REAL ESTATE CROWDINVESTING

FAP Special Report | September 2016

2

SPECIAL REPORT

The following FAP SPECIAL REPORT relates to

the crowdinvesting market for German real estate

projects.

Footnotes for the document are listed on page 12.

CROWDINVESTING DEFINED.

The term crowdfunding refers to the financing of com-

panies, products, projects, etc. by a group of private

persons, which allows everybody to participate from an

investment contribution of x. Conventionally organised

online via the internet, platforms offered by numerous

companies allow project initiators to present their ideas

to the public and raise capital.

Crowdinvesting is a subtype of crowdfunding that

includes financial reward or participation of the crowd in

the financial success of the project financed. Applicable

real estate projects currently comprise:

development projects, modernisations, refurbishments,

value-add and, in some cases, financing of existing

property. 1

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SPECIAL REPORT

CROWDINVESTING IN THE GERMANREAL ESTATE MARKET

As of September 2016, 18 crowdinvesting platforms

were identified that have demonstrated a presence in the

German market for crowdinvesting in real estate within

the last 4 years.

Five of these platforms were excluded from our research

owing to their nascent stage, early withdrawal or similar,

leaving 13 participants that could be drawn upon for cur-

rent consideration.

Ten of the 13 platforms (77%) currently focus purely on real

estate.

In 2016, 7 platforms (54%) have already successfully com-

pleted investment stages and implemented projects.

First real estate project investment

by crowdinvesting platforms

8% 8% 54%

2012 2014 2015 2016

30%

More than 50% of the platforms

implemented their first real

estate project via crowdinvest-

ing in 2015. 2

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SPECIAL REPORT

DISTRIBUTION OF INVESTED VOLUME 2015

The capital invested via crowdinvesting across 8 platforms

in 2015 totalled approx. EUR 22.7m.

EUR 17.5m (approx. 77%) of this was arranged via only

3 platforms.

Two of these providers do not regularly focus on the real

estate sector but rather on financing companies / start-ups.

We refer here to the financing of a special project. The EUR

7.5m of capital invested in this project has a corresponding

impact on the distribution.

A total of 16 deals were completed. The average crowd capi-

tal volume per deal was approx. EUR 1.7m. Adjusted for the

special crowdinvesting project, this figure falls to EUR 0.9m. 3

Breakdown of invested volume by provider 2015

2%2%8% 14% 11%

2015

30% 33%

Provider A

Provider B

Provider C

Provider D

Provider E

Provider F

Remaining providers

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SPECIAL REPORT

DISTRIBUTION OF INVESTED VOLUME 2016

The capital invested across 7 crowdinvesting platforms

in 2016 to date totals approx. EUR 19.1m.

EUR 15.3m of this (approx. 80%) was arranged via only

3 platforms.

A total of 28 deals have been completed. The average crowd

capital volume per deal to date is approx. EUR 0.6m.4

Breakdown of invested volume by provider

up to September 2016

2016

1%5%6% 15% 7%22%44%

The composition of the top 3 has changed

since 2015.

Provider A

Provider B

Provider C

New provider 1

New provider 2

New provider 3

New provider 4

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SPECIAL REPORT

Of the 47 deals taken into account since 2012, 60% were

completed in 2016 alone.

The successfully completed investments break down

across the platforms as follows. Nine platforms (69%)

have completed 1 to 2 projects to date. The remaining

4 platforms (31%) have completed between 3 and 15

projects during the same period.

GROWTH IN THE NUMBEROF COMPLETED PROJECTS

END OF INVESTMENT STAGE

2% 2% 2%

2012 2013 2014 2015 2016

34% 60%

DEAL GROWTH

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SPECIAL REPORT

GROWTH IN PLACED CROWD CAPITAL COMPARISON OF 2015 & 2016

As of September 2016, the capital placed had already

reached 84% of last year's total volume. In the same period,

the number of project deals rose by 75%.

NUMBER OF DEALS 16 28 38

2015 2016

€5m

€10m

€15m

€20m

€25m

€22.7m

€7.5mof which was

special projects

incl. projects currently available

for investment€19.1m

€28.2m

BY SEPTEMBER

PROJECTION

Including projects currently available for invest-

ment, the volume invested by September 2016

was already 24% greater than last year's total

placed amount of EUR 22.7m.

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SPECIAL REPORT

Forms of security generally include:

n Personal guarantees of the project initiator

n Assignment of project profits

n Settlement via an escrow process

This has the following advantages and

disadvantages for developers:

+ Capital available for very small tranches

+ Good marketing impact for the project

+ LTC + 95%

- Investment target may be missed or the deadline

exceeded

- No guarantee of placing in some instances

- Lack of transparent interest rate structure versus

interest rate of 3.5 - 7% for capital providers

SOFT FACTS I

The subordinated capital raised is normally allocated as a

subordinated loan or in an equity-like form. Owing to the

obligatory prospectus requirement, the predominant maxi-

mum capital volume raised for larger capital volumes is

currently EUR 2.5m per project. In most cases, the capital is

introduced into the relevant project company of the project

initiator and ring-fenced.

The selection of projects by crowdinvesting

platforms is generally based upon the following points:

n Internal platform due diligence

(possibly supported by internal or external

legal consultants, surveyors, building controllers)

n Track record of the developer

n Building law status

n Marketing and exit strategies

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SPECIAL REPORT

Background:

The creation of the platforms is attributable to the following

groups of initiators, mostly with a real estate or financing

background:

Developers

Property managers

Financial service providers

Internet companies

Start-ups

Structural engineers

Fund managers

SOFT FACTS II

Sectors:

n Primarily residential

n Increasingly also offices, retail, logistics, nursing

homes and student/micro-apartments

Risk categories:

n Development projects, modernisations, refurbishments,

value-add

n Some financing of existing property

n General emphasis on value-adding projects

Regional focus:

Project selection is strongly dependent on the individual,

platform or associated team and network. It is not possible

to identify a regional focus across all providers of crowd-

investing platforms. The projects offered are distributed

nationwide across A-, B- and C-cities.

Some crowdinvesting platforms set themselves

apart from the concept described. Crowd capital

is now also used as a participation via an interna-

tional platform alongside professional, institutional

investment houses, for example.5

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SPECIAL REPORT

According to the FAP Mezzanine

Report 2016, 85% of the

traditional, subordinated

or mezzanine capital

providers analysed currently

have no interest in investing

via crowdinvesting platforms.

Principal reasons:

n High interest rate expectations

of traditional capital providers

n Capital tranches via crowdinvesting

are generally significantly too small

TRANSACTION VOLUME AND INVESTORS

In 2015, 8 platforms achieved a combined investment

volume totalling EUR 22.7m. This equates to an assumed

approx. EUR 130m achieved market value volume.

By September 2016, the capital raised via crowdinvesting

platforms plus current projects available for investment

totalled EUR 28.2m. This produces an estimated imple-

mented market value volume of EUR 335m.

85%

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SPECIAL REPORT

Despite the fact that crowdinvesting has a strong pres-

ence, this form of investment is still in its infancy. Com-

pared with the provision of mezzanine capital, the market

size is still insignificant.

However, owing to the flexibility of the crowd to create

other alternatives in future, we regard crowdinvesting as

an interesting and useful complement to the current sub-

ordinated capital market. Whether there will be regula-

tory intervention in this young market segment for real

estate investment remains to be seen.

There will be consolidation in the market for crowdinvest-

ing in real estate. The number of platforms will change in

the foreseeable future. Platforms with an existing track

record in real estate are likely to be in a position to provide

capital more easily and in greater volume going forward.

We also expect a higher degree of specialisation within

crowdinvesting. The further evolution of crowdinvesting

combined with traditional forms of investment will open

up new avenues.

CONCLUSION

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SPECIAL REPORT

Footnotes:

1 – Cf.: http://www.crowdfunding.de/

2 - NB: the year of formation and year of the first

real estate investment did not have to be one and the

same.

3 – All crowdinvesting projects completed by the end of

2015 were considered.

4 – All implemented projects whose investment stages

were completed by 5 September 2016 were considered.

5 – Cf.: http://www.bobsguide.com/guide/news/2016/

Feb/17/real-estate-investment-platform-brickvest-

launches-and-closes-first-deals/

The data used was gathered directly via the crowdinvest-

ing platforms. From 2012, we identified 47 completed

projects and a further 10 available for investment up until

5 September 2016.

Data was analysed from a total of 18 platforms that have

had a presence in the German real estate crowdinvesting

market in recent years or continue to do so.

The respective projects were allocated in whole to the year

in which the investment stage was successfully completed.

Where essential details were missing, the projects/plat-

forms were not considered.

APPENDIX

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SPECIAL REPORT

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