Effective project management in the midst of the COVID-19 pandemic
Our series of success stories takes us this time to the year when we began operating as a platform authorized by the CNMV: 2019. In October, we launched a financing project for the development of a new residential promotion in the urban center of San Sebastián de los Reyes (Madrid).
Promociones Barrio 2005 was the promoter of the project, a company specialized in small and medium-sized promotions with an exclusive product offering in the Community of Madrid. In this case, it involved the construction of ten houses, eight parking spaces, and ten storage rooms in a consolidated residential location north of the capital. A strategic enclave, where the demand for affordably priced apartments for young people is very high, as well as retail investors looking to buy and rent homes.
The operation was structured through a company established exclusively for the project. A capital increase was carried out where the promoter contributed the land and part of the capital, becoming the majority shareholder of the investment vehicle, with 58%. In this way, by investing their own capital, the interests of all parties involved in the investment are aligned. Meanwhile, 41 Urbanitae investors contributed the remaining capital needed for the project – 900,000 euros – representing 42% of the investment.
Additionally, the project had a preconceived developer loan for financing the work, once the building permit and a percentage of sales were obtained.
Change of strategy to ensure the operation
The development of this promotion was conceived during a period of great impact on the residential real estate market, such as the COVID-19 pandemic, which emerged at a time when the market cycle was in a mature phase. Therefore, the final success of the project is even more relevant.
In this sense, the promoter was forced to change its strategy due to the situation and decided to “patrimonialize” the asset: it chose to buy the shares of all Urbanitae investors with a 10% appreciation and liquidate the investment. The promotion works had already started when the pandemic broke out, so the promoter had no possibility of securing pre-sales, which was one of the requirements for financing. At that time, the solution was viable due to having a small number of investors, and it being an exceptional situation. This way, the promotion could move forward, ensuring the money of our investors.
The initial estimated profitability was 27% over a period of 22 months with a 15% IRR. Finally, although the total return for investors amounted to 10% due to the reasons mentioned above, the execution period was advanced by 10.5 months, with a 10% IRR.
2nd project with Promociones Barrio 2005
Promociones Barrio 2005 once again placed its trust in participatory financing and Urbanitae with the launch of a new project. An operation that marked a milestone in the platform’s history by exceeding, for the first time, the barrier of 100 investors in a project. In this case, it is a residential promotion of 30 new-build homes, located on Paseo de Extremadura (Madrid).