costs are 510 15%, more than anticipated will stress test the loan, and then be comfortable that, you know, even if, you know, worst case scenario, we’re hit by all of those three factors, that we’re still comfortable that will that, you know, the loan can still perform. And at the end of the day, that if the property is to be sold, that it will generate enough money to repay our debt. So those are some of the key things that we look at and that are fairly typical. I think, for any any development lender, what makes us different, I suppose, is that obviously, we are focusing on the very sort of high end of the real estate market. So there’s a lot more, I would say, sensitivity over quality. So you know, we will look at and a lot of scrutiny on kind of location and asset quality and the project itself, and the quality of property asset that’s going to be produced, we will look at the quality of the borrower, and the work that they produce the spec of the product that they typically produce. And, yeah, those are some of the key things that we have to be a little bit more attuned to, than if we were a lender focusing on the kind of mainstream market where you think that you’ve got a little bit yeah, you it’s got to be just right, right, it’s got to be perfect to get, you know, those those really high values that we want to get the end of the project.
Farnaz Fazaipour 11:35
And I’m going to have to ask the question, so what happens if some something goes pear shaped for the developer? Yeah, I guess, you know, from an investor’s point of view, one has to feel comforted that you’re at the other end, and you’re not just going to pull the plug, you’re gonna try and do some rescue. Yeah, here, right.
Uma Rajah 11:51
Yeah. So I think one of the things that I would say, I’m very well, I’m very, very proud of is that so far, all of the loans that we’ve done, we’ve funded over three quarters of a billion pounds worth of property, since we’ve started, have all formed, we’ve lived through COVID, right. So which was a very, very tough time for developers to successfully manage projects in that sort of environment. And with the changing costs, we’ve now had, you know, high cost inflation, we’ve had supply chain issues during COVID. In particular, we’ve now got kind of interest rates at record highs. So there’s been a lot of a lot of things that affected the market, which has put a lot of stress on property developers in the last, say, five years, since we’ve since we’ve been going. So how have we managed that track record? Number one is I think we’ve been very, very discriminating around the counterparties that we’ve worked with. So we’ve worked with borrowers that have got a solid track record, like I say, this isn’t their first rodeo they’ve lived through, you know, the stresses and strains of maybe one or two property cycles before. And we work very collaboratively with them. Our level of debt that we typically lend against is, depends on so typically, nowadays, 65% loan to value ratio is a fairly typical, LTV VA loan that we were funding. So, you know, we need to be happy that even with the various things that might hit us, and all sorts of, you know, unknown unknowns that might hit the project that will be comfortable, that, you know, at the end of the project, we’ll be able to recover our debt, and that sort of level. And it’s definitely been the case so far that, you know, it’s been about working closely with the borrower. And I think if you structure your loans carefully, from day one, A, you’ll be able to withstand a lot of stress. And if you’re working with the right partners, together, you’ll be able to find solutions. So a classic example would be during COVID, a lot of projects ended up taking longer than anticipated. So whilst we might have originally written alone, saying you’ve got X months to get on site, y months to do your construction, and then x months to sell, a lot of the construction phases took a lot longer, and then eight into the sales periods of those loans. So we were sort of getting towards the end of the projects. And we were trying to find out trying to work with the borrower on alternative exit approaches. So some of those projects, what we ended up extending a few of them. Some of them, we ended up working on a refinance strategy rather than sales strategy. So they refinance on to a sales period loan either with us or another lender, in order to make sure that original loan performed. So I think my kind of my, my key outtake, and learning from all of that is if you’re working with the right people, and you’ve both got, you know, aligned incentives, which is that you want this project to be successful. There are lots of things that you can do to kind of collaboratively work through and overcome the various obstacles that are likely to kind of come your way.
Farnaz Fazaipour 14:46
Oh, absolutely. And what is what is the market like at the moment for for borrowing, you know, the general market for developers and the cost of borrowing for developers?
Uma Rajah 14:55
Yeah. So where we play in the kind of very high end kind of residential We’ll space, one of the key factors has been that because prime central London prices have been falling since the end of 2014. And in the last X years, they’ve dropped dropped pretty much 20% below their peak, but versus their peak at the end of 2014. In that period, a lot of lenders that were actively serving the market pulled out. So during the last sort of five, six years, while we’ve been going, the actual availability of finance, for kind of really high end resi projects has reduced. So that’s good news for so for us, it was good news for us building a new business because, you know, it enabled us to get out there and build the brand and, and get access to certain borrowers that, you know, might not have heard of us before, but they’re willing to sort of, you know, entertain a conversation with us, because we are definitely there and really keen to support and growing a business. Whereas whilst others have been sort of, you know, maybe, you know, pulling back, yeah. So that’s pretty much helped us, I think, to help build build a brand and gain awareness in the marketplace. Obviously, right now, what’s happening is that there is I mean, we’ve seen huge amount of growth, we’ve had q4 for us was a record breaking quarter, you know, we’ve doubled our loan book, in terms of the transaction sizes that were the transaction amounts that we’re putting out the door. And so it’s been a very kind of, you know, sharp growth for us, particularly in the last couple of years. And that’s because it’s a very dynamic part of the market where we play. You know, like I said, prices are down quite significantly, for a lot of, you know, investors and purchasers in our market who are not necessarily you know, UK, sterling based investors, London is on sale. So you know, it’s a very attractive time to be buying if you’re particularly, you know, pegged to the dollar. It’s inherently a very resilient market. So one thing that’s very interesting, if you look at all the historic data, you look at samples data, for example, the prime central London market has its own independent cycle independent to the London market, independent to the rest of the UK market. We know the property market is cyclical. And if you look at historic downturns, PCL prime central London, bounces back significantly faster than the London market, or the UK market after every historic downturn. It is really unique and a very kind of solid, robust part of the UK market, which is what makes it such an attractive proposition for overseas investors and local investors to want to own assets in these, you know, wonderful postcodes, you know, in the best locations in the southeast. And so it has a very, very different set of dynamics, which you need to know and understand. And I think that’s what gives us an advantage is that we absolutely we live and breathe this part of the market, we don’t serve the mainstream market. This is what we know. And we’re specialists in this area. And I think that’s what anyone trading with us gets, they get the benefit of that quite unique expertise.
Farnaz Fazaipour 17:56
Yes, I always find that the prime central London market just always finds a way, you know, so no matter what the news says, no matter what goes on, it just takes a few months for everybody psychology to reset, and then the market finds a way.
Uma Rajah 18:11
Yeah, I think if you’re backing, you know, there’s very limited supply, right. So there’s there’s only one Eaton Square, there’s only one Grosvenor Square, there’s a very limited supply. And there’s high demand for the best quality assets in the best postcodes. And that is what I think really drives, you know, what happens in our in our market.
Farnaz Fazaipour 18:30
And I think also from your, for your press, from your perspective. I mean, I’ve been in this market for longer than I like to say on camera. There’s the quality of the work that’s available and the services, you know, whereas before people wouldn’t really take on development projects, you know, unless they were a big builder, you know, but a lot more kind of quality and expertise has come into the development market, a lot more players are actually able to deliver good quality development projects, which, you know, 1520 years ago was not definitely not the fact. So what does it look like for somebody who might be listening to us today? And they want to start this process with you. So what do they need to know?
Uma Rajah 19:16
Yeah. So if you’re a property developer, and you’re looking to raise some finance to typically kind of acquire a site, develop it and sell it on, that’s a sort of very, very kind of vanilla typical project. For us. I tend to give us a rating so I have a team of originators. My lending team is pretty much half the business. And their role is to work with borrowers and intermediaries, if you if you’re a maybe a finance broker, and you have a client that’s interested in seeking finance for a project, and to give us a call and talk us through your project, what you’re planning on doing your track record and background, and we’ll talk through the finances kind of what are you looking for, in terms of quantum of debt? What is your plan? What are you gonna use the funds for? What do you think this thing is going to look like at the end and how much you think it’s going to sell for. And then we’ll have a look. And if we like it, and we think it fits our lending criteria, then we’ll give terms very quickly. And typically within around 48 hours, we’ll get indicative terms, okay. And then if they work for you, usually you’ll be getting quotes from a few other people as well. And then, you know, once you’re, if you’re happy with our terms, and we then very quickly bring that to credit. So the team will kind of pull together a credit paper using more detailed information that the borrower will provide to us, we set credit sets, typically twice a week, so they’re never more than 48 hours away from being able to, you know, look at an opportunity and give it a thumbs up. Yeah. And then we kick off the legal and due diligence process. So once it’s credit approved, if the borrower accepts our credit approved terms, we then kick off with our kick off the legals, we’ll get the valuation commissioned, we’ll get the project monitor on the case. And usually within a couple of weeks, all of that diligence is completed. And then we go ahead sign and fund the loan, we are quite quick. So that’s one of our USPs.
Farnaz Fazaipour 21:13
The benefit of knowing that you’ve got to grab an opportunity when you see one. So you can really support them from the get go.
Uma Rajah 21:18
Absolutely, anything ,we know how important you know that certainty and speed is for our borrowers. So delivering well on service and hopefully exceeding our borrowers expectations is what will help us to keep those customers and come them, hopefully, they’ll come back to us over and over again. Because I think delivering really high quality service is another reason why we set up the business. So I think, Yeah, Alex and Andrew, as borrowers felt that typically, when you deal with some of the traditional banks, it can be very slow, it can be completely normal to take three months and kill the deal. And the deal is gone. Yeah. So you have to be able to move at pace to be successful as a property developer. And for that, you need to have the right people in your team. That’s the right funders the right, you know, experts behind you, supporting you, and hopefully, you know, by delivering really well and delivering a good service to our borrowers, we’ll help them you know, be successful in what they do and grow together.
Farnaz Fazaipour 22:15
Yeah. Well, I really love the business model, which is, you know, one of the reasons that I keep coming back for more, talking to you about it. We’re going to thank you for this portion of the interview. And we’ll talk to you again, from the investor side. And anybody who’s listening now who’s feeling like they want to get involved, we’ll find out how in the next episode, great, thank you very much for talking to us. And for anybody who wants to get in touch with Capital Rise, you’ll be able to find their details on our website, or you can just send us an email to ask at www.londonproperty.co.uk and we’ll be able to connect you.
Thank you. Thank you very much.
Uma Rajah 22:55
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Transcribed by https://otter.ai
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