Blog Post No. 153
Unlocking a New Asset Class: The Benefits of Investing in Real Estate Debt – 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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In part 2 of the podcast with Uma Rajah, co-founder of Capital Rise, she discusses the types of investors who can invest in their loans.
The platform maintains a broad source of various types of capital, including individual high net worth investors, family offices, wealth managers, financial institutions, and private investors. With a minimum investment amount of around £1,000, investors can invest in projects that typically have a profile of around 16 months. The investment returns are typically rolled up and paid at the end of a project, and the term is relatively short-term. Uma’s platform is FCA regulated and has an ISA product for people who want to use their ISA allowance. The platform opens up access to a much broader range of investors that historically wouldn’t have had access to this type of product, making it a unique opportunity for investors.
Uma and her team have a deep specialist understanding of the prime residential spots in the Southeast of England and provide finance to developers in those areas. They are a team of 20+ people who source opportunities, conduct rigorous due diligence, and offer a unique perspective due to their hands-on experience of executing exactly the type of projects they’re lending against.
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Farnaz Fazaipour 0:35
Hello, and welcome to London Property – home of super prime. I’m your host Farnaz Fazaipour. And today we’re in conversation again with Uma Rajah, the co-founder of CapitalRise. Welcome back to the show. Thank you for having me. So we spoke to you in our previous episode about how developers can use CapitalRise. And now I would like to talk to you about how investors can get a piece of the action at the top end of the market. So before we get into those questions, can you just tell us a little history about the company and your role in it and your expertise?
Uma Rajah 1:11
Well do. So CapitalRise is a platform that enables investors to invest in property development loans. So we have a very specific part of the market we focus on. So we lend to property developers that are doing projects in prime areas of southeast of England. So the majority of the loan books in prime central London, in Chelsea, Mayfair Belgravia, Knightsbridge, Kensington, those sorts of locations, the next part of the loan book is in prime outer London, in locations such as Wimbledon, Hampstead, and the third part of the market we focus on is the prime Home Counties So that’s where we’ll be doing loans in St. George’s Hill, and Wentworth, in Windsor, and Ascot, and those sorts of locations. So as an investor, we have the ability for you to participate in those loans, they’re always going to be secured with an underlying property asset. So in the worst case scenario for borrowers unable to repay the loan, then we do have the ability to enforce our security to force the sale of the asset should we need to in order to recover funds to repay our investors, we do so we lend it very prudent levels, our average loan to value across all the loans that we’ve done to date is around 63%, which leaves quite a significant headroom to cope with potential kind of negative impacts if they are to hit a project. And in terms of the types of investors that can invest in our loans, we have maintain a broad source of different various sources of capital. So diversity is quite important to us, we have an online platform where individual High Net Worth Investors can invest in our loans with a minimum investment amount of around 1000 pounds. And that goes all the way up to big institutions that are putting millions into loans, and everything in between. So we have family offices, we have wealth managers, we have a variety of different sources, financial institution that invest in our loans, as well as, like I said, the kind of private investors that can invest in our projects. And a typical investment has a profile of around sort of 16 or so months, investors are typically investing in a project where they’ll help, for example, a developer acquire a site, and then the developer will, will provide the development, finance for them to modernise, or maybe it’s a ground up development, build a new property, at the end, typically, that asset will be sold, that will then generate the funds for the developer to repay the loan. And those funds will then be used to repay the investors. So investors returns are typically rolled up and paid at the end of a project. But like I say, the term is relatively short-term. If it’s a development loan, typically the terms around 18 to 24 months, if it’s a bridging loan, where we might be just providing acquisition, finance, or a sales period loan, those will tend to be shorter around 12 months or so.
Farnaz Fazaipour 3:55
And, you know, there’s obvious reasons to to go into investing in property at the top end of the market at the early stages, because obviously, the early going, the more uplift there is for an investor. So you creating that opportunity for people to come into the market at the sort of early stages of investing. What is the typical profile of you’re sort of the ones who use the platform, for example?
Uma Rajah 4:19
Real wide range of different types of investors. So we have some investors that are putting in, so the minimum is 1000 pounds, who might be putting that sort of quantum into different loans, they’ll typically invest in a range of different projects. So build a portfolio of projects across different geographies with different terms, the different risk profiles, and then you’ve got on the upper end, sort of bigger ticket investors who are putting in potentially kind of hundreds of 1000s into each different loan that they like, and their overall holdings typically in the millions. So it really does vary. And it’s a product that enables a variety of different investors to access what has historically been a completely inaccessible asset class. So Historically, the only people that would be investing in prime real estate debt, which is what this is, would be massive institutions, because the ticket sizes were in the millions. But having built an online platform, it enables us to raise capital from smaller investors.
Farnaz Fazaipour 5:15
In the in the previous episode, we’re talking about developers, but with the online platform, presumably some of these developers can also bring their own investors to the to the project and say, okay, you know, you can put a couple of 1000 pounds in this project that I’m doing. So does that happen?
Uma Rajah 5:32
It does, yeah. And quite often, we’ve had developers whose staff have invested in the project directly via our platform, because it’s a way that for a smaller ticket size, they’re able to, you know, they fully believe in this project, they work for this developer, they’re 100%, happy and comfortable, that it will do what it needs to do. And so they can, they can use that to, to invest. And the other thing that’s quite interesting, we have an ISA product. So probably also, we should say we’re FCA regulated, and we need to be, to offer this type of product to investors. And we also have an ISA. So for people that want to use their ISA allowance, which is 20,000 pounds a year, if they use their ISA allowance to invest in our projects, and any returns they get will be tax free. So that’s a very attractive makes it even more attractive that you don’t have to pay tax on any of the returns that you make, via um, your investments produce that.
Farnaz Fazaipour 6:24
And is that something that our listeners can do via their existing financial advisors. So you presumably you’ve got relationships with some existing financial advisors where they can connect with you to put their ISAs in the platform.
Uma Rajah 6:38
So they don’t need, they can deal directly with us. So obviously, everyone has their own new fresh allowance every year, if they want to come and open an ISA with us, they can do it. If they have existing ISIS with other providers, then we also have a transfer in process, which they can use, so they can come and tell us for example, I’ve got a x thousands pounds with Hargreaves Lansdown in stocks and shares, ISA. I’d like to transfer that over to Capitalise and then behind the scenes, we can work with Hargreaves Lansdown to get those funds transferred over. That’s quite a useful process because it means those funds retain their ISA wrapper, as they move from one provider to another. And they don’t use this year’s tax allowance, for example, if they’re reinvesting funds that were already invested in an ISA wrapper in a previous tax year. So yeah, I mean, we we do offer, it’s very much the way our product works is people will come to us and engage directly with us, we would encourage them to get financial advice and tax advice by to doing that if they have any, you know, concerns and so on. But it is a sort of direct sort of platform for investment that anyone eligible is allowed to come in and engage with us.
Farnaz Fazaipour 6:40
So I’m not gonna pretend to be a financial wizard here, but do pensions fall under that as well? So can people put their pensions in as well?
Uma Rajah 7:49
So at the moment, our product isn’t pension eligible. It is something that’s sort of on the roadmap that we’d like to add in the future. But the moment no.
Farnaz Fazaipour 7:58
Because the little that I know is you can go back three years and your pensions, I think.
Uma Rajah 8:04
Yeah, I’m not I’m not an expert on pensions.
Farnaz Fazaipour 8:06
We will leave that subject to that. So what was the unique opportunity that you saw, to come up with this idea?
Uma Rajah 8:15
Well, I’d like to say it was my idea, but it wasn’t. So the two co-founders of the business with me are Alex and Andrew, who are founders of a business school, Finchatton, which people in our industry will know, very, very kind of successful high end residential property developer. And they vie that firm have done over 2 billion pounds worth of real estate development To date, over 120 projects over 20 plus years, they’ve been at it very successfully. And they came up with the idea of launching a lending business back in 2015, I think was the original idea. And I came on board to launch the business in 2016. And they could see the couple of things, they could see that the availability of finance to property developers doing projects in kind of prime residential spots in the SouthEast of England, had reduced over time as the traditional lenders have been retracting from the space, mainly driven by a lot of regulatory changes that came into place after the financial crisis that make banks for banks to lend property developers is now much less attractive than it was historically. So that allocation has reduced which has created this funding gap. They could also see there was an opportunity to bring a new, a new type of investors into the sector. So they’ve done so many projects themselves. And they could see that you know, the only people that had access to this investment asset class were large institutions. Because the minimum ticket size to sort of play in the postcodes where we play is very large. And they thought by launching a digital platform, we could open up access to a much broader range of investors that historically wouldn’t have had access to this type of product. So that was the kind of genesis of the idea I came on board to kind of take that idea and make it reality. And that’s, I guess what, what characterised us now, which is serving both those two groups of people. So we provide developers with finance in their prime areas of the SouthEast of England, we have very deep specialist understanding that puts us in a very strong position, I think, to deliver them a high quality product and great service. And then on the investor side, we have provided we have a platform that enables a broad range of investors to access what we think is a really exciting asset class.
Farnaz Fazaipour 10:36
Couldn’t agree more. You have touched on this subject, but I’m going to ask it as a question anyway. But why should someone feel comfortable investing with your organisation?
Uma Rajah 10:47
So I think what do we bring to the party, we have deep expertise in the area that we focus on. So Prime central London is a very unique part of the property market, it is completely completely different dynamics to the rest of the London market, let alone the UK market. So if you are going to be doing projects in this area, you need to be working with experts that understand, you know, this asset class, how it performs the dynamics, etc. So I think we provide that deep expertise. That means that I think we’ve put, we’re in a very unique position, to be able to acquire these new opportunities and work with borrowers to originate good loans, really good loans, we think we have our deep expertise also helps us in underwriting because we understand this asset class very well. And as developers, you know, Alex and Andrew have done over 120 projects over the last 20 years, that I think having that hands on experience of executing on exactly the type of projects that we’re lending against, gives us a very unique perspective. My team consists of 20 plus people of which half of them are in the lending team. So their job is to source opportunities. There’s a team of credit analysts that are analysing them doing very rigorous due diligence. And then we have a team that are monitoring carefully those loans to make sure they perform. And as a team, we have that really kind of deep detailed understanding of exactly the types of projects that we fund. And I think that gives our investors, hopefully a lot of comfort, that they’re dealing with a Counterparty that can carefully curate the right opportunities and select the right opportunities that we go forward and fund and that we can monitor them very carefully. And they’re structured very prudently.
Farnaz Fazaipour 12:32
And what percentage of your investors would you say? I mean, it’s been it’s been five, six years, as you say, since you set the business up. So presumably, there’s been about three life cycles of lending for some of these investors?
Uma Rajah 12:42
Yeah, that’s a good question. So typical, yeah, turnaround is around sort of 16 to 24 months on a loan. So yes, definitely, our early investors have seen, so they’ve carried on a few and reinvested. Yeah, we have really strong retention rates, which I’m very, very proud of. So some of our investors that invested in our very first project, many of them are still investing with us now. Touch the wood, all our investments have performed. So they’ve all repaid as expected within the timeframe that we’ve set out from the beginning. And I think that builds confidence that, you know, hopefully, we’re doing a good job. And we’ll continue to do so. And that’s been in a falling market as well. So, you know, we’ve been, we launched a lending business focused on Prime Lending, at a time when the Prime Central Market has central and market has been declining, quite significantly.
And would would, so is that going to make the returns more now? Again, I’m not an expert in finance, neither ISAs or pensions, but is that going to make it a better investment for people? Because the markets getting tighter? So are you able to give better returns to people?
So what I guess one of the things that drives returns is what is the risk profile? So what is the underlying risk profile of the project, that’s the number one thing that determines the returns that you get. So if it’s a low risk loan, there’ll be a lower return, if it’s a high risk loan, there’ll be a higher return. So that’s kind of one thing to sort of start out and make sure people understand. Our returns have gone up in recent times, because the cost of borrowing has gone up. So typically, now you’re on a, the loan book that we’ve got, typically senior loans are in the kind of high single digits, sort of 7 to 8 %. And then the kind of mezzanine loans which are a high risk product will be typically low double digit returns for that sort of level of risk.
Farnaz Fazaipour 14:38
And although I am going to put my money where my mouth is and get onto the platform and try and use my ISA for this year on your platform, can you talk to us about how easy is that process?
Uma Rajah 14:48
Yeah, so my background is financial technology. So the platform is very much I guess, my baby. So I would like to say it’s very slick and seamless, completely automated, which it is an experience. So we’ve invested quite heavily in our technology. And hopefully, as a user of the platform, you’ll find it a very smooth process. Everything’s online, so you can sign up online, go through the onboarding process, all of the investment opportunities are offered to everybody via we’ll notify people via email when an investment opportunity launches, you can read all the information about that opportunity, decide if you’re interested or not. And if you are, then you can make that commitment via the platform as well. So it is very simple, very slick, and very much online. Which means it’s very convenient. You can do it from your mobile, wherever you are, or, you know, sit down at your laptop on a Sunday afternoon, and browse and see if there’s any projects that you like, it’s worth saying that it’s the project, the product we offer is very much on a deal by deal basis. So investors are specifically choosing projects that they want to fund. It’s not a sort of product where sort of you give money to the platform, we then decide how we distribute across numerous different loans. It’s very much about the investors choice. And then the beauty of that is you can choose projects that suit your profile and your desires. So depending on your risk appetite, different term is another big factor. So some of the projects you might get involved with a bit beginning of a project and might have 24 months to run, you might decide to get involved midway through a project and it’s got six to 12 months to run. So you can choose which sort of projects you want to support based on your risk profile, kind of the redemption profile, etc.
Farnaz Fazaipour 16:34
Fantastic. Well, I’m really looking forward to finding out more about that. And thank you so much for talking to us.
Uma Rajah 16:40
Thank you Farnaz much appreciated.
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