20. What are SPVs?
This question can be difficult, at first, even for beginners in the world of investment. Even for those who already know Urbanitae, although the SPV are And is that the name can mislead. An SPV is a type of society… but not understood as the set of people who live in a country under common rules. We are now talking about corporate companies, such as Urbanitae itself.
An SPV is a special purpose vehicle, that is, a company with a special purpose, also called shell companies. They are so called because they have a different purpose from conventional companies , which is, precisely, to constitute a company. In the field of crowdfunding, the SPV are created to channel the money contributed by investors to manage the specific project for which they have contributed it.
I could tell you that, exactly, these companies are allowed by European regulations – Regulation (EU) No 1075/2013 of the European Central Bank – only for securitization operations. But you’d stop reading quickly – I don’t blame you. Surely it is clearer if I tell you that the SPV are the companies that are created for each project that we finance in Urbanitae.
And why? The main reason is to isolate the risk. As you know, each project funded by Urbanitae is independent of the rest. If one project goes wrong, the rest is not affected in the slightest. To achieve this tightness, independent companies are formed managed by the project promoter and created solely and exclusively for the project in question. In this way, the investor always knows exactly where he has invested his money. In addition, the SPV guarantees that investors obtain the same benefits as if they invested directly in the promoter company.
An SPV for everything
In the case of Urbanitae, SPVs are used in each project, whether capital gains or loans. ( Rental projects, although considered a third category of project, are structured as an equity project.)
Thus, in capital gains or equity projects, an independent individual limited company is created for each project. The director of the company is the promoter in charge of carrying out the promotion. And all investors enter this company as owners or partners in proportion to the capital contributed. Once the project is financed, the capital increase is made. The SPV then increases capital in the company promoting the project, that is, in the promoter himself. Once the project is completed, a meeting is called to liquidate the company and, once approved by the majority of the partners, the invested capital is distributed together with the profitability generated.
In loan, debt or crowdlending projects, the operation is similar. The fundamental difference is that, in this case, investors do not participate as partners in the SPV, but through a loan contract with a predetermined term and profitability. Once the deadline has passed, the developer must return the investment, regardless of the degree of progress of the project. Easy, isn’t it?
If you want to review concepts or know more about investments inside and outside Urbanitae, visit our section of Learn with Matías.