How we Select Property Investment Opportunities

We typically meet with borrowers and their intermediaries multiple times as part of our credit approval process, and at least one of those meetings will be with one of our Founders or a Credit Committee member. We also visit the property to get a better understanding for the property’s suitability as loan security.

Our borrowers are required to provide information regarding their previously completed projects and their current projects so that we can evaluate their level of expertise, experience and onward business plans.

We carry out full credit, fraud and 'Know Your Customer' checks on borrowers, any ultimate beneficial owners and relevant third parties such as guarantors and other equity providers.

Once we have found out more about the borrower and are comfortable that they have demonstrated their ability to deliver the project, it is time to delve into the detail of the plan and the property.

We analyse the local area and undertake reviews of market demand and comparative property data.

Property market conditions can affect the viability of a proposed project, so an assessment of the liquidity performance of the housing market in the area is key. Engaging with local market experts helps us to ensure we have the information and expert insight we need to proceed.

When assessing a loan, our analysis will include:

• The build method (for development or refurbishment loans)
• Time scales
• Planning requirements (if required)
• Capabilities of the main contractor and professional construction team
• Exit strategies
• Estimated costs
• Economic viability of the project
• Serviceability (for a loan on which interest is paid through the term)

Independent chartered surveyors from our approved panel are instructed to undertake a Royal Institution of Chartered Surveyors ‘Red Book’ valuation on every property we lend against. Our loan to value ratios will then be calculated from the values they provide.

For development schemes, we also instruct an independent Project Managing Surveyor (PMS) to perform a critical assessment of the project on our behalf. Their reports assess the fine detail of the proposed project plan, timelines and budgets to provide certainty that the project is realistic. Our PMS will work with us throughout the scheme providing regular oversight and scrutiny of progress and costs.

All our legal work, including a report on title for the property, loan and security documentation, is carried out by an independent firm of solicitors from our approved panel. They also ensure that all construction documents, collateral warranties and insurances are suitable for us to lend on.

Our final stage is to assess the numbers, to determine whether we think the project is financially viable, not only from our perspective but also sufficiently profitable for the borrower to ensure they remain committed to the success of the scheme.

Our proprietary evaluation model calculates key financial ratios for our Credit Committee to consider. These include:

• Day 1 and final Loan to Value ratios
• Gross development value per square foot
• Our loan break even in pounds per square foot
• Loan to cost
• Borrower profit on cost
• Borrower equity contribution to the project

We also assess the borrower's financial appraisal and cashflows in detail to check their assumptions on sale prices, build costs, professional fees and other miscellaneous costs on top of ensuring there is sufficient contingency in place within the build programme. These figures are put through our sensitivity and stress testing models to ensure they stand up.

We review borrowers' and guarantors' overall financial positions, looking at their assets and liabilities, their wider portfolio and other business interests, to determine whether they have sufficient resources to cover their obligations.

In reviewing the capital structure of the project to ensure it is fully funded, we always ensure that the borrower's equity will be eroded first if things do not go according to plan. This means the borrower will lose their equity prior to any CapitalRise Investor losing their investment. We put in place a security package that will always include a first charge over the property for senior loans or second legal charge for mezzanine loans and may include debentures and share charges over corporate borrowers, personal or corporate guarantees up to a proportion of the loan or to cover cost overruns.