Two firsts at Kingswood for CapitalStackers

CapitalStackers Limited is authorised and regulated by the Financial Conduct Authority (FRN 722549). Registered in England (Co. No. 7361691). Investment through CapitalStackers involves lending to property developers and investors. Your capital is at risk. Investments through this and other crowdfunding platforms are not covered by the Financial Services Compensation Scheme. Unless otherwise stated, returns quoted are annualised and gross of tax.

Published 19th October 2020 by CapitalStackers

Two firsts at Kingswood for CapitalStackers

A highly attractive scheme in Surrey has tempted CapitalStackers to invest outside their normal corridor of expertise in the North – and also to partner with a new senior lender.

A luxury apartment project aimed at wealthy downsizers, a prestigious street and an affluent and popular village combined with an experienced, high-quality borrower to convince the CapitalStackers team of the scheme’s worth, and investors clearly agreed as the £950,000 required to fund part of the land purchase was raised in four days.

With the borrower tabling equity of £810,000 and a personal guarantee for the whole CapitalStackers loan, Shawbrook Bank entered its first ever partnership with CapitalStackers – putting up the senior debt of £8,014,000 which will fund the remainder of the land value and 100% of the construction costs. This, as regular investors will know, fulfils CapitalStackers’ prerequisite, namely that the entire scheme should be fully funded to completion before any of its investors part with any cash. Such a condition may have seemed over-cautious to its competitors pre-COVID 19, but has proved its value in recent months as other platforms have run out of investors midway through construction.

So with a total debt of £8,964,000, the completed scheme (post Covid-19) is valued by Strutt & Parker at £12.33 million – an overall £529 per sq ft with a gross rental value of £508,800 per annum for the 14 spacious two-bedroom apartments with 28 covered car spaces. Each bedroom will have an en-suite and fitted wardrobes. Each apartment will have its own laundry room and enjoy the added appeal of landscaped gardens and water features. The block is prestigiously placed on leafy Furze Hill in Kingswood, Surrey, 30 minutes from Gatwick and Heathrow airports, and a pleasant walk from the rail connection to London Bridge (50 minutes), and the good local amenities in and around the village including two golf courses.

The CapitalStackers investors were offered a choice of three risk/reward layers – and competed to earn from 10.19% at a Loan-to-Value of 68.3% up to 14.36% at 74.6% LTV. Regular investors will have noted that even at the highest risk layer, the housing market would need to fall by 25.4% before their loans would not be repaid in full and their investment is ringfenced with a personal guarantee from this asset-rich borrower – facts which partly explain why CapitalStackers investment schemes tend to be oversubscribed and sell out within days, hours or even minutes of publication.

As always, the CapitalStackers team exercised comprehensive risk modelling on the site, borrower, COVID, possible threats to sales and cost overruns. On the Sensitivity assumptions, 8 properties would sell within 10 months of practical completion reducing the LTV ratio to 50.8% and rental values would provide gross interest cover of 1.08% assuming an interest rate of 4.5%. This downside scenario demonstrates the opportunity to refinance the remaining 6 units in the event of sluggish sales. The Base Case indicates the project will be fully sold out within 7 months of completion.

Risk assessments complete, the legal due diligence was expeditiously completed in two weeks to meet the Borrower’s site acquisition completion date and strong working relationships developed between the senior lender, broker and borrower which helped the lawyers to make this happen.

This deal highlights yet again that even in straitened times, the CapitalStackers model provides valuable opportunities for sound borrowers and investors looking for prudent, high-value returns.

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Are you going too far for a double-digit return?

Published 21st June 2020 by CapitalStackers

Are you going too far for a double-digit return?

If you want high returns you need to do your homework and know what questions to ask – not just take a punt at the sexiest looking schemes.

Just how far some people will go for a double-digit return never ceases to amaze. Not just to Europe, or the Caribbean or Australia, but also far beyond their own comprehension of investment risk.

True, many have done so following the advice of trusted IFAs. But surely common sense suggests that ploughing your hard earned sterling into schemes on the other side of the world – and thus riding the switchback of different jurisdictions, multifarious laws, diverse, fluctuating currencies, wildly varying cultures and unfathomable mindsets – demands much more of the investor than the “sophisticated/HNW” test required to invest in UK schemes. It demands global knowledge, eyes in every corner, supreme clairvoyance and balls of steel.

For instance, a cursory analysis of the (currently under investigation for alleged fraud) Dolphin Trust would have shown a huge, successful operation which seemed to be making great returns from redeveloping listed buildings in Germany and flogging them on. Your investment would seem to be secured by a “First Legal Charge”, with the promised return of 10% per annum looking more than adequate compensation for such a risk. Several hundred British investors read enough into that to consider it worth a go.

Had you dug a little deeper, though, you’d have noted that Dolphin was classed as a high risk, Unregulated Collective Investment Scheme – i.e. not the sort usually regarded as suitable for retirement investors. However, the fact that a few less than scrupulous IFAs were enthusiastically promoting it in return for an alleged 15-25% commission certainly made it sound convincing enough for UK investors to stump up more than £600 million through their SIPPs [1].

Of course, your “Spidey-Sense” might have prickled when you received a letter on 2nd October 2019, where Dolphin Trust GmbH said it was “rebranding” to the new name German Property Group GmbH, and incidentally, “maturity payments could be held up by up to a year”. But perhaps your nerves might have been settled by the Chief Executive, Charles Smethurst cooing about “wider factors” such as “finalising building permits and legal titles, and arranging third parties such as constructors” and purring “I must stress at this juncture that your capital investment is not at risk.” [1]

You may also have been reassured by your IFA’s silence on the matter, but by then of course, he’d have already pocketed his chunk of your investment as his “thankyou” from Dolphin and moved on to the next fee opportunity. It needs to be said that the vast majority of IFAs are principled, upstanding citizens that you could trust with the keys to your bank, but Dolphin seem to have found some bad apples here.

So then of course, a few things went wrong behind the scenes at Dolphin/GPG (or whatever they called themselves this week) and “poof!” the whole lot’s gone. Billions of euros have disappeared into a black hole and no-one has any idea how much will come back out. The first legal charge proved worthless since “discussions over the possible sale of properties” faceplanted at the first hurdle. Not only were most of the properties undeveloped – many were deemed totally unsuitable for development, and therefore unsaleable. This – as close followers of the CapitalStackers blog will know – is a fundamental point which we will never tire of pointing out. If the funds to complete construction are not committed at the outset DO NOT INVEST. If the developers run out of money you will lose your investment. This is why we never ask our investors for a penny until all the construction funds are in place, and it’s also why we partner with banks who are best placed to provide the ongoing construction liquidity. That way, with your second charge on the property (after the bank), you have assurance that the scheme will be completed and there will be an actual asset to sell.

But of course, Dolphin/German Property Group are far from the only unregulated scandal. For instance, Harlequin Properties tickled an estimated 400 million euros out of investors’ SIPPs to build 6,000 hotels and rental properties in the Caribbean.

Again, this investment was totally unsuitable for retirement funds, but again, a handful of less than ethical IFAs offered financial advice that was far from independent, taking their cut from a scheme where only 300 properties were built of the 6,000 promised [2]. Thankfully, Harlequin is now being investigated by the Serious Fraud Office.

But the list goes on. In Los Pandos, investors were duped into funding vineyards marketed as high-end, low risk schemes but which were in fact unregulated, unprofitable and completely inappropriate for retail clients. The Resort Group offered the chance to invest in high-return holiday “hot spots” like Cape Verde, but the investment was unregulated, and the risks were far higher than they were led to believe. Billions more have been cheated out of people hoping for a yield from unviable Brazilian teak plantations, unsown Australian farmland, sham sustainable fuel plantations, unsellable storage pods and car parks planned on illiquid and unprofitable land [3]. And closer to home, Dr Alan Louis, a South African third generation evangelical Christian businessman, waved his Bible, prayed his prayers and duped investors out of tens of millions of pounds for property investments in the Isle of Man. Most of the money was ferried to shady companies owned by Dr Louis and his family in the British Virgin Isles, a fact recognised by the IOM Court as Louis and his co-directors were struck off the register of Company Directors, before Louis himself was arrested by the IOM police for allegations of money laundering and fraud [4].

What makes people invest in these crackpot schemes? The sums involved suggest we’re talking about High Net Worth, sophisticated investors. Okay, many were ill advised by shady IFAs who preferred baksheesh to balance sheets and best advice. And in the case of Harlequin, seduced by a very glamorous marketing campaign which was fronted by football stars and prominent figures.

But many will have simply seen the return and not bothered to research the risk.

Which is about as silly as driving away a car without asking the price. A high return obviously carries risk, and the sophisticated investor earns his or her money researching whether that risk is one they’re comfortable taking. The high interest rate usually means borrowers haven’t been able to raise funds through more mainstream channels and you should make it your business to find out why this is. In the case of CapitalStackers, for instance, the relatively low-interest debt available from a bank at typically 55% of project value will usually leave a developer with a funding shortfall which CapitalStackers crowdfunds, up to a maximum Loan to Value of 75%. This secured junior debt is then priced accordingly and at the top end of the stack can command returns in the high teens. You can inspect the property being funded by driving by it in your car or digitally, from the comfort of your favourite armchair.

However, assessing the risk to yourself as an investor goes far beyond this, and relies heavily on the transparency of the investment company. For instance, what’s the track record of the borrower? What’s his working history with the contractor? What factors might affect the sale of the homes being built (transport links, employment, amenities, demographics, pricing)? Have building and sales delays been factored in? What environmental and civil risks have been considered? What’s the prospective value of the completed scheme? Is this independently verified? By whom? What will it sell for and what’s the total profit? Who’s behind the investment platform? What’s their experience of the industry? How much are they taking from each deal?

Investors in CapitalStackers will know that all these questions are answered in detail, with charts and independent professional documentation, on a personal dashboard for each and every investment they make. And updated on a regular basis, following frequent site inspections and borrower meetings.

I doubt investors in Dolphin, Harlequin, Los Pandos et al had the luxury of such information. Unfortunately, this level of detail is difficult to come by when you’re punting cash across the world into schemes in the Caribbean or the Antipodes, relying on local professionals to interpret their laws for your benefit. But the question remains, why did they invest in such schemes without knowing those fundamentals?

Still, for the rest of you, it must be a comfort to know that such double-digit returns are available much closer to home, with total transparency and full, regular disclosure. Administered by a team that according to P2P research agency 4thWay, is ”right up there as one of the most competent we have seen doing development lending”, on a platform that “takes diligence in checking and monitoring loans to a whole new level”.

That’s why we stick to what we know best. Who needs the Caribbean when the sun can shine on your investments from Solihull to Llandudno?

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CapitalStackers raises £750,000 in 15 minutes

Published 4th May 2020 by CapitalStackers

CapitalStackers raises £750,000 in 15 minutes

A hugely viable building scheme that failed to launch through a pooled lending platform has raised all the funding it needed in 15 minutes through CapitalStackers.

Converting Charles House – a five storey former HMRC office in Preston – into 70 apartments, all priced at an affordable £90K to £130K (with 27 covered car spaces) certainly has its attractions for investors.

Particularly when you factor in that it’s sited in Winckley Square – traditionally a prime office address for solicitors, accountants and banks, a mile and a half south of University of Central Lancashire and a few minutes’ walk from the mainline rail station and retail centre. The square enjoyed a recent £1m upgrade and Charles House is just the latest of several buildings around the square to be converted to residential use.

The scheme targets the many first time buyers, young professionals and investors flocking to Preston’s revitalised city centre, but is also close to the M6, M65 and M61 interchange and just 40 minutes from Manchester and Liverpool via rail or road. The city’s railway on the West Coast Mainline can whisk residents to London Euston in as little as two hours fifteen minutes.

However, the initial failure to launch highlights the importance of matching the right sort of funding to the investment opportunity.

Contracts had already been exchanged on the site purchase when the P2P lender pulled out – although clearly not because of any problem with the deal.

The broker, Real Property Finance offered the deal to United Trust Bank, who quickly put up £3,966,000 to cover all the construction costs and brought in CapitalStackers – with whom they had successfully collaborated on other deals – to raise the mezzanine finance.

CapitalStackers Director Sylvia Bowden said, “We found absolutely nothing wrong with the deal itself – it’s one of the best we’ve come across. It’s just that longer term building projects aren’t really suitable for the pooled lending model. You need to ensure all your construction capital is in place before anybody lifts a trowel, rather than assume you can attract new investors once building is under way. Otherwise you run the risk of it falling out of bed like this one did”.

Managing Director Steve Robson added, “When RPF approached us, we did our usual deep and granular risk assessment and despite the COVID-19 situation we were bullish about raising the £750,000 needed in time.”

“Once again, our investors didn’t let us down and we’d like to thank them for continuing to support projects. Their appetite for deals remains as sharp as it’s ever been, but it’s important to point out that this isn’t just due to luck. Our due diligence has delivered for them time after time, and they have once again proved they have a nose for a good deal.”

The particulars of the deal certainly shine through. Aside from the £4.7m raised, the developer has put in £1m of his own cash and once completed, the scheme will generate net sales of £7.2m.

CapitalStackers investors had the choice of three layers ranging between a Loan-to-Value ratio of 60% (paying annualised interest of 9.66%) and 69% (paying 15.80%).

The conversion will be carried out by Empire Property Concepts, who have an impressive track record in completing similar developments, the original 10-person lift is to be retained along with most of the windows. A contingency sum of 11% is included in the budget costs and no structural works are required.

Naturally, the risk assessors have cast an eye at the dark clouds of COVID-19 hanging above the industry and built in a pessimistic assumption that perhaps 40 of the apartments will be sold in the 9 months following completion, with the rest taking even longer.

However, should any units remained unsold, CapitalStackers’ modelling shows that the project could be refinanced with more than enough interest cover from rental income. Rent receipts, after an allowance for voids and management costs would cover interest on a refinance mortgage of the senior debt by 173% even if no apartments were sold. The equivalent ratio based on aggregate debt is 139%. Furthermore, these ratios should increase as sales proceeds reduce debt.

On the other hand, the borrower is confident of exchanging contracts on most of the units before the building is even finished – primarily through targeting Buy-To-Let investors. The market rent has been independently assessed at £550 pcm for the one-bed apartments and £650 pcm for the two-beds. This gives a total gross market rent of £546K.

This deal is becoming typical of the kind of attractive pickings to be found in the COVID-19 climate. As more deals fail to launch, the CapitalStackers model is capable of ploughing on, thanks to its unwavering policy of nailing down all construction finance before work commences. It’s even become a source of comfort to the banks, knowing that when mezzanine finance from other sources fails, they know where to come for a fast (and steadfast) solution.

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It’s time to stop bashing landlords

Published 27th April 2020 by CapitalStackers

It’s time to stop bashing landlords

It seems that staring at the same four walls every day has forced many of us to contemplate the nature of housing. And human nature being what it is, we’re searching for someone to beat up and blame for the ills of society.

And I’m sorry, Landlords, but right now, it’s you.

Notwithstanding the fact that 20% of the UK population rely on you for a roof over their heads [1], you’re being fingered for “pushing up the cost of housing and creating an affordability crisis for almost everyone else”. [2]

That’s quite a charge. So the rise in house prices was nothing to do with a free market economy that allowed six million more households to buy their own homes since 1980, and the two million more who were helped to do so by housing associations? And the rise in people entering private rented accommodation had nothing to do with the decline of social housing?

Presumably, those 20% would have all bought their own homes if it weren’t for you exploiting them – despite the fact that 12.5% of households still chose to rent privately way back in 1980 – before any encouragement from Mrs Thatcher and all the social changes since. [3]

We’re not saying the decline in social housing is not a problem, of course – we’re just saying it’s not a problem that can fairly be blamed on landlords.

But seriously, if it’s not The Daily Telegraph wishing your demise in an article about COVID-19 precipitating a housing crash, it’s the article’s readers chucking all their furniture on the bonfire.

On 18^th April, The Telegraph cranked up the air-raid siren, saying that the 28% of landlords who owned properties outright (and therefore would not qualify from Government-backed mortgage relief) “faced bankruptcy” if tenants were unable to pay rent and that “as many as 80% (of landlords) could be forced to quit the sector”. [4]

This prediction was met with glee by a significant proportion of those commenting on the article – a typical example being, “A massive clear out of the ‘get rich quick’ Buy to Let industry will be one of the many welcome and long overdue effects of the COVID crisis”.

Jeepers! Whose side are they on? Certainly not the side of those families who will have nowhere to live if landlords pull out (which they won’t of course – what kind of investor sells an asset in a sliding market?).

Neither is the Shadow Cabinet too bothered about those families, with Labour demanding a tightening of the coils around landlords in their manifesto [5] and Emily Thornberry screeching that empty houses should be confiscated from their owners [6].

Local activist communities like the London Renters Union and Acorn stirred the pot further by concocting a Renter Manifesto which demanded “Homes to live in, not for profit”, insisting that landlords should sell their properties to local authorities (as opposed to on the open market) and again pinning the blame squarely and unfairly on those who rent out properties rather than the Government which doesn’t build and society as a whole which feels an Englishman’s home is his asset.

The Guardian and The Independent, of course, have been banging this drum for quite a while. Last April, Mike Segalov responded to Government changes to BTL legislation by calling landlords “exploitative and inhumane charlatans” and pointing out that “someone earning minimum wage would find the average private rented home unaffordable [7]. Landlords can point to “the market” to justify charging high rents and feel they aren’t to blame”. Well, thanks for that, Mike – would you mind explaining to us how landlords specifically are to blame, if ordinary homeowners aren’t? Or don’t you want to go there (you didn’t, so I suppose that answers that question).

And back in July, one could imagine George Monbiot wringing his tear-sodden hands as he typed a piece about tenants “paying landlords to live like kings”, mewling that “the UK has become a paradise for landlords” [8]. He rages that “in the 13 years between 2002 and 2015, average wages for people who rent rose by 2%, but their rents rose by 16%” without a sniff of context. The context, of course, is that housebuilding in this country has always lagged behind population growth, and the period he highlights saw a massive increase of 9.7% coupled with a rising trend of single occupancy due to social changes. This massive increase in demand pushed house prices up 95% over the period that George bewails rents going up 16%. [9]

Why he feels renters should be immune from the market forces that toss the rest of us around, he doesn’t say. In any case, renters in the UK have it better in the UK than they do across Europe and beyond. We have more tenants with subsidised rents per head than in any other country bar Slovenia. [10]

Also worthy of note is the fact that people living in Denmark, Germany, Austria and Switzerland rent, rather than buy, and presumably by choice, judging by the above chart.

Quite why the heavyweights of “social justice” are queueing up to give Mrs Miggins a kicking it’s equally hard to fathom. Of course, painting landlords as the Robber Barons de nos jours is a populist way of stirring up class hatreds and hastening their comrades to the barricades.

However, it’s simply a spiteful campaign of emotional propaganda, by grown-ups who should know better. It wants us to believe that all renters are poor and all landlords are rich. And when we see the reality it starts to look a bit silly.

There are many reasons why people rent – high-level job relocations, postings, marriage breakups, not just through lack of choice – and let’s not forget that most private landlords are just ordinary folks who got stuck with their mum’s old end terrace, or moved in with a second spouse and kept the old place on “just in case”.

Even those who kept buying and built up a string of rental homes to keep them in their retirement are hardly grinding the faces of the poor into the dirt, for the most part. Yes, they’re using property to make profit – but profit is simply another word for “income”, and why is that somehow worse than using any other means to make an income? Why is it different to making money from selling cars, or apples, or the sweat of your brow? Why, for that matter, does someone investing to ensure their own self-sufficiency in retirement make them a legitimate piñata for the illiberal elite?

And why vilify people who are providing a much-needed service? Why try to hound them out of the business, when we know that if they weren’t doing it, the UK’s homelessness problem would become considerably worse, not better?

The simplistic argument of Monbiot, Acorn et al is that fewer buyers means lower prices, so if you took private landlords out of the equation, all homes would become more affordable. But this is naïve reading of economics. It completely ignores the fundamentals of the cost of housing.

Private housing is built to sell to people. The people who build it do so to earn their crust. So unless it’s heavily subsidised, private housing will only ever be built when it’s economically viable. And since the cost of materials and labour isn’t going down, the only moving part in this equation is the cost of land. And in tough times, that goes down. Not so long ago in some parts of the country, sites couldn’t be given away because the cost of building houses was more than they could be sold for. So nothing got built and who suffered most? The people at the bottom of the housing chain, that’s who.

Of course, the social justice nihilists don’t tell us this; either because it’s inconvenient to their argument, or because they don’t understand it.

Do these people hate the idea of landlords so much that they would rather make the poor homeless than see a few people make an income from homing them? Because, if those landlords were really serious about making money from property, they could do a damn sight better than Buy to Let, anyway.

As we pointed out years ago, [11] Buy to Let is a seriously tough way to turn a penny.

Investing your redundancy or pension drawdown (say £100K) into perhaps a modest flat costing £275K – with maybe a 3% mortgage, might yield you a 3.5% return once you take into account void costs, management fees and maintenance.

And, of course, that’s after shelling out £15,700 up front for stamp duty, legal fees and mortgage costs. Not to mention all the stress, costs and headaches of managing an asset with real, living people occupying it (and sometimes not). And if you got fed up of the wildly erratic income and tried to sell within 6 years, unless there’d been a hike in property values, you’d lose money on it.

That’s a heck of a lot of pain for a slippery 3.5%.

Particularly when you consider that you could invest that same £100,000 and make annualised returns of 10%+ out of property development in just a year or two (with some projects having paid as much as 20%). The bottom end of that range is significantly more than our landlord would make even if he held on for 20 years and enjoyed 3% compound annual growth in house prices.

Investors in CapitalStackers have been making these kinds of returns with none of the pain landlords go through – and with a lot less capital exposure, because the borrower is taking the first loss risk if the market falls. Rather than having to service a huge BTL mortgage, investors can participate in property developments with as little as £5,000.

In reality, these are the people making smart money out of property – not your poor old Buy-to-Let landlord. So please, let’s cut landlords some slack.

They don’t have it as easy as you think.

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5 things the Government must do now to resuscitate the housing market

Published 6th April 2020 by CapitalStackers

5 things the Government must do now to resuscitate the housing market

Who knows what kind of economic landscape we will witness when we finally emerge, blinking in the sunlight, from our Covid-19 lockdown?

Many things will have changed, for certain. Many jobs – many companies even – will have ceased to exist. But one thing that won’t have changed, as sure as death and taxes, is there will still be a housing shortage.

The social change that drives that shortage won’t have gone away, either. Family break-ups, people getting married later and living longer are constantly repainting the panorama. In the new zeitgeist, we need more housing units because we have more family units.

And the impediments to solving that problem haven’t gone away either. They boil down to two simple facts: (1) We’re not building enough; and, (2) We’re not moving enough.

Society is a heaving, growing, moving mass, and if people get stuck in the wrong home (or without a home), our social fabric is tied in knots.

What’s more, if we underestimated the possible effects of a pandemic, it will be as nothing compared to the effects of a housing shortage left unaddressed in the years to come.

So having put the housing market into an induced coma, what can the Government now do – indeed, what must it do – to lubricate this rusty housing chain, get more people into the right homes, and keep the housing market moving?

Facilitate mortgage availability

One of the most short-sighted responses to the current crisis is mortgage lenders refusing new loans to anyone unless they already have 25-40% equity. One of the UK’s biggest lenders, Nationwide, announced on 24^th March that it would only offer mortgage deals at 75% Loan-to-Value – effectively pulling out of the new mortgage market. Santander and Skipton trumped them by setting its limit at 60%. One by one, most of the other major lenders followed suit.

While this is widely reported to be a temporary measure, none of the providers seems to have noticed that they have collectively emptied both barrels into their own metatarsals.

If mortgages dry up, so does the chain of buyers. No buyers means housing values will fall, and the mortgage lenders’ portfolios will suffer a pointless hike in LTV ratios.

It’s also totally unnecessary and short-termist. They’re seeing risk in absolute terms, rather than human terms. Yes, it might make sense on paper not to lend at 95% LTV when you might anticipate a 10% drop in the market. But houses aren’t airline shares. People don’t, by and large, buy them to sell in the short term. They buy them to live in. The average tenure has rocketed from 8 to 21 years (35 in London) so nitpicking risk assessors are not only missing the point of mortgages, they’re also shutting off their own pipeline and – even worse – blocking the lower paid from getting onto the housing ladder.

So if the mortgage providers won’t help themselves (and history has shown that they largely won’t), the Government needs to extend its provisory largesse to this area of the economy and erect a nerve-settling safety net. The message they’re giving to banks about businesses – “Just let them borrow” – needs to pervade the entire economy, because if people didn’t realise before how utterly interlinked the economy is, they do now.

Suspend Council Tax on empty buildings.

What better way to bring down an already staggering construction industry than to administer a baseball bat to the knees, in the form of taxing their product before they can even sell it?

What other industry has to overcome such a hurdle? Builders are actually being forced to pay for services that are not being used – bins not being emptied, public transport not being utilised, parks and recreations not being visited – because there is as yet no-one to use them. This is akin to charging road tax on cars that are still in the showroom, or inheritance tax for your granny who isn’t yet dead. It’s obscene, pointless and again, it crushes its own windpipe. Councils should be encouraging new homes to be built within their provinces, to increase their own long-term revenue.

Yes, we know that the original intention was to encourage the occupation of empty homes, but right now, we need more empty buildings in order to fill them, and this policy is not helping in the least.

It would be a strengthening shot in the arm if councils were to suspend this utterly unconstructive tax on new build homes – preferably forever, or at least until the industry is in better shape.

Extend the current Help to Buy Scheme

This is one of the most liberating initiatives ever to have hit the market, so why limit a force for good? The news that the Government has confirmed the extension of the Help to Buy equity loan scheme till 2023 is to be welcomed – but why this should be restricted to first time buyers is a mystery.

Wider stimulation will warm the blood vessels right through the industry – helping existing homeowners to move will naturally free up homes for first time buyers. And since the current extension was put in place when Corona was nothing more than a beer, we now need to consider how long the existing scheme should be extended to help repair the damage of the virus.

Suspend Stamp Duty

Boris Johnson has already hinted at scrapping it, and having hinted, he needs to get on and do it, because the rumours themselves will stall the market – after all, who wants to buy now if they can save a considerable wedge by waiting till spring?

We already know the stimulating effect of even small tax changes on the market, but they just need to be done in the right way – the wrong way being the way Nigel Lawson did it in 1988. The housing boom (and consequent bust) of the late ‘80s was an unintended result of Lawson’s bungled removal of double mortgage relief for married couples. By telegraphing in March his intention to scrap it in July, he inadvertently caused a three-month stampede, which overheated the market and helped induce its collapse.

Nevertheless, just because one chancellor applied the wrong medicine at the wrong time, that doesn’t disprove the benefit of a little tonic in a place that sorely needs it. Stamp duty has left the handbrake on the housing market, and the further we try to drive, the more it squeals.

Lifting it, even for a little while, would bring blessed relief. Millions of older people are trapped in houses that are too big for them (and would be ideal for younger families). Many of them could afford to move when they find the perfect little bungalow, but if they need to bridge the sale of their house while they wait for a buyer, they’re subject to a 3% SDLT premium. Granted, they can claim it back if they sell within three years, but it’s a big chunk of cash to be waiting for, and so it’s a deterrent to the Silver Sellers. Not to mention a huge admin cost to the Government for money which, ultimately, they have to hand back.

Remove it, and the entire chain moves on a notch.

Let builders build and equip them to do it

The clamour to close building sites must end with a firm word from the top. Builders need to keep building, full stop. The alternative is to extend the housing crisis until it becomes a catastrophe.

Granted, conditions on some building sites must be addressed – particularly in London, with crews working in cramped conditions, and in some cases living at close quarters, too. But to shut down an entire industry because of poor observance in one city would be madness.

Writing national policy with London blinkers on is never a great idea. The majority of sites outside the capital are run within Government safety guidelines, and are regularly inspected to ensure they continue to do so. The nation needs them to keep building, so the Government needs to let them get on with it.

And this also means “stop giving mixed messages”. Set the guidelines and make them clear and comprehensive.

Those building sites which have stayed open are finding most builders merchants that supply them are closed. True, the Government told builders merchants to get back to work last week (while observing public health guidelines), but that was amid a cacophony of messages telling everyone to stay home unless their job was absolutely necessary. Such discordant advice naturally led the bigger chains – the Selcos, TPs, Howdens et al – to close their doors rather than risk an HR backlash.

Even in those outlets that are open, confusion reigns. Anecdotal reports paint a patchy picture of how the directives are being interpreted, with builders being sold plasterboard, but not skirting board, as it is “not an essential item”.

If we trust builders to build, we must also trust them to judge what they need to do their job, and not tie their hands unnecessarily.

Let’s not forget, also, the interconnectedness and interdependence of the economy. A moving housing market drags the replacement kitchen and bathroom market along with it. It mobilises an army of manufacturers and suppliers, fitters and finishers, painters and decorators, landscape gardeners, soft and hard furnishers…

Keeping these industries moving preserves them and ensures the housing market is ready to go as soon as restrictions are lifted – and in an industry that moves slowly, this is surely vital. The rest of the economy can’t afford for the building industry to slow to a stop. Too much else depends on it.

So will any of this happen? We hope so. This Government has distinguished itself so far by a remarkable willingness to listen. Solutions have been proffered and adopted almost as soon as the problems have been identified. And we imagine they will continue to do so. The first four measures above would have been a welcome response to the housing crisis even in normal times. But now we’ve had a crisis upon a crisis, they have become imperatives.

Blog COVID-19 Investor News

So how is it going as we crawl toward the end of the first week of lockdown?

Published 28th March 2020 by CapitalStackers

So how is it going as we crawl toward the end of the first week of lockdown?

Are the hands of your watch moving as slowly as mine? And pure irony, isn’t it – as soon as Boris tells us to stay at home, it stops raining and out comes the sun?!

The vast majority of us are adjusting to home working and getting on with ‘social distancing’. Those businesses that are allowed to work as ‘normal’ are getting on with that too. Except the construction industry has come under intense fire for keeping building sites open. At the beginning of the week, the media’s attention was focused primarily – if not wholly – on London. Candid shots of a crowded Tube and big, tight construction sites in the Capital’s centre featured high on news editors’ agendas alongside calls from the London Mayor and Scotland’s First Minister to halt construction altogether.

Thankfully, the Government has held its nerve, for now at least, and hundreds, if not thousands, of SME housebuilders are continuing to do their level best to keep the home fires burning. And with safety at the top of the agenda. We’re going to come through this some time in the not too distant future and in the meantime it’s imperative that we fight hard to keep as much of the economy going as is humanly possible. The point is made very persuasively here by Jamie Blackett of the Telegraph. Those keyboard warriors who have been sniping at small builders would be better off directing their ire at the hordes of ‘long distancing’ walkers descending en masse to the same locations and the parents who allow their kids to roam unchecked. They are the ones posing a real danger to everyone else’s efforts to #flattenthecurve.

Some of the national housebuilders have stopped building but there’s a suspicion the shutdown is more to do with the ability to sell finished product during a lockdown than the working practices on site. The Construction Leadership Council is all over the latter like a rash. It, and other professional bodies, have circulated comprehensive site operating procedures. Certainly, all the contractors on sites we are funding are on the ball. Site meetings are virtual, hosted on Skype or Teams or Zoom with monitoring surveyors conducting site visits outside normal construction hours. It’s sensible, measured, meets Government guidelines and is safe. There is certainly no more risk than doing the supermarket shop.

This Insider article about a regional housebuilder serves as a fine counterpoint to the stance being adopted by some of the nationals as reported in Property Week. By the way, access to Property Week online is now free until 19^th April in case you want to read more.

Disappointingly, some of our borrowers are reporting difficulties with the supply chain. Builders’ merchants and timber factories going into lockdown isn’t helping and will only serve to push out build programmes. We’ve reviewed and remodelled all our deals to take this into account.

I’m going to finish this blog with a link to someone else’s on the basis it’s good to finish with something more upbeat. Earlier this month, Savills revisited the housing market forecasts they penned in November last year, concluding that market fundamentals continue to underpin their medium term view. They subsequently published further coronavirus opinion after the lockdown in which they expect short term price falls in the order 5% – 10%. You can read more here.

Oh, and anecdotally, it’s interesting to note that since this kicked off, we’ve had just one investor looking to sell a loan participation in our Secondary Market (that’s a rare event given most choose to stay in for the whole ride). It was posted late yesterday and went under offer this morning. Make of that what you will, but I think it’s a strong sign of underlying confidence.

Stay safe.

COVID-19 Investor News

Financial hygiene is even more important during the COVID-19 crisis

Published 25th March 2020 by CapitalStackers

Financial hygiene is even more important during the COVID-19 crisis

Total transparency has always been a core function to us at CapitalStackers, but in the current climate, just like handwashing, this element of normal housekeeping takes on critical importance.

We’re fully aware that our investors will be looking to us to keep them informed as the COVID-19 crisis unfolds. Of course, detailed information has always been available in the individual deal rooms on the platform. But for those investors who may not go looking for this, there’s a chance they could miss important information.

So to be clear, we’ll be reporting even more regularly to you – both in general terms, and on a deal-by-deal basis. We’ll give you all possible detail on how conditions on the ground are affecting the specific projects that you’ve invested in.

Clearly, we can’t predict how things will pan out, but by continuing to give you regular, exhaustive progress reports on each project – both from the borrower, and from the independent surveyor – we hope to give you all the information you need to assess the ongoing safety of your investments.

If you’re investing through a pooled platform – across a variety of consumer and SME loans – your capital is more likely be affected in the immediate to short-term. If you’re able to, you might want to withdraw your funds quickly because the situation is volatile and information hard to come by, but this may no longer be possible.

On the other hand, when you lend direct on a property development scheme through CapitalStackers, the situation is going to be played out over a longer term (excepting projects where completion is imminent), so the need to move quickly is not quite so crucial.

Of course, you’ll want to keep a closer eye on the situation – but you’ll also have an ongoing, detailed rundown of every key element of the investment. As we say, this is available on the platform at all times, but over the coming months we’ll go further and interpret it more frequently so that you don’t miss a thing.

And while the current situation could never have been foreseen, our standard due diligence builds in some fairly significant downsides for every scheme because we have always felt it prudent to do so. This, therefore, leaves you a fair amount of headroom before the virus infects your capital.

For instance, if we’re (collectively) lending within our typical range up to a maximum 75% Loan-to-Value including interest, this means the sale price will have to fall by more than 25% from the appraised valuation before your capital is affected. However – this is also after we’ve allowed for potential construction delays, cost overruns and deferred sales.

That’s quite a lot of breathing time.

Then again, we’re not rejecting the possibility that property values could be hit hard in the coming months, but as you’d expect, we’ve considered this in our risk analysis too.

And without doubt, the most important thing you want to know right now is how all this could impact our deals, and your investments. We’re going to try to answer this question here, but please be aware that the answer will extend and adapt as the situation does.

What could the effects be?

This is new territory for everyone. The whole world has changed and seemingly changes again every time the sun comes up. Accurate prediction is nigh on impossible but here are our best conjectures about the immediate impact:

Project periods may need to be extended because:

Skilled labour supply might be reduced;
The supply chain could be interrupted;
Utility companies may decrease output or even go into self-imposed lockdown;
A blanket lock down on all sites could be imposed by the Government if on-site working practices on some sites fail to adhere to safe distancing rules.
Projects nearing completion will certainly be impacted by the current general lockdown. If people can’t view, they won’t be able to buy and so selling periods will become protracted.

We can expect longer construction periods to lead to increased costs and higher interest accrued through longer-than-anticipated loan terms.

In addition to the above, property values may fall due to a weaker economy.

These factors will eat into the profit margin and push up the Loan-to-Value ratio.

So what are we doing about it?

In short, we’re going through our daily downside sensitivity routine, but on steroids. We’re appraising each deal in the context of where it is now, assessing the possibility of a total construction lockdown, evaluating delays to construction and sales with interest continuing to roll up.

Through this exercise, we’re able to give you a progressive insight into how much values could fall before you are on risk.

Although the situation is unprecedented, we’re also able to draw from historical examples in our modelling, and this gives us some cause for optimism.

The last massive interruption to the market came in 2008 when the banking sector imploded and liquidity almost completely dried up. As you can see from the chart below, the market fell less than 20% in the eighteen months from the peak in September 2007 to the trough of March 2009. This, of course, is less than the minimum 25% headroom all CapitalStackers deals allow for.

The banking sector at that time was less robust than it is now. Some banks collapsed, others simply pulled out – leaving the property sector in the lurch. It took a long time for the market to get back to where it was.

Today, banks have better capital ratios and their real estate exposure is significantly more conservative. The expectation and likelihood is that they will remain supportive while the market repairs itself, and that the repair should be quicker and more stable than last time.

So to summarise, as always, we’re maintaining close contact with our borrowers, senior debt providers, monitoring surveyors and estate agents – but everyone is on high alert and we’re fully aware of the increased importance of full and detailed information.

And as ever, we’re making ourselves fully available to investors. You’re used to that, of course, but now, more than ever, if you want to discuss the outlook either generally or specific to any deal, you’re welcome to call us at any time. Our contact numbers are below.

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CapitalStackers announces yet another layer of transparency

Published 6th March 2020 by CapitalStackers

CapitalStackers announces yet another layer of transparency

We’re delighted to add a new layer of transparency on the CapitalStackers website.

On the new “Portfolio Statistics” page, members can find answers to general questions, such as how much cash we’ve raised in total through our investors, how much has been provided by banks and what the average investment is.

But it also allows them to browse through enlightening performance stats such as

Highest and lowest investor returns
Average return
Repayment performance
Risk and reward

Along with useful background information to explain any anomalies or unusual variations.

You may ask why we haven’t done this before. The simple answer is, until recently we haven’t had sufficient data. However, having reached the significant milestone of £60 million funding raised (that’s £45 million through banks and the rest through you) we feel the sample size is now robust enough to give you a meaningful set of statistics.

We’d like to take a moment to thank our investors and appreciate what a huge achievement they’ve helped to make possible – behind every statistic there is a viable, successful building project that would never have got off the drawing board if it weren’t for their collective support.

So now’s finally the time to stop hiding our light under the bushel.

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As ThinCats bows out, who can fatten the savings of P2P investors now?

Published 10th December 2019 by CapitalStackers

As ThinCats bows out, who can fatten the savings of P2P investors now?

Is it any more than a coincidence that big players are pulling out of the retail P2P market at the very moment the new, tighter FCA regulations come into force?

Both ThinCats and Landbay have publicly switched to institutional funding, citing the main reason as the dwindling cost-effectiveness of servicing individual investors. Both suggested that the retail sector was no longer “commercially viable”.

However, since others clearly continue to find it viable, the timing suggests other factors at play. The FCA’s tightening up of the rules – including appropriateness tests and investment limits imposed on Restricted investors – was intended to remove the bad actors from the industry, to clean out the stables and bring the crowdfunders into the mainstream. And of course it will do that.

However, as a couple of fairly significant babies are sluiced away with the bathwater, we’re left to wonder whether more of the good operators will be putting up the shutters and thinking it’s too much like hard work to try and boost the portfolio of Mrs Miggins.

This would be an awful shame.

At CapitalStackers, we’ve always welcomed tighter regulations. Since our own working practices have always been well above the regulatory minimum, we’re happy to have the playing field levelled to the highest degree possible.

Let’s make no mistake about it – this is a great moment in our industry’s history. A defining moment. Where common sense finally anchored the helium-filled headlines.

It’s not as if the new rules are particularly onerous. They boil down to “don’t sell things to people who don’t understand them”. Which is a pretty basic principle for organisations trusted with Mrs. Miggins’ life savings.

As a responsible platform, we don’t want to be inviting investments from people who don’t fully understand the mechanics of risk and reward. Our business model is not, and has never been, dependent on catching the unsuspecting unawares.

We actively seek people who understand that reward is an inter-related function of risk. As with the stock market, it generally follows that the higher the risk you take, the more chance there is of losing some or all of your money – but the higher the reward. However, as the fly half targets the flailing prop in midfield, sometimes a mismatch can lead to success. In some instances, a surprisingly low LTV ratio can bring a double-digit reward.

The key is information. Monitoring and reporting. The P2P “outlaws” that have gone by the wayside have largely been characterised by a lack of both. Anyone investing in a CapitalStackers scheme, on the other hand, will have access to an Aladdin’s cave of information on the deal, the developer, and all the peripheral contributing factors that explain the terms of the deal. Not just before they invest, but throughout the life of the deal.

Of course, it’s a shame that regulations had to be imposed from above to force the cowboys to stop shooting up the town. But it’s equally sad that a couple of decent operators have now felt all this is now beneath them, and that the game is not worth the candle.

Landbay cited their need to “compete” with the banks. Founder John Goodall lamented that other P2P platforms were lending at higher rates while Landbay was looking to compete with banks whose mortgage rates are lower.

“Our margins were being increasingly squeezed and we would have had to cut investor rates to compete,” he said.

This is something that has never exercised us at CapitalStackers. The market is plenty big enough for the banks and P2P platforms not to tread on each others’ toes. We happily work in close partnership with banks on the same deals, sharing information and underpinning each others’ due diligence. Operating at different levels to push the same deal over the line, and our respective rates are set accordingly.

Most deals need the banks, and they need us, too. Some banks have even started to bring deals to CapitalStackers for us to help them make it happen. They’re comfortable that tightly-run P2P is a great enabler – and the small investor derives comfort from the fact that the bank is involved, because they know bankers understand risk and reward more than most.

So it will be a great sadness if the regulations designed to remove the bad choices for investors also thinned out the good ones. There’s room for all of us, and educating our investors is not so big a burden, is it?

We sincerely hope more operators who know what they’re doing enter the market as the regulations become the norm.

But in the meantime, if any jilted investors are looking for a place to grow their stack of capital, you know where to come.

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The P2P deals being snapped up before you even see them

Published 2nd December 2019 by CapitalStackers

The P2P deals being snapped up before you even see them

What is it about CapitalStackers deals that sees them sold out so quickly to those in the know?

Anyone who’s ever tried to invest in a CapitalStackers deal knows you have to be quick on the draw to get a piece. They’re known for selling out fast – sometimes in minutes, and rarely more than a few days.

So in a market where even astute investors have been so publicly burnt (viz: Lendy and FundingSecure lenders), what is it that gives people such a voracious appetite for this particular property-based crowdfunder?

Certainly, interest has stepped up since they were dubbed the Safest 20% Returns in P2P Lending (https://www.4thway.co.uk/candid-opinion/the-safest-20-returns-in-p2p-lending/ ), but to be fair, deals were oversubscribed well before that.

Of course, the mere scarcity of deals may sharpen the appetite of some. Since deals have to be very watertight indeed to withstand the buffeting from the CapitalStackers Due Diligence Team. Very few make it through – perhaps understandably since the CapitalStackers directors invest in every single scheme themselves – to the tune of £1.7 million at present (and almost £4 million in total to date).

But then, seasoned investors are not swayed by mere rarity value. They tend to get down to the nuts and bolts.

They’ll notice, for instance, the fact that CapitalStackers hasn’t set itself up to operate, as others have, purely as an alternative to the banks.

And for very good reasons.

Owned and managed by former bank property lending specialists, CapitalStackers is actually the only P2P facilitator that works in close partnership with banks, on the very same deals, sharing information, each doing their own independent due diligence and – crucially – allowing the bank to bear the ongoing liquidity risk in full. In this way, it ensures all construction funding is in place before a sod is cut and any investor parts with a penny.

This is deeply reassuring for investors, since they know that the success of each venture is fully self-contained and never has to rely on attracting funds from new investors to finish the project. It’s equally reassuring for them to know that banks are unlikely to wade into any deal this deep without serious confidence that it’s going to bear golden fruit.

Anyone looking at the deal history will have been further reassured by the sheer volume and frequency of information. From the basics – conservative Loan to Value ratios; often lower than 50%, never above 75% – to what some might call pedantic; historic flood risks in the general area of the construction site (which actually proved its worth in a project in York a few years ago, which escaped the floods that deluged the city and returned an impressive 22.4% per annum to investors). In between, a huge volume of information is provided on the site’s dashboard for each deal, from the business history of the developers, surveyor’s reports, micro and macro risk analyses, builders’ inside leg measurements…

And unlike some notable P2P platforms, whose interest rates are seemingly set as “headline” rates to attract investors, CapitalStackers’ return rates are calculated specifically through detailed analysis of all the above factors. This is the key to investors’ confidence. They know that the risk they sign up for is fairly and accurately priced into the return they will get for it.

This meticulous scrutiny has produced an enviable record of returns to investors of between 8.5% and 22.5% with no losses (although as a prudent platform we would always point out to investors that one can never say never. However, since they personally have a lot of skin in every deal, it makes sense that the directors of CapitalStackers operate at an extremely high level of diligence and reporting).

Hence, many investors, on being repaid, immediately reinvest in the next CapitalStackers scheme. Having begun investing with the confidence that they’re lending alongside the CapitalStackers directors who are lending alongside the banks, their confidence has been nurtured by a wholly positive, fully-informed lending experience and a fruitful result.

And it’s why, if you do hear of a CapitalStackers deal coming up that you’d love to get a piece of, these are the quick-fingered competitors you’ll have to beat to get your bid in.

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