What types of equity projects are there in Urbanitae?
At Urbanitae, we finance three main types of projects: capital gains, debt, and income. You may often hear us talk about equity projects as synonymous with capital gains projects. However, this is not a perfect equivalence. All capital gains projects in Urbanitae are equity, and all equity projects are capital gains… but not only capital gains. In this article, we explain the differences.
The first thing to say is that the term equity refers to the structure of the project. There is no single translation in Spanish. We could say that equity refers to a company’s own funds or share capital. In general, it is often used to refer to shares: for example, if a company has a total of 100 shares and a shareholder owns 10 of them, their equity would be 10%.
This equity of the shareholders would be the amount of money that would be returned to each shareholder if all the company’s assets were liquidated and all its debts settled. This definition brings us closer to the concept of equity that we handle in Urbanitae’s equity crowdfunding projects.
Equity projects: what are they?
Until 2023, Urbanitae only had one type of equity project: capital gains projects, which were—and still are—our specialty. In these projects, developers seek equity partners, i.e., investors who contribute capital to develop a specific project, generally before the arrival of the development loan. It is common for these funds to be used to purchase the land, which banks do not finance.
In equity projects, therefore, Urbanitae investors and the developer become partners. To do this, a limited company—a SPV—is created with the contributions of both parties. Therefore, all are shareholders in this company created ad hoc to develop the project. In other words, all have equity. As partners, investors and the developer share the profits at the end of the project, once the company is dissolved. The profits generated are the capital gains. Hence, we talk about capital gains projects.
Income projects: capital gains or equity?
Now, since January 2023, Urbanitae also offers the option to invest in income projects. In this case, we are talking about investing in real estate assets leased to creditworthy tenants. The attraction for investors lies in security: these are properties, generally commercial premises, in good locations with leases indexed to the CPI and with mandatory compliance periods. The first source of profitability for the investor is, therefore, the periodic dividends that come from these rentals.
But there’s more. Income projects also have an equity structure. Investors become owners of the asset. Again, a specific vehicle company is created for the purchase of the asset, which will own the property until its sale. At Urbanitae, an income project has an investment period of between three and five years. And what happens afterward?
In income projects, the second source of profitability for the investor is the sale of the asset. Once the business plan is fulfilled, the asset will be sold, an operation from which a capital gain is expected. Therefore, income projects are also capital gains projects, although the profitability they offer is lower, in line with the lower risk assumed by investors.
Thus, there are two ways to invest in real estate equity with Urbanitae: income projects and capital gains projects. Each has its advantages and disadvantages, but both are good alternatives to make our savings profitable. If you haven’t done so yet, we encourage you to try it. And if you have any questions, you can contact our Investment Management team at contacto@urbanitae.com or by phone at (+34) 911 23 25 22.