Mayfair & Morgan launches online crowdfunding platform (Topic of the Month – Technology)
Paul Skillen is the founder of the international property management and investment firm Mayfair and Morgan, which has just launched an internet-based crowdfunding property platform, allowing members to invest in portfolios from as little as £1,000. He spoke to Today’s Conveyancer about why he believes people should get involved with crowdfunding and other alternative financing models…
How’s the launch going Paul?
"We launched two weeks ago and already we’re signing up 10-15 members a day. So the reaction has been positive and we’re off to a strong start."
Crowdfunding in the property market is a really new initiative — who else is offering it?
"The concept isn’t actually new — the first property that was crowd funded was the Statue of Liberty, by Joseph Pulitzer in the 1880s. He had his newspaper empire and because of that he had reach and through ‘a dollar here and a dollar there’ the statue, which had run out of funding, was completed.
"Two years ago a couple of American companies launched property crowdfunding initiatives and their endeavours have grown exponentially. So we are effectively modelling ourselves on what they have done. Bur, while other businesses have launched sites looking at crowdfunding property in specific countries, we are building a Pan-European programme. And I believe we’re the first company to do that.
"Right now I’m in Madrid, for example, which is suffering because property projects are struggling to get financing from the banks, which have been left with a glut of properties on their hands. There’s a big programme of repossessions and foreclosures here. So, instead of making property investments, the banks are trying to get rid of properties. And that’s where crowdfunding and new financing models are appealing. More than that, in fact — they’re vital to keep the market moving."
How does the Mayfair and Morgan crowdfunding platform work?
"Crowdfunding is new so people are approaching it in different ways. We have historically been in property investment so, unlike other crowdfunding schemes, we have a number of portfolios available that we’ve acquired which are tenanted and managed and already generating stable income, mainly in provincial UK and Ireland at the moment — although in the longer term we’re looking beyond that.
"Investors put their money into portfolios made up of five properties and, as soon as each portfolio is fully funded, they effectively own a share of all the properties in that portfolio, spreading any risk.
"But what’s important about our model — and what will give our investors confidence — is that we, at Mayfair and Morgan, are putting our money into the portfolios as well. So we don’t have clients — we have co-investors. We’re putting our properties into packages of five houses that we’re already managing and maintaining with a company structure and company law behind them."
What sorts of dividends can people expect?
"We structure our portfolios in such a way that we expect our co-investors to receive 5-6% dividend annually. And, as we hold each portfolio for five years — we put it into a special purpose vehicle and manage it —across that five year period we expect capital growth of between 8-12%. So each year an investor’s money is increasing in the range of 12-15%. At the end of five years we sell the properties and return the capital gain to our investors. So it’s quite a traditional model — with the crowdfunding twist.
"I’ll be clear though — we’re not going down the road of flipping houses or of speculation. Our aim is to keep our property portfolios very stable — in many ways, very dull — and I don’t apologise for that. We are putting out stable, predictable investments that people can buy into. To build our business up we have to show people solid returns year on year — unless we do that we’ll run out of steam very quickly. So our focus is on getting a good return for our co-investors and the more people we get involved the more we can do that."
Do you think crowdfunding is opening up property development to everybody?
"Our opening level is £1,000. Historically, to invest in property, people had to have a sizeable deposit — and obviously that’s increasing by the year — and had to be prepared to take on a long-term commitment. As for dealing with portfolios that was the preserve of professional investors.
"So yes, we are offering the general public a new and different approach to property investment and key to that is the reach that social media gives us.. Now we can reach 3-4000 people and tell them about our portfolios whereas before it might have been the devil’s own work to reach three or four."
Are you seeing a different type of investor coming forwards through the crowdfunding?
"It’s too early to judge but I do think we are going to attract people who see the potential for residential property in provincial UK and parts of Europe that are coming out of recession. So far we’ve had investors with £1,000 and investors from Hong Kong with far larger sums of money. And the attraction for them is that they can invest in property without having to be particularly involved in it. It’s a passive investment with good rewards."
Why do you think the crowdfunding model is relevant right now?
"The banks are still licking their wounds — they don’t have the appetite to lend money. That’s not to bad mouth the banks — I understand that they are coming out of a very difficult period and having to tidy up their balance sheets. But still, people want to invest. And there’s certainly no shortage of appetite on the developers’ side — within a fortnight of launch we had four approaching us."
Do you think the crowdfunding model in the property market will become more common?
"That’s why we’ve launched it — I can see lots of people getting into it and, in the fullness of time, even one or two of the more traditional finance houses taking a look."
Have you ever contributed to any crowdfunding projects?
"I haven’t. I’ve always looked at the different sites and I was interested in how crowdfunding became a phenomenon and was used for charitable and social events. I was struck by the idea.
"But as for contributing myself to films or new technology — well, I’m a property chap through and through and I’ve always been focussed on that so investing in technology start-ups and movies struck me as speculative. They’re not areas I have a particular appetite for.
"But the basic model really appeals to me — the reach and the spread of it, thanks to social media. I read a report by a Cambridge University academic examining methods of alternative finance, including peer-to-peer lending and crowdfunding, and it found that the market was growing by 75%. That’s incredible."
How long have you been in property?
"I was 25 when I bought my first house — so that’s 25 years ago. I wanted a house in an area of Ireland I couldn’t afford so I managed to buy a tumble down — then I set about tumbling it down and rebuilding it. And that’s been it ever since — building and investing and investing and building.
"Of all the things I’ve done in my life, property is always the one that gets me most excited. When I drive past that first house in Ireland now, I experience a real puffing up of the chest. It’s a modest house but the satisfaction I gain from seeing it is immense.
"We now have a portfolio of properties we rent out and, again, and I personally gain a good deal of satisfaction from providing people with homes. Obviously we’re not running a charity but we’re providing a service and I take pride in that. Business is about sticking to the fundamentals, knowing your industry inside and out. Focus on the fundamentals and in the long run it will work out well. Of course there are always bumps in the road — there may well be with crowdfunding — but that keeps it exciting."
What bumps do you think could come with crowdfunding?
"As we reach critical mass I imagine there will be a debate about whether crowdfunding for property is a good or bad thing. There was a recent article in The Times asking whether it will create an artificial property bubble. All this will be thrown at us so we have to be mindful of that.
"But one of the challenges I see to the economy in Europe is people’s attitudes. I spend a lot of time in Dubai and there’s this ‘can-do’ state of mind there, but across Europe —well, people need to get enthused again. There needs to some positive momentum happening. And if we get that started in the property market it will play on through to all aspects of people’s lives."