Understanding private property debt

• What is a personal guarantee?

  What is a personal guarantee? It is quite common for a company to require the director to provide a personal guarantee in order to secure a loan. This commits the director’s personal assets and obliges them to personally repay any outstanding debts should the company fail to do so. This personal guarantee must be accompanied by a handwritten statement confirming that the director fully understands the scope of the commitments made and the amount involved. In the event of dPopular

• Who is the issuer ?

  The project owner who borrows from investors In the context of private property debt, the issuer is the property operator – usually a property developer or property dealer – who requires funding to carry out their project. How does the relationship between the issuer and the investor work? The issuer issues a bond, which is subscribed to by investors on the platform. In practical terms, each investor lends a sum of money to the issuer, who in returnFew readers

• How do interest and coupons work ?

  A coupon is the interest paid to the bondholder Each bond has a coupon attached to it: this represents the interest paid periodically to the holder. The origin of the term dates back to paper bonds: historically, each security was accompanied by detachable coupons, which the issuer would remove as and when interest payments were made. A practical example Let’s take a €1,000 bond, at a rate of 10 per cent per annum, with a maturity of 24 months. EachFew readers

• What is a bond ?

  A debt issued by a company to raise funds A bond is a debt issued by a legal entity (a company, in the case of private property debt) to raise funds directly from investors, known as bondholders. Bonds are the financial securities representing this debt: for the company issuing them, they are equivalent to a loan; for the investor subscribing to them, they represent a claim entitling the holder to interest. ${color}[#3faae1](A contract formalising the obligations of eFew readers

• What is the term or maturity of the loan ?

  A figure set before the transaction is launched The term of the loan, also known as its maturity, is determined in advance of each transaction, before it is listed on the platform. It indicates to the investor the maximum date by which they will be repaid the capital invested, as well as the interest accrued over the period. A generally short term, specific to private property debt In the private property debt market in general, the term of a loan iFew readers

• What is an amortisable loan ?

  Repayment of the principal spread out over time A loan is said to be amortisable when the principal is not repaid in a single lump sum, but gradually, according to a repayment schedule drawn up before the loan is taken out. At each repayment date, the borrower repays a portion of the principal, plus interest calculated on the outstanding principal. This repayment method contrasts with a bullet loan, where only interest is paid during the term of the loan, with the principFew readers

• What is private property debt ?

  Definition Private property debt, also known as property crowdfunding, is an investment that enables investors to lend directly to property operators (developers, property dealers). The platform connects project organisers seeking to finance their ventures with investors looking to grow their savings. In practical terms, the operator (the borrower) issues a bond, and the investor becomes a lender by subscribing to this bond. ${color}[#3faae1](The private property debFew readers

• What is the body of bondholders ?

  An automatic and statutory grouping of bondholders When a company issues bonds, all holders of the same issue are automatically grouped together to form a “body of bondholders”, an entity with legal personality, distinct from each individual investor. This mechanism, provided for in Articles L.228-46 et seq. of the Commercial Code, enables the common interests of bondholders to be defended collectively, rather than each acting separately. ${color}[#3faae1](How the bodFew readers

• What is a bullet loan ?

  Repayment of the principal in a single lump sum at maturity A loan is described as ‘bullet’ when the principal is repaid in full in a single lump sum on the loan’s maturity date. Interest, on the other hand, may be paid in various ways: as a single lump sum at maturity, or in instalments (annually, for example) throughout the term of the loan. Example Let’s take the example of an investor who lends €1,000 to a property developer on a bullet loan basFew readers

How to invest ?

• How do I invest in an opportunity ?

  Go to the Opportunities page to view all opportunities currently open for subscription or due to launch. For private debt opportunities, please check that your Raizers account has sufficient funds. It must hold at least the amount you wish to invest. For other opportunities, your Raizers account does not need to have sufficient funds. Select the opportunity you wish to invest in and click on “Invest in this opportunity”. Depending on the typeFew readers

• SmartInvest

  What is My SmartInvest and what is it for? It is a tool that automates your investments according to criteria you set (rate, term, type of transaction, etc.), whilst leaving the final decision to approve each investment with you. Control remains in your hands As soon as a transaction meets your criteria, SmartInvest automatically suggests that you invest in it, but you retain control over the final approval of each investment: the tool does not makeFew readers

• What is yield or return ?

  Yield: a rate set in advance of the transaction For each property transaction financed on the platform, an interest rate is negotiated in advance between Raizers and the property developer. This rate represents the advertised return on the capital invested, which will be paid to the investor at regular intervals or in a single lump sum upon maturity of the loan, depending on the terms of the transaction. A practical example For an investment of €1,0Few readers

Project selection and due diligence

• How are transactions selected ?

  How are private real estate debt transactions selected? By whom? The audit department examines each candidate transaction. It is only following a rigorous selection process that a transaction may be presented to investors. Before any deal is published online and presented to investors, it undergoes a rigorous analysis by the audit team based on strict criteria. What does this selection process involve? Each deal is analysed from two perspectives: The operatoFew readers

• How are the interest rates for the projects listed on the platform determined ?

  The interest rate is initially proposed by the project owner. RAIZERS, in consultation with the project owner and following the completion of the audit, may adjust the interest rate applicable to the funded project. This rate is set taking into account several criteria, which may offset one another: The operator’s experience Level of pre-marketing Progress of the project Liquidity of the asset Margin level Etc… The final rate is approved by the committee and reflects the risk identiFew readers

Monitoring a transaction

• What happens in the event of a delay or default on a funded project ?

  Distinguishing between a delay and a default These two situations are not equally serious: A delay in repayment means that the operator has not repaid the principal or paid the interest by the scheduled due date, but that the transaction is still ongoing (sale in progress, authorisations pending, etc.). Interest generally continues to accrue. A default is a more serious situation, where the operator is unable to meet its obligations, which may lead to insolvency proceeFew readers

Risks and guarantees

• What is illiquidity risk ?

  What is illiquidity risk? For each transaction, investors are informed that investing in bonds carries a risk of illiquidity. Indeed, even though these bonds are freely transferable, there is no market available on which to sell them easily. Investors will therefore need to find, through their own efforts, an investor willing to buy back their bonds. In practice, this means that, unless they find an external buyer,Few readers

• What is a personal guarantee ?

  A common commitment to secure a loan To guarantee the repayment of a loan, it is common practice to ask the director of the borrowing company to act as a personal guarantor. This commitment binds them with their own assets: should the company default, the director will be personally liable for repaying any outstanding debts. A mandatory formality to validate the commitment Since the reform of the law on security interests came into force on 1 JanuarFew readers

• What is the Financial Completion Guarantee?

  A statutory guarantee for buyers The Financial Completion Guarantee (GFA) is a guarantee taken out by the property developer with a bank or insurer on behalf of buyers who have signed a preliminary sales agreement for a property yet to be built (sale before completion, or VEFA) . It ensures that, in the event of the developer’s financial default, the construction will be completed and the properties will be duly handed over to the buyers. ${color}[#3faae1](How it workFew readers

• What is a First-Demand Guarantee ?

  A standalone guarantee, independent of the main contract The first-demand guarantee (GAPD) is a security provided for under Article 2321 of the Civil Code. It obliges a guarantor – a third party distinct from the borrower – to pay a sum to the creditor (in this case, the investor), either upon the creditor’s first demand or in accordance with previously agreed terms, in the event of the borrower’s default on their obligation. ${color}[#3faae1](Who are the parties invoFew readers

• What happens if a campaign does not reach its target amount ?

  The campaign I invested in has not reached its target amount? For every fundraising campaign, a minimum validation threshold is set in consultation with the operator. This is usually 75 per cent of the fundraising target. If this threshold is exceeded, the campaign is validated and proceeds as planned, even if the target amount has not been reached. If the validation threshold is not reached, the campaign may be cancelled and investors reimbursed for their invFew readers

• What is a VEFA (Sale Before Completion)?

  A ‘off-plan’ purchase A VEFA (Sale Before Completion) involves a buyer purchasing a property off-plan, even before its construction has been completed. This is a contract between the buyer and the developer, which serves a dual purpose: It guarantees the buyer that the property will be completed It enables the developer to be paid as the work progresses, according to a payment schedule set in advance. The balance is paid by the buyer upon handover of the property.Few readers

• What are the risks involved ?

  What risks do you face when investing in a property crowdfunding campaign? Investing in securities issued by unlisted companies involves specific risks A risk of illiquidity: liquidity refers to the ease with which you can resell your securities after subscribing to them. The securities you subscribe to on Raizers are, in the short term, unlikely to be traded on a secondary market, i.e. a market for the buying and selling of existing financial assets (or the ‘secoFew readers

• What is a civil company for construction and sale ?

  A type of company dedicated to property development The civil company for construction and sale (SCCV) is a legal form widely used by property developers. It operates like a standard civil company, but with a specific corporate purpose: to construct one or more buildings with a view to selling them, either in their entirety or in separate units. A ‘transparent’ tax regime The SCCV is not taxed directly; it benefits from the tax transparency regime pFew readers

• What is a security trust ?

  A temporary transfer of ownership to serve as security A security trust is a legal mechanism whereby a debtor (the “settlor”) transfers ownership of an asset (in this case, a property) to a trusted third party (the “trustee”), in order to guarantee the repayment of a debt to a creditor (the “beneficiary”). This transfer is a real transfer: the asset is legally removed from the settlor’s estate and placed into an autonomous trust estate, distinct from that of the trustee thFew readers

• What is a mortgage?

  A security interest in existing property A mortgage is a security interest in existing property (land, a building, a house, etc.). It gives the creditor the right, in the event of the borrower’s default, to have the property seized and sold at auction, so that the creditor is repaid first from the proceeds of the sale. First charge, second charge: a question of priority A single property may be subject to several mortgages, taken out by different crFew readers