Marek Pärtel, co-founder and chief executive of EstateGuru tells Kathryn Gaw about his aspirations for the European alternative lending market, and the UK platform that inspires him…
The European peer-to-peer lending market is booming, and a few key names are emerging as leaders in the competitive property lending space.
Founded in 2014, EstateGuru now has 85,000 investors, growing by about 3,000 investors on average per month. The Estonia-based platform has reached a series of milestones recently, lowering its default rate, expanding into Finland and Germany, and raising €1.3m (£1.1m) from 971 investors in a Seedrs fundraising campaign.
The company’s founder and chief executive Marek Pärtel (pictured) reveals what’s next for EstateGuru and the European property lending sector.
Kathryn Gaw (KG): How did you get involved in the P2P lending market?
Marek Pärtel (MP): I have been an entrepreneur all my life and I’ve been in the real estate sector almost 20 years. Having been a real estate developer, asset manager and investor myself, I very often came across situations where traditional finance providers like banks were slow and not very flexible in making their decisions.
I had to turn to private investors to do property investment or development deals and at the same time, when I was looking for investment opportunities related to real estate, there actually weren’t too many options – especially if you wanted to diversify and invest in smaller amounts.
My co-founder told me about the P2P lending concept and showed me companies like LendingClub. He suggested we should do something in the real estate space and given my background in property, I decided to do it!
In 2014 we went live with a proper platform and since then, we’ve been growing our volumes every year. Now we are a 65-people team.
KG: How did EstateGuru deal with Covid?
MP: For six weeks, we had to make rapid decisions such as raising interest rates for borrowers in order to keep investors on the platform. Fortunately, things changed in June. So for a couple of months it was a little bit hectic, but between June and December 2020 we reported massive growth.
KG: Did you pause new lending when the pandemic began?
MP: No, we didn’t pause our lending. We just had to motivate our investors to keep investing by raising interest rates up to 14 per cent and we also had to tranche the loans into smaller ticket sizes, in order to get them funded more quickly and to avoid the cash drag for our investors.
The risk didn’t really change. In fact, it was the other way around – we became more conservative. But at the same time, we said to borrowers that if you want to get this deal done quickly, you have to pay more because we have this high uncertainty. This wasn’t only a challenge in the P2P market, it was the same across all the global debt markets.
The capital market situation changed dramatically for some time. Everything was closed, and in Estonia (for example) private deposits grew. So what do you do with that? You can do some shopping on Amazon, or you can start investing in loans, in stocks or in crypto. It gave a big boost, not only to us, but to all digital businesses.
KG: Do you know the geographic breakdown of your investors and borrowers?
MP: The majority of our investors come from Germany, followed by Estonia, Lithuania, Switzerland, UK, Spain, Italy and the Netherlands.
In terms of borrowers, we believe the German market is going to be the biggest market for us in the next few years. This year, we are also planning to begin originating loans in the Netherlands. We are also considering the UK market.
KG: How does Brexit impact your decision to expand into the UK market?
MP: We actually got our licence from the Financial Conduct Authority (FCA) around three years ago, but we haven’t done anything with it.
We planned to move into the UK before the Brexit news, so we applied for our licence a few years ago. The UK is probably not going to be our core market in the coming years, but we see a lot of investors coming from the UK – both retail and institutional investors. We already have a London-based debt fund investing into our loans. I can’t tell you the name but it’s one of the biggest debt funds in London.
KG: Why do you think you saw such an increase in UK investors last year?
MP: EstateGuru is actually the biggest property-backed lending platform in continental Europe and our biggest model is very similar to [UK alternative property lender] LendInvest, which is well-known by UK investors as a reliable platform. They have also been good sparring partners and I have spoken often to their management team.
What EstateGuru is offering is the diversification between different loan types and also diversification between different geographies.
KG: What are the key differences between the European alternative lending market and the UK alternative lending market?
MP: The UK is definitely the most established alternative lending market in Europe due to the regulatory framework. In comparison, we are only going to have Europe-wide regulation by the end of the year, so we have to obtain separate licences in Lithuania and Finland. The UK market is much bigger and there are more established players compared to mainland Europe. The European market is so fragmented due to different legislations.
KG: Is there more room for growth in the European market?
MP: Definitely. The question is how these new players or existing players are scaling up. I’m sure there is more room. I think there is still a huge opportunity.
KG: Your default rate sat at 7.7 per cent in February – why was this? And what have you done since then to bring defaults down?
MP: It hasn’t actually changed too much over the two years. It has always been between six and eight per cent.
Recoveries happen on a monthly basis, so new defaults happen on a monthly basis – it’s ongoing work, a natural part of the business to have certain loans in default. Historically we have recovered about 50 per cent of the total defaults, and our investors currently haven’t experienced any capital losses to date. But if capital losses do occur, we are quite confident that the effect would be less than one per cent of the total portfolio.
KG: You recently completed a €1.3m Seedrs fundraising round. What do you intend to do with that money?
MP: We plan to use the Seedrs money for three areas: tech development; geographical expansion; and the development of a capital markets division for the business.
In 2021, we plan to launch a new investment product for integrating fintech ecosystems. We are also planning to launch an easy investment product backed by hundreds of loans we originate. We plan to enter two new markets – one is the Netherlands. We intend to sustain our growth of at least 70 per cent per year, and we hope to double our lending volumes to €240m.
Read more: EstateGuru funded £12m of loans in April