Well-known names in Czech property launch a real-estate crowdfunding platform.
Upvest brings a new platform for development companies and small investors to the Czech Republic. Through online collective investing – on which Jan Holásek, investor in the Accolade fund, and Petr Malík of Moravská stavební are also collaborating – the result this time will not be a film or a book, but buildings. The investors will not live in them, but they stand to earn from the interest.
The idea came from Upvest’s founder David Musil, who picked up the trend abroad. He attracted two big names from the industry to his project – lawyer Jan Holásek and Petr Malík, who worked in the PPF group and is now Chief Financial Officer of Moravská stavební. Both sit on Upvest’s so-called investment committee, which approves the projects offered.
It was Moravská stavební that offered Upvest’s first and so far only project, Rezidence U Grébovky in Prague. So far people have invested just under two million in it altogether. “The average investment is around 50,000 crowns,” Musil said. Upvest plans to raise 5 to 15 million, although the total cost of the residence exceeds one hundred million. Upvest reportedly has three further construction projects under negotiation. Malík did not specify them, but said none of them is from Moravská stavební.
“When you negotiate with an investment fund or individual investors, the negotiations are often complex and protracted, and these categories of investors also tend to have high return requirements. That can be very costly for developers,” says Malík, according to whom Upvest simplifies and standardises the whole process.
The platform works by Upvest offering a specific construction project on its website together with a target amount to be raised from small investors. The company then provides the money raised to the developer in the form of a subordinated, or mezzanine, loan, which together with a bank loan helps to finance the completion of the project. Once the project is completed, investors get their money back with a 5–8 percent return, the project promises.
Crowdfunding does, however, carry certain risks, as Deloitte analyst Michal Melč points out. “It always comes down to weighing risk against return. If I bought the bonds of the property company directly, it would be only my risk towards that company. If I go through crowdfunding, there is another link in the chain that introduces an element of uncertainty,” says Melč.
The biggest risk with Upvest is precisely the mezzanine loan the company works with, because this loan is not secured by the property. “Unfortunately that is a peculiarity of the Czech market, where banks are unwilling to accept anyone in second rank on the collateral, even though in the United Kingdom, for example, that is how it works. We guard against it by carrying out a detailed review of the project,” Malík said.
“Our main criterion is that the project must have a building permit and the developer must own the land. So we don’t go into any speculative purchases of projects. We also look at the developers’ track record; we wouldn’t give the money to someone who hasn’t done anything yet and for whom it would be their first project,” Malík added.
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