Prime position: Exclusive interview with CapitalRise’s Uma Rajah
CapitalRise chief executive Uma Rajah talks to Marc Shoffman about choosing the right loans and building trust among investors…
The property market may be slowing but that hasn’t stopped CapitalRise from attracting new customers to its development lending platform. Co-founder and chief executive Uma Rajah explains how a focus on prime central London and the home counties has helped navigate uncertain times for bricks and mortar and why this sort of proposition is so important for investors.
Marc Shoffman (MS): What trends are you seeing among CapitalRise investors and borrowers?
Uma Rajah (UR): Business is going very well – our loan book and investor base continues to grow.
Rapidly increasing interest rates mean we have had to adjust our pricing on both sides. That extra revenue has been passed on to investors, which has helped us adapt to the current rising interest rate environment. The fact that we continue to grow our business on the investor and borrower side is testament to the attractiveness of the product.
One of the things that makes us different to other lending platforms is the quality of real estate and the part of the market we focus on. We focus on prime residential real estate. The majority has always been in prime central London (PCL), so most of our loans are around Chelsea, Belgravia and Knightsbridge. The rest is spread across prime outer London and also the home counties which is growing significantly.
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Because we focus on this part of the market, it is a unique and different dynamic to the rest of the market. PCL is resilient and is a solid investment proposition. The average loan to value is still around 63 per cent. We are very comfortable with lending at those sorts of levels. PCL has been in decline since end of 2014, yet we have been happily lending and redeeming loans, we have been doing a relatively good job of finding the right loans to back in a period of decline.
MS: Have you changed your approach?
UR: We have always been conservative and picky about our loans. We focus on intense due diligence. Certain things have been adjusted, maybe the level of focus we give on certain criteria, we look carefully at build costs and the contingency put into facilities so there are healthy buffers if things go wrong.
It’s not that we are doing anything different but there are areas where we are more laser focused. Only one per cent of applications get all the way through to our pipeline.
MS: You were involved in National Savings Week during September, why is that important to you?
UR: It is important to highlight that we are an investment platform so capital is at risk. But what is important, and what we are seeing, is that people are looking for places to get attractive risk-adjusted returns. Even though interest rates on savings are hugely attractive compared with 24 months ago, they are still way below inflation.
If you really want to grow your money, a lot of people are looking to invest. Our products are popular. In the current environment there are things that appeal, we are able to offer attractive risk-adjusted returns and the underlying investments are secured against real estate that we consider high quality. In a worst-case scenario, we have ability to step in and force the sale of an asset. An asset-backed investment with physical security is appealing at times like these. We have not had any losses on any projects, and we are very happy with that.
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Development finance isn’t a walk in the park. You have to manage loans very proactively. We hire independent third-party professionals to help with that and we have project managers to get early visibility on any issues. In addition, my team will go out on site on a monthly basis. There is an extra layer of diligence that comes with the way we monitor our loans that has stood us in good stead.
We have done around £300m of lending now. We are proud of this as we had to survive Covid which was a difficult time for developers. They have all redeemed in full. It is important to have tight monitoring processes and work closely with our borrowers. It is in both our best interests for the loan to perform so we take a collaborative approach.
MS: Who are your typical investors?
UR: We have a broad range of investors on the platform. We fall under speculative illiquid securities regulation rather than peer-to-peer lending so our clients are high-net-worth, sophisticated investors. We do not market to everyday retail investors.
Our minimum investment amount is £1,000, some will put that into a range of loans, while larger, more institutional-style investors will allocate greater volumes of funds. Because we have a deal-by-deal model, investors can pick their own loans and create a portfolio that suits their preferences and risk appetite.
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MS: How important is the Innovative Finance ISA (IFISA) to your platform?
UR: We were one of the early adopters of the IFISA and launched in February 2017. It has always been an attractive product for people that enables them to invest in a tax-efficient way.
Our ISA volumes continue to grow. This year to date, we had a 115 per cent increase in the number of ISA accounts opened compared with the same period the previous year. That is quite a good indication of the increased appetite and interest in our proposition.
We see a relatively good proportion of ISAs transferred from other providers. These are people who are active investors keeping an eye out and they will move their ISAs around if they feel they are not getting what they want.
MS: What is driving the increased IFISA interest?
UR: We are unique in that we provide investment opportunities in certain postcodes that aren’t available anywhere else. The fact that we have delivered so well to investors means we now have a track record that encourages people to build trust and then tell other people and invest more of their portfolio. That growing track record and confidence that is being built among our investor base helps create the increase in numbers.
MS: Is there enough awareness of IFISAs?
UR: There is a lack of knowledge, which is understandable. As an industry, we should do better by talking about it as much as we can. If someone onboards with us we can then talk about the product range.
I hope the IFISA will grow. It is a relatively new and nascent product in what is a small sector. It is a niche within a niche so its natural that it will take time for awareness to grow. Hopefully our investors talking to people they know will help.
