24. How Urbanitae chooses its projects
Today we want to talk about one of the most important aspects when investing in real estate crowdfunding: the choice of the projects in which to invest. Specifically, we will see how Urbanitae chooses the projects it decides to finance… and why this selection explains a good part of the company’s success.
We know that, when it comes to investing, there are two main strategies: active and passive. The first requires the direct involvement of the investor – or that of an expert on his behalf – to know where to invest at any given moment based on a constant analysis of the market. Passive investment relies on the long-term upward trajectory of the market, so it is limited to replicating its profitability, with much less effort.
At Urbanitae, we combine the two approaches. On the one hand, a team of experts is in charge of selecting the projects that make sense to finance. They do most of the work. But it is the investor who decides: once a project is published, the investor can consult all the information available about it and decide whether to invest in it or wait for a more convincing investment opportunity.
In this article we tell you what the first part of the process is like. That is to say, how a real estate project becomes an Urbanitae project.
How Urbanitae chooses its projects
The team in charge of filtering the projects that reach the platform is Real Estate. In addition to the numerous proposals that come to us through the contact form, many projects come directly to us. Having already financed almost a hundred projects with more than 50 developers, we are known to be a reliable partner. Sometimes it is the bank itself that recommends us to the developers.
Once we have the proposal, we analyze four key points to determine whether the project qualifies for financing on the platform.
Everything starts with the developer. At Urbanitae, before evaluating a project we look at the promoter’s past and present activity. That is to say, we check that he has the proficiency needed to manage a project like the one we are considering. If the development is interesting but the developer does not have experience in the area or the specific type of project, we sometimes propose the figure of an associate developer who invests in the project or participates in the fees.
Another key aspect for us is the developer’s access to financing. In many of our projects, investors provide the necessary capital to buy the land or bear the costs of starting construction until the developer loan arrives. For this reason, we check the developer’s relationship with the banks by talking directly to the financial institutions.
Another key factor when approving a project is that the selling prices make sense now, not in the future. To this end, we check whether these prices are in line with the market and ask for an external valuation from the real estate agents (APIs) with whom we collaborate throughout Spain. In capital gain projects, we incorporate an independent appraisal report into the project documentation.
In addition, we need to verify the degree of commercial progress of the development. The best demonstration of the attractiveness of the project is that it already has a reasonable degree of sales or reservations. This percentage of reservations is also essential to obtain the developer loan necessary to complete the project, and is usually around 50% or above.
Another of the key points of a project is the building permit due to its importance in terms of deadlines. The ideal situation is for the project to already have a license, but this is not always possible. In this case, at Urbanitae we verify that the deadlines indicated by the developer in his business plan are plausible -and we usually adjust them upwards, out of prudence-. In this case, we talk directly to the authorities to verify this.
Assessment of the construction works
At the same time, we check that the construction costs proposed by the developer are reasonable. In this case, we incorporate external project monitoring. That is to say, we validate, with an external agent, the technical, administrative and economic viability of the project; this external agent also verifies the correct development of the works through periodic reports.
The investment committee
Once these four points have been verified, if the conditions are good, the project is submitted to the evaluation of an investment committee, which meets every week at Urbanitae. This committee reviews the four main areas we have outlined with the added input of independent experts. It is not necessary for the project to be approved at the first meeting. However, to get the green light, the committee must approve the project unanimously.
The selection of projects in Urbanitae is a fundamental point, since our reputation is linked to them. Although we insist that the returns achieved in the past do not guarantee those obtained in the future, the truth is that our investors greatly appreciate this selection process. In other words, they are confident that if Urbanitae has given its approval, the project will be a good investment opportunity.
This is what makes us maintain our level of demand and prioritize not so much the profitability as the security of our investments. For the moment, our results and the valuation of our investors are our best guarantee.