Hello, and welcome to London property podcast, the home super bright. Today we’re in conversation with the co founder and CEO of capital rise, Houma, Raja was found capital rise really interesting because I really like these cuts out of making things accessible to people in Super prime. And the only other one I knew about doesn’t actually do super prime and it doesn’t do development. So I’m really interested in finding out more about it. Obviously, being in the industry, I’ve heard from various different parties who are involved in different ways with your company, but I’m looking forward to hearing it from you. Great. So categorise, was founded by myself, Alex, Mitch Lin, and Andrew Dunn. And Alex and Andrew were the ones that I guess came up with the idea to start off with so as an Andrew fans in business, you know, fun chatting, and they’re very, very high in property development firm, they’ve been going for nearly two decades now have done over 120 projects delivered 2 billion pounds worth of real estate, under construction. Yeah, over 120 projects, very successful business they built as property developers, predominantly focused in the kind of prime and super prime space globally. And, and they realised that there was a massive gap in the market for finance for developers in general, as a result of regulatory changes that kicked in after the financial crisis, but particularly underserved is the prime property developer market, which represented them as developers. And in addition to that kind of gap in the market. Also, service delivery from traditional lenders was, you know, typically very slow and quite a torturous process. And as developers, there’s this common feeling that kind of raising money and raising finance for your projects is one of the most painful parts of the development cycle. So they decided to fund capital rise as a way of trying to kind of attack that need and build a lending business, that was way more customer focus, and, you know, is very happy to lend to developers working in the prime and super prime real estate sector. So that was the kind of thinking behind the business. The other part, I guess, is how you how we fund our loans. So we have a range of different sources of capital that we use to fund our loans. And the thinking there was that historically, the only people that ever had access to this kind of calibre of real estate investment opportunity were either institutions or ultra high net worth, because the minimum ticket size to get involved was in the millions typically. And so by developing a tech platform, which is I guess, where I come in my background is financial technology. And I’ve spent the last decade or so building digital platforms such as a capitalised platform, and that we were enabled to essentially we were able to democratise access to these types of investments. And so by using our tech platform, we’re able to fund loans. You know, we do use institutions as well. And but we do have a digital platform, which enables more investors to invest in our loans. So that was fundamentally the idea was to build a lending business targeting lending to prime C prime, real estate developers different types of projects, and to fund them using a range of different sources of capital, from kind of traditional kind of institutions, banks, family offices, to, I guess, a more modern form of capital, and essentially via online platform. And what percentage of the lending comes from the online online platform, and presumably, you know, that that’s kind of matched with or supported with high net worth, or institutions that are already involved with you? Yeah, so that kind of balance in terms of the mix changes over time as our loan book scales, as it has done like last few weeks, we’ve tripled our volumes, and those kind of metrics change, but typically about three quarters of what we what we do is funded by the online platform, with around the quarter coming from, you know, other forms of capital. But again, as the business scales, and we as we already were doing kind of larger and larger loans, we will need more kind of more of a balanced institutional capital to do those kind of larger ticket loans. And what’s the average investment that people make from the platform? It really varies. So we’ve got the minimum investments of thousands, probably the biggest single ticket that’s a platform investors pretend to an individual owns around 500,000 into a single loan, and it reads anything between that sort of one and kind of half a million. So for a banker who who’s making lots of money, but doesn’t necessarily want to buy and he’s young and he’s getting bonuses is a really good way of having a headache free foot on the property investment ladder. So yeah, and the way we look at it is obviously, your underlying investment is investing in a property loan, that loan is secured against prime real estate. So if the borrower is unable to repay the loan, you know, we have, by the way, structured, firstly will charge we have access to that underlying property. So if they’re unable to repay the loan, we could force the side of the asset. In a worst case scenario, we’ve never had to do it. But we know, I guess the benefit of this is that it is secured lending so we could if we needed to, and then you sell that asset in order to repay our investors. And so yeah, and the returns are very, very attractive for the level of risk you’re taking. So our returns are between seven and 12% per annum. And just to give you an example, average that we repay today is around nine and a half percent per annum. And just to give you an idea of the metrics we’ve repaid, in fact, we had a processing a redemption right now, as we speak, like 2.4 million pounds is going out to our investors today on one of our investments, that’s majority. But today, we’ve done over 32 million pounds worth of redemptions back to our investors, we haven’t missed a beat. So we haven’t had any losses, no defaults, since inception, and average rate of return is around nine and a half percent across all of those redeemed investments. And the average loan term is between 16 and 17 months. So each investment has a relatively short duration. And I think the other benefit is the ICER. So those returns can be tax free if you invest using your ICER wrapper. And so we have an innovative finance ICER. And on many, many of our customers that I’ve seen, the majority of investments that we process are via the ISO because it’s very attractive if you can get those sorts of returns tax free. And then so getting a development loan traditionally, before capital arise, you’d go to certain banks that specialise in a development learned, and then they had the lending criteria. So do you would you say that coming from the background that you come from, you are able to be a lot more creative with your lending criteria? Yeah. Is there something that that that is kind of unique to you and your position, compared to when somebody’s going to traditional development? Finance bank? Yeah, absolutely. So I think there’s a couple of things probably to talk about. One is, as you, as you rightly mentioned, developers are at the heart of this business developers set this business up, because they felt that the service that they got from traditional lenders was very poor. So we are very customer centric, in terms of the way that we approach our lending. And we very much look at it from the borrower’s perspective. And I think one of the issues with a lot of the traditional lenders is they have a very much a sort of tick box approach. If it doesn’t fit in this box, we just can’t deal with it. Whereas we will look at it as a developer word, and we’d look at it in the round. So tell us about the project, what are you trying to do? What are the challenges? How are you approaching that, you know, if there are issues, if they found a great solution, and we believe in that solution, then we’ll you know, we’ll we can get comfortable with it to. So a very much more kind of entrepreneurial about the way that we look at all the projects very flexible. And the other thing that’s really important to know is that we are a specialist lender that are focused on a very specific niche of the property market. And since we launched this business, what, four or five years ago, still today, I would say we are still the only specialist property lender in the market that only focuses on prime. So you know, we do not serve the mainstream market, we do not serve the low end property market. And yes, there are a couple of lenders that will lend to prime developers, but it’s as part of an overall mix. And one of the issues with that is that often they’re just not really that comfortable with the asset class. And often they will, you know, for example, some of them will say, actually, you know, what, if it’s more than x thousand pounds per square foot, you know, we don’t want to do it. If it’s a cap value of over x, then no, we don’t lend because they’re not comfortable with, you know, this particular niche of the market, which, you know, let’s face it has its own unique dynamics, it is not the same as the rest of the mainstream property market, it is different. And you do need to have that deep expertise, to understand it well to underwrite it well, and to maintain the sort of track record that we have. I think that’s a testament to the fact that we do have very deep knowledge in this very specific niche that we we focus on. So that does mean we have an advantage against other other other lenders because we understand this part of the market, I think better than anyone because of the heritage of the heritage of our fans and this deep expertise we’ve got in this kind of in this niche. Yes, no, I totally agree. It’s sometimes it’s like when you’re pricing something if you if you if you have access to the profile of the buyer you’re looking for you’re going to always be a lot more enthusiastic about the value of a property than someone who has no idea about how to find that kind of buyer. Then they always Mark they always market things cheaper. So goes this way. Same way, I guess, with you guys that you feel much more comfortable than any regular lender. But does that also mean that you’re able to be more competitive with your rates? Yeah, it is. Because again, some of them will say, Well, you know, we’re not that comfortable with this part of the market, we don’t really understand it as well. So we’ll only do it if you know, x, y, and Zed is satisfied. And that might include you know, the pricing is, you know, out of the market in terms of, you know, much higher than what you’d normally expect. And so yeah, I mean, our, as an example, we offer both senior in math loans and out to the market and our mess pricing, you know, when we look out, and we compare it with our competitors is, is probably the cheapest in the market. And we’re very competitive. And that’s another interesting point as well, actually, which is, I guess, how we work with existing lenders in the market. So quite often, we’ll partner with senior banks who are happily happy to do some lending, as long as the leverage is incredibly low. So for example, quite a few of the loans that we’ve done, and they might be on quite high cap value assets, for example, you know, we did a loan on a 50 million pound townhouse in Holland Park, for example. And on that one, we partnered with a senior lender they did the senior portion, you know, and leverage they were comfortable with, not very high. And then we then essentially topped up and provided the borrower with a mezzanine loan to get them to, you know, a relatively decent amount of leverage. So that’s the way in which we can I guess, work with some of the incumbent lenders to get the offer of borrowers, and, you know, a better proposition than they would have got otherwise. And, yeah, so I would imagine that those lenders also feel more confident when you’re involved because that they know that you’re dotting the i’s and crossing the T’s, a lot better than they are equipped to do. They do. And they get a lot of comfort, I think from knowing that, you know, Alex, Andrew and, and rest of the team here are behind that underwriting team, that we are doing the due diligence, and we know, you know, from a day to day basis, these guys are in the market, they’re developing property, you know, on a daily basis, they understand the market better than a traditional lender sitting in a bus in Canary Wharf might do. But also it means we’ve got expertise if things go wrong. So that’s incredibly powerful for a lot of our institutional partners, which is it hasn’t happened yet. But let’s take the scenario where we’re funding a development and for some reason, it all goes pear shaped midway through, then, you know, you need a way of, you know, trying to salvage the project in order to repay all your investors. And what’s unique about us versus a traditional bank lender is we have a property development sister company, and you know, founders who are developers, so we would know exactly what would need to be done. And we would have that in house expertise to know how to go about stepping in completing the development, and then going to force the sale of the asset in order to recover funds for our investors. So that’s something that’s quite unique as part of our offering that offers a lot of comfort to our investors, you know that in a worst case scenario, we’re better equipped than others to try and solve those problems. So you’re mitigating the risk for them. And a lot of times these things become expensive, because they take longer than planned. And you’ll be able to step in and try and minimise that delay. So yeah, we have always with all of our loans, we have step in mice. And that’s very important for us. And we would absolutely use that if we needed to. If you know if, for example, things didn’t, you know, didn’t pan out the way they were supposed to. Yeah, very important. Yeah. Now, in this market that we’re in at the moment, it’ll be interesting to to hear from you. What type of pute what I mean, there are obviously developments still going on? I mean, how many developments Do you generally tend to have running at any one time? Yes, I guess at any one time, we’re probably funding between an attend to 15 live developments, and we do bridging loans as well. But I would say kind of probably 10 to five kind of live development 10 to 15, can live development projects, and the rest would be in kind of bridging loans. And I’ve noticed that you’re doing things in sort of super, like super prime locations, but outside of prime central London now as well. Is that something that’s starting to show as a way forward at the moment with everybody watching bigger houses, bigger gardens? Yeah, so we’ve all I guess when we first started the business, probably the first maybe 12 months of lending. I’d say probably nearly all of our all of our loans are in a prime central London. And then sort of over the last few years, we’ve expanded I guess, and we serve the broader prime market. So my book is split between prime central London. So that’s what we’re going to pick up mons, and you know, for example, we did three loans in Chelsea in the last couple of months. But you know, Belgravia, Mayfair, Knightsbridge, Kensington, Chelsea See those kind of locations, then we’ve got prime outer London. So that’s where we’re targeting locations such as hamsters and John’s word Wimbledon, Richmond, those kind of areas, and then Prime home counters. So that’s what we’re targeting loans in areas like Wentworth, Windsor caskets and George’s how, you know, randlett l stream got project there at the moment. So we we serve the kind of prime regional markets within the southeast, primarily London and then Prime central London. And in terms of the balance, actually, we’ve seen real mix over the last, you know, during 2020, we’re still doing a lot of seeing a lot of deal flow from Prime central London. And now’s a very attractive time to be buying assets if you’re a developer and you’re in the market. And, again, I’ll talk to you a bit about kind of PCL market and what’s been happening and why the conditions are so strong and prime outer London against seeing a lot of volume that say, you know, people starting to move out looking for more space looking for more outdoor space. And I think the prime home counters market is going to is already showing signs that it’s going to be incredibly buoyant as a result of COVID. Because I think a lot of people are accepting now that probably remote working is here, to some extent for the future. And so they aren’t going to need to do those five days a week commute into the city. So why wouldn’t they move bit further out and and expect a longer commute? If they know they’re only coming in a couple of days a week. So definitely already seeing that behaviour impact the market. But not to the extent that not to the expensive prime central London, you know, seeing a decline. So if somebody brings you a project now, I guess one of the interesting questions would be to ask a developer, who are you developing it for? Mm hmm. What is what’s the target market? Has the target market changed? Or is it still the same? So I mean, again, as for example, we do we have a podcast, which I love recording, actually, we speak to various different people from within the industry just on kind of what they’re seeing in the market. Yeah. Recorded I think, last episode was last week, it was really interesting to be talking to an agent in the prime real estate market. And I think, and again, it was to kind of like find samples, see what they were, they were seeing as well. And I think what they’re seeing is that, you know, it’s the same kind of clean towel. And, you know, be that local, you know, very wealthy individuals looking to acquire and develop assets in, you know, the kind of developers and kind of prime areas, there’s obviously the continued demand from international international buyers and investors, or be at when I was chatting to them last week, he was talking about, sort of the balance is slightly shifted, I guess, because of the travel restrictions, that there seems to be more kind of domestic interest versus internet international kind of that balance is slightly shifted in recent times. But yeah, I mean, we’re not seeing that it’s a it’s a dramatically different profile, in terms of the people that are involved in the sector, I think what is changing is some of the requirements. As a result of, I guess, having been locked in our houses for several months, it’s forcing people to you know, rethink, and maybe accelerates and decisions that they were thinking of doing in a few years time, they’re like, you know what, let’s do it. Now, you know, let’s take the take the plunge and make that decision to, you know, to move to, you know, to get whatever it is, you know, to move further afield or to be have to bring it bring our parents closer to us, because we don’t want them you know, x hours away, if we get locked down again, I want them on my doorstep. Maybe I’ll buy a piano tear in central London, close to my office. So I’m within walking distance of the office. So on those two or three days a week, when I go into town, I’ve got a little bolt hole there that I can use. So I guess what we’re seeing is we’ve seen huge amount of massive spike in demand for finance, in you know, in this year as a result of COVID. Really, and I think that’s the the residential real estate market is going to see is going to continue to see I think, a lot of transactions, a lot of activity, because of you know, because of people making decisions as a result of what they’ve just experienced. Yeah. So I think one thing that’s very interesting at the moment is the pricing that the prices that that borrowers can acquire sites for at the moment is very attractive and provides a very attractive kind of very profitable projects for them. And so if you think about crime, central London as an example, you know, PCL prices have been in decline since the end of 2014. Then now what 20% below the peak back then. So and then you add to that the fact that because of COVID, they’re in a very strong position as a buyer, often they’re then even, you know, they’re able to chip the price even further just because of the current dynamics. So a lot more We’ve done a lot of bridging loans, you know, in the last probably five, six months, which depend to help developers acquire the site initially. And then, you know, in some cases on follow on with development, finance, and they’re all very, very attractive appraisals when you look at them in the level of profitability that the developers expect to get, because of where PCL is, you know, relative to, you know, relative to its property cycle, which interesting is a very different situation to the mainstream property market, you know, prime central is in a completely different point in its cycle to the rest of the market. When they buy it, they’ve got to transfer it into how does that section work. So we create an SPV. For each individual transaction we do, that SPV is making a loan out to a borrower. And as part of that loan, we are getting security. And that security includes, you know, a first or second legal charge over the property. So we don’t own the property, the borrower is buying that property. But we obviously have property security in some ways, you’ve got a mortgage from the bank, right. And so the SPV is the beneficiary of all of the property security, there’s usually additional security, we will probably get, we normally get a personal guarantee from the borrower. And there’ll be other elements, other elements of the kind of security package for each investment. And then that SPV will raise funds from investors. And it does that by issuing bonds, which are essentially going to be secured against the underlying asset using that structure. So in the event that the borrower was unable to repay the loan, we could enforce on our security package in order to force the sale of the asset in order to repay investors. Got it? And then the other question I had for you, so if if somebody came on your site and wanted to invest 1000 pounds, what is that procedure that they’ve got to go through in order to be vetted and qualified and pay the money over? Yeah, so to be eligible to invest with capital rise, you need to be a high net worth or sophisticated investor. And so you would have to come to the website and go through our onboarding process, it’s all online, the whole process is completely digital. And so you go through a kind of online form, where you’d have to tell us what type of type of investor you are. So we can check your eligible eligible category. And you would have to give us all the normal stuff you’d expect. So we’re going to name, address, date of birth, etc, so that we can do our KYC know your customer and AML checks. And we would also need you to fill in a little questionnaire just to check that you understand what you’re doing is an appropriate product for you. So you understand the risks that are involved, and that this is a potentially suitable product for you. And then once that’s done, we do our KYC and AML, checks automatically. You’re then on boarded, and you’re able to then view investments of your investment opportunities, and then invest, and should you decide to invest with us, all the information for each of the opportunities is displayed on the website. And you can come in and say how much you want to invest. And all the all the kind of paperwork essentially is all done online. So you sign all the documentation digitally. And then you just wire funds to us, and we create an E Wallet for each customer. As soon as you wire the funds to us, they’ll appear in your E wallet, you’ll get real time notification that funds have arrived. And if you’ve already decided what you’re investing in, then that will just go straight through. And towards the end of the day that will be processed and your investments will start to earn your return. Fantastic. As a very slick, very, very quick process. Yes. And very attractive returns. So you’re saying that it was between seven and 11%? You’ve had since since you started? Yeah, between seven and 12, seven and 12. Fantastic. And the borrowers we’re dealing with our you know, very experienced borrowers, you know, they’ve been in the market many years. And we wouldn’t take a risk with somebody for whom this is their first or second or third project. So typically, we’re dealing with, you know, very well established property developers that was specialised in our part of the world and are part of the market. So they’ve got a brand that’s associated with delivering high spec, high quality real estate in the sorts of postcodes that we deal with. So no, we don’t get a lot of that. And one thing I would say, actually, which we you I probably should have mentioned earlier, and again, this is something that I think is quite unique for us is that as founders, myself, Alex and Andrew, we put our own money into every individual opportunity that we put on the platform. So we invest in every single loan. We’re all credit committee, and we’re sanctioning every loan. So that’s one thing that, you know, you won’t find in a traditional lender on a bank, for example. And I believe that’s really important, because I think, you know, ultimately, we are the decision makers, and we would never therefore put anything forward for funding that we didn’t feel how Hundred percent happy with ourselves and you know, be 100% happy to invest in personally. And that sort of having some skin in the game I think is very, very important for us as a lender and offers our investors, both our online investors and our institution investors a lot of comfort. Yeah, no, I bet putting your money where your mouth is? Absolutely. Yeah. Okay, fantastic. I think that said, my colleague Henry has been listening. I don’t know if he’s got anything to add. Oh, yeah, I’ve just been listening quietly. Very interesting. Really interesting. The one thing that strikes me, I think it’s always nice to hear a bit about the start of the company. And it strikes me that, you know, this was a novel idea, a difficult time when financial regulation was a bit nuts. When you started, what was that like to set up a platform like this, in that in that space at that time? Yeah, I mean, I’d say the, from a regulatory perspective. And, you know, the last few years have been very dynamic, because this is a new sector. And, you know, the regulator is having to sort of observe what’s going on, learn from what’s happening around and adapt, and change to make sure that customers are protected. And, you know, as new platforms come on board, unfortunately, some platforms don’t succeed. And so I think the key thing for us is, it’s been a very dynamic environment that we launched in. And that’s it, and I see that will continue. So I think what it means is that you you have to be very flexible, and you know, new rules can come in at very short notice that you then you know, have to adapt to very quickly. So the importance for us is to kind of maintain our agility. And in a way, it’s really good for us, right, because, you know, when you’re a firm, you’re naturally quite flexible and fast moving and, and quite agile. So I think, you know, it’s worked very well for us that we kind of kept that culture, even as we’ve scaled, and we’re doing more and more loans, we have more and more customers. Now, we we’ve kept that sort of very near the ability to move at paste, so that we can react to changes as they come. So a good example is in January this year, some restrictions were bought in that change the types of investors we were allowed to market to. And so prior to January, we’re able to market to a much broader group of investors. And now, since January 1, we’re only allowed to market to high net worth investors and sophisticated investors. And that piece of regulation came in like at the end of November, and needs to be implemented by the first of all. So it was a very, very quick turnaround, to spoil, business adopt all over Christmas, doing New Year’s Eve. So everything can be ready on January on January the first and so have to be able to react very quickly. Yeah, a very robust business model, then, you know, you can you can manage things very well. Mm hmm. Okay, doesn’t matter what country people are logging on from. So I mean, as the interesting points, that’s one of the things I think makes the platform very attractive now, we only really market to the UK, to UK investors, but obviously, we have a digital platform. So it can be you know, people can find us from all over the world wherever they’re googling. And we have got, you know, international investors on board, we serve the UK market, we serve the European market, and we can serve certain non UK jurisdictions, it very much depends on the country and the level of, I guess, financial risk involved in certain jurisdictions. But yes, we can serve certain non UK markets. And that’s amazing, right? So for example, you know, we have an investor, for example, who invest quite a lot with us is based on New Zealand, for example, and, you know, found us online. Just thought Wow, you’ve got a property in Eaton square, I’d love you know, I’d love to get I know the location you know, I went to the University in London, I know the location very well. And from the you know, from my mobile phone, sat on my sofa, I can do all of this and no hassle at all. And, and we’ve got one investor, for example, who travels around on his travels random and boat for a lot of the year. And he loves that everything can be done via his mobile as long as he’s got some sort of signal. He can invest he can see his portfolio he doesn’t need to be faxing paperwork or you know, it’s very, very slick. Well, that’s the thing about super prime, isn’t it? It’s like so long as you’ve got a proximity to Harrods, a lot of people know where it is. And I guess that’s one of the things that makes it our type of product very attractive, you know, you can invest in a project in on the strands in Ghana, in Knightsbridge. may feel like an iconic look into that unknown, you know, all over the world if you ever played Monopoly. Yeah, exactly. You can buy the Monopoly board. Well listen, thank you so much for your time. Oh my It was really, really interesting. Well, I hope you enjoyed that as much as we did. If you have any questions or you’d like to be put in touch, please email us on info at London property.co.uk