This is an interview with the co-founder of Propio, Tom Buttress. Propio is a “crowdfunding platform” offering “ordinary people” the opportunity to invest in property development from £250. Tom leads the day-to-day management of the company and gave us interesting insights into the challenges of launching a platform in the market, the structure of investments and plans for the coming years. Enjoy!
Can you provide an overview of Propio?
Propio is a property crowdfunding platform that enables ordinary people to invest in property development from just £250. Our team of property experts pre-vets every opportunity and our easy-to-use website allows investors to spread their money across multiple property developments around the UK.
Investors can choose whether to put their money into loans which are directly secured against property or into development opportunities that build value, allowing them to take a share in the profits.
Why did you start Propio and what was your biggest challenge in launching the platform?
The idea was born out of our own experience. We’re a team of property developers and specialist property lenders who, over our careers, have been responsible for more than half a billion pounds worth of property transactions. We’ve seen first-hand how difficult it can be for smaller property developers to get the funding they needed to build more much needed homes. At the same time, we’ve seen how property investing, whilst lucrative, is often only accessible to the financial elite, leaving everyday investors excluded.
Our mission at Propio is to bring together developers and investors in a way which not only benefits investment portfolios, but also helps build more homes in the UK.
What type of loans is Propio’s sweet spot?
At Propio, we focus on funding residential development; financing the planning, construction or sales phases of ground-up developments, conversion or refurbishment projects. Our investments are short, typically 6-24 months in length, and offer clear exit strategies such as selling or refinancing. Returns are based on the risk involved; with loans secured against property offering returns of between 6 and 10% per year. Equity based investments, whilst inherently riskier, offer expected returns of over 15% per year.
Can you describe what the investor is investing in and how this is linked to the underlying loans?
Firstly, I should explain that all our investments are set up as individual UK limited companies (known as a special purpose vehicle or SPV) which ensures each investment is segregated from the other investments on our platform and Propio itself. In the event one of the investments on Propio goes wrong or the platform folds, your investments are self-contained and so cannot be impacted.
When investing in one of our loans, investors receive bonds issued by the SPV which are proportionate to the amount they invest. They also receive a share in the security over the property asset – this is typically in the form of a first legal charge, generally up to 70% of the maximum loan to value. It’s worth noting that unlike many peer to peer firms, this security is held and enforced by an FCA regulated third party trustee – thereby ensuring investors’ funds are recovered fairly and efficiently in the event of default.
Things are a little different for our equity investments, where shares are issued by the development company SPV – which is set up specifically to finance the project. Unlike our loans, there is no security and returns depend on how quickly the development is built and sold and the final sales price. However, that doesn’t mean we leave getting a good return to chance; our investment team only select investments that pass our rigorous vetting process. In fact, we put our own money into all our investments – if it isn’t good enough for us, it isn’t for our investors.
We set up these investments as an FCA registered alternative investment fund to ensure investors’ money is looked after in a compliant way and structure the fund’s mechanics to insulate investors from downside risk – typically we use a minimum “hurdle rate”, which means the developer needs to deliver a minimum investor before they can unlock a greater share of the profits.
In light of the recent FCA proposed regulatory changes, it is interesting that you have selected a bond structure instead of peer to peer lending. Can you explain your reasons for this?
For the most part, this was because we wanted to be able to offer equity investments as well as debt. As equity investments are not supported under the peer to peer regime, we thought it would be simpler and more efficient to set up the regulatory structure in the same way as an old-school real estate fund manager or hedge fund rather than some form of peer to peer/ fund hybrid. Hence our loan investments are structured as bonds rather than peer to peer contracts, but they essentially deliver the same outcome for the investor.
In addition, during the set-up phase we noticed that the peer to peer landscape was under scrutiny from the FCA. This gave us further reasoning to go down a more tried and test route which we knew the regulator was comfortable with, rather than having to adjust to the evolving peer to peer rules – like many peer to peer platforms are having to do at the moment.
What separates Propio from its competitors and why should investors sign up to the platform?
Firstly, it’s the property experience of the team behind the platform. We’ve already funded £6.5M since launching earlier this year, however, offline (through our development and lending businesses) we’ve lent over £150m and have never lost a penny of investor capital. We have also acquired, constructed and sold over £350M worth of new homes. And it’s this market expertise that Propio investors are able to tap into – we’re not just brokering investments but actively choosing only sound investments for our platform portfolio.
Secondly, it’s the fact that we’re not just focused on loans. Yes, equity investing is inherently riskier and there is potential for investors to get back less than they expect or even in extreme scenarios to lose capital, but there is also the potential to make excellent returns. Our own developments, for example, have achieved double-digit returns per year on average for the past decade and we believe that by investing smaller amounts across a range of these investments, Propio investors are likely to achieve similar results.
How do you anticipate the platform developing over the next 3 years? What does success look like?
Ultimately, our goal is to allow more people to access to the benefits of property investing, especially those that are shut out of getting on the property ladder. We have already lowered our minimum investment from £1,000 to just £250 and are constantly striving to improve our platform to make investing easier and more intuitive.
We’re also planning to launch an ISA later this year which will enable people to invest in certain opportunities tax free. We are also working on more opportunities which will take advantage of growing property markets across the UK in areas including Birmingham and Wales.
Special thanks to Tom for taking part in the interview. If anyone would like to be interviewed as part of this mini-series, or would like to submit a guest post, please get in touch at [email protected] or click to submit your request or blog idea.