Hey big spender
Institutional investing is on the rise in the P2P property space. Uma Rajah, chief executive of CapitalRise, explains how big-name investors are finding their place in marketplace property lending…
PEER-TO-PEER investing has not always been closely associated with institutional investors. But to Uma Rajah, chief executive of the marketplace property lending platform CapitalRise, institutional investing and P2P lending are a natural fit. At least within the prime institutional grade property lending space where they operate.
“Most institutions have historically had property lending as part of their portfolio,” she explains. “But they have generally gone around looking for direct lending or investment opportunities themselves focused on a particular grade of real estate assets.
“We allow institutions to access various types of transactions without having to go through their team because essentially they can rely on our expert team to do the origination and the underwriting. So it’s really a low resource, low effort way to get access to an asset class that they already actively engage with.”
CapitalRise focuses on prime institutional grade real estate, where institutional grade just describes the calibre of real estate that historically has been the focus of institutions. They focus on high-end properties in exclusive neighbourhoods – generally in and around London. Retail investors can target double-digit returns by investing a minimum of £1,000 in luxury property loans, but multi-billion-pound institutions tend to take a different approach.
According to Rajah, many institutions prefer senior or “super senior” levels of debts, although the seniority of the loan will vary from investor to investor. Banks are typically happy to target single-digit returns in return for a lower loan-to value (LTV) investment of 45 per cent or less, she says. By contrast, family offices like to spread their investments across a range of different types of loans, while funds tend to target the double-digit returns offered by higher LTV opportunities.
Rajah notes that seasoned institutional investors are already very familiar with property risks, which may explain why her platform has seen such an increase in interest from institutional investors recently.
“One reason why we are seeing an increase in institutional funding partners is because they recognise that we, particularly in Prime Central London, are currently either at the bottom or near the bottom of the property cycle,” she says. “Our valuations tend to be very conservative, because the valuers are already pricing in uncertainty in the market.”
CapitalRise hasn’t always been so focused on institutional investment. The first few loans on the platform were 100 per cent crowdfunded, and the majority of the firm’s lending power still comes from retail investors.
In fact, Rajah believes that retail investors will ultimately benefit from the rise of the institutional P2P property investor.
“The added bonus for retail investors is that that they get the added security of having a big-name investor on board.” she says.
Rajah adds that it is her belief that “the crowd” will be the cheapest source of capital in the long run. But in the immediate future, she expects to see even more institutional funding coming into the P2P property sector.
“Over the next 12 months the split between retail and institutional investors will shift a bit as we put more high-value transactions through the platform,” she says. “We believe that ultimately the crowd will be the cheapest source of capital and that our direct lending business model will disrupt the old traditional business models in the future. Institutions help us to do much larger loans and grow our loan book faster but they will never totally replace the crowd.”
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