Investment structures for property developments: crowdfunding (peer-to-peer lending)

The seventh and last in a series of blog posts about different ways to structure property developments that involve one or more private investors.

Visualisation of a property development using crowdfunding (peer-to-peer lending)

All of the four structures that we’ve looked at in previous posts have one thing in common: they all generally assume that you already know some potential investors. If you don’t, you will need to find some. One way to do that is through an established crowdfunding site or peer-to-peer lender. This can be a fast way to attract all the investment required without borrowing from a bank.

 

Of course, the crowdfunding platform will charge for its services, which can be expensive. Note too that the platform will usually have a first charge over the underlying project, and that the developer may have to provide personal guarantees.

 

It may not be necessary to add bank lending. If it is, the bank will demand first charge rights.

Advantages and disadvantages of crowdfunding

Two great strengths of this approach are that it can be quick to arrange, and that the developer retains control over the SPV.

The downsides for developers are paying fees to the crowdfunding platform, and potentially having to give personal guarantees.

We hope you have enjoyed this series of blog posts. If you have any questions, feel free to get in touch at info@lcnproperty.com or +44 20 3432 3269. You can also download a more detailed guide – for free – from our website here.

Key terms
SPV – in order to acquire and hold property in England and Wales you usually want to use a legal vehicle. There are several different types, of which the most common is an ‘SPV’ or Special Purpose Vehicle. This is often a private company limited by shares and registered in England and Wales. In some cases – but not all – it can be a 100% subsidiary of the developer. In other words, the developer owns all the shares in the SPV.

First charge – if a lender or investor has ‘first charge’ on a property, they have the right to be repaid before any other parties that are involved. In effect, they are ‘first in the queue’, which lowers their risk. Banks typically demand first charge when lending to property developments.

Important
Nothing in this blog constitutes legal advice. You should take independent legal advice before acting on any of the topics covered.

The other blogs in this series:

1. How to structure property developments involving private investors

2. Investment structures for property developments: the first steps

3. Investment structures for property developments: mezzanine loan

4. Investment structures for property developments: joint venture

5. Investment structures for property developments: loan notes

6. Investment structures for property developments: private self-managed syndicate

 


More Fundraising Structures articles & resources:

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