Co-investing in a central Birmingham residential development
The land market in Birmingham’s central core is very active and there has been a significant increase in site transactions over the past 24 to 36 months. To raise additional capital to assist in securing further positions within the city, Prosperity Developments invited CrowdLords investors to take equity in one of their current developments.
B1 is situated in Edward Street and comprises of 61 apartments and two commercial units. The investment was by way of Preferred Redeemable Shares delivering a 15% return over 12 months to its investors.
‘Historically, to raise capital for our investments we would work with a select few wealthy individuals who would invest with us on a Joint Venture basis. With CrowdLords, it opens up the opportunity to a much wider audience, some of which are exactly the same profile as the people who buy our completed apartments as buy to let investments. These de-risks capital raising for us, but more importantly, it means that more people get to share in our success,’ said Joe Billingham, founder of Prosperity Group.
The B1 development was listed on CrowdLords in February 2016 and according to Richard Bush, chief executive officer of CrowdLords, it proved to be a very popular investment. ‘The advantage of the Prosperity model is that their properties are not only pre-sold off-plan but, as an experienced developer, they control as much of the risk as they can. For example, they only use fixed price, bonded, JCT contracts to remove the construction risk,’ he said.
The investment was fully funded in a matter of weeks. In total, 32 people invested, on average, just under £15,000 each into the SPV set up to carry out the development. They receive regular updates on progress so they can keep track of how things are going.
The development is on schedule to be delivered in 2018 at which point they will redeem their shares and receive their original investments along with a 15% return.
While 15% per annum may seem too good to be true for many investors, the return has to be considered in the context of the other sources of capital used by developers.
‘We use specialist lending partners for our senior debt which has a first charge and our mezzanine debt which has a second charge, so the cost to us of this equity investment is very much in the context of our other sources of funds,’ said Billingham.
‘And because of our experience we manage the projects to de-risk them as much as we can, meaning the risk reward ratio is very attractive to investors,’ he explained.
All involved regard it as a win-win situation, with Prosperity Group enjoying reasonably priced capital and investors gaining access to exclusive investments previously only available to the privileged few.
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