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Feasibility of high returns through alternative investments. Part 1 – Loan Notes

Farrbury Capital | August 13, 2019

The general consensus with any investment offering higher than average returns, is that there must be a catch. Ordinarily this is often the case, however, there are markets where, when structured correctly, those higher than average returns are more than achievable. The property industry is one of those such markets, due to it being asset driven with strong developer margins.

One of the main reservations’ investors have, and rightly so, is how can a developer afford to pay such a high return to investors. Below is a brief case study detailing one of the loan notes raised.

The site has a total GDV based on nearly 400 units of £85 million, £81 million of this is forward funded by institutional investors, meaning only £4 million is raised with interest. The total interest over 12 months at 15% is £600,000 which represents a total cost of lending against the project of 0.7%.

“It is vital to understand the model implemented by a developer before casting dispersions. We focus heavily on the structure of the investment along with the necessary background of the development and those institutions forward funding track record.”

James Hayward, Investment Director, Farrbury Capital Partners

There are important factors to focus on prior to embarking on an investment like this, as the model is only as strong as the track record of the issuer and the security in place. Throughout Farrbury Capitals investment portfolio there is one main consistency, that is the security method. Despite in some circumstances, funds being raised for a particular project, they are not secured against that one asset alone, instead, funds are secured across the entire bank of the issuers unencumbered assets which are held under a debenture controlled by an FCA Regulated Security Trustee.

“Investors continued success and confidence throughout the portfolio is testimony to the diligently run business models our issuers implement, along with the high level of asset backed security in place.”
James Hayward, Investment Director, Farrbury Capital Partners

For more information on our investment opportunities, please contact Farrbury Capital Partners by emailing info@farrburycapital.com or calling 0203 973 1510 for further details.