davidg
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Post by davidg on May 14, 2014 9:34:26 GMT
I'm considering investing through Wellesley, but one question I have is why would I invest in property debt through Wellesley, rather than say through an Property Debt Investment Trust?
For example, ICG Longbow UK Property Debt (LBOW), its objective - "To invest in a loan portfolio of senior loans to property investors secured on UK commercial property with some potential exposure to UK investment residential property with a target IRR of 8% per annum.". With maximum LTVs of 65% and no subordinated loans, LBOW business doesn't look too removed from Wellesley's.
Other Property Debt Investment Trusts such as Starwood European Real Estate Finance (SWEF), Duet Real Estate Finance (DREF) and Real Estate Credit (RECI) do seem to play in a higher risk / higher potential return part of the market with a mixture of senior secured loans, mezzanine debt and junior tranches of structured loans, so are not directly comparable to Wellesley, but I'm still interested in people's views.
Why Wellesley rather than LBOW (or the others)? Comparative risk, return, liquidity?
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spiral
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Post by spiral on May 14, 2014 9:58:40 GMT
The first one that springs to my mind is if Wellesley goes belly up, you still own the underlying loans and your repayments will still be collected and distributed. In real terms this is still a bit of an unknown as it has not yet happened to one of the bigger players (and we hope it never will).
With the IT the assets i.e. loans will be owned by the company and if that goes belly up, the administrators will take control and decide who gets what and the shareholders will be very low on that list so in short, with the IT you are taking a much greater capital risk in my opinion.
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Post by davee39 on May 14, 2014 10:00:15 GMT
Very different propositions.
Wellesley is likely to be more liquid and investments have a degree of cushioning. Capital has some protection and a known value. As far as I can tell these are Bank type loans.
I have never heard of the trusts you mention, but investment trusts in general are market traded instruments. Property trusts can be difficult to value in a crisis and could fall to a massive discount to notional asset value. It is even possible that the market could seize completely. Furthermore these highly complex instruments are mainly designed to enrich the investment bankers who create them, rather than the organisations who buy them, and I suspect they are aimed at institutions. Of course if you are a HNWI (High Net Worth Individual) you would fall in the target category.
If fingers do get burned in P2P I suspect it will be the rush into property by unsophisticated savers tempted by the yields and without understanding the risks (which are often glossed over), fueled by talk of a property boom.
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Post by batchoy on May 14, 2014 11:59:11 GMT
I agree with spiral, with Wellesley you are dealing directly with the lending organisation, as they state as part of their USP they have a percentage of their own money in their loans and since the loans are assigned to you should Wellesley go belly-up the loans will still exist. Looking at the Property Debt Investment Trusts they look like Mortgage Backed Securities, you are several steps away from the actual loans so have no idea what the properties the original loans were made on, who made them and how much of their own money is actually tied up in the loan. The major flag for me is that you only have to add the word 'sub-prime' in the front and you have the one if the key causes of the current financial crisis. |
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Post by wellesleyco on May 15, 2014 11:34:06 GMT
I may just jump in and say that our minimum investment is £10 and we do not charge any fees to lenders. I am unsure of the specifics of these exact funds but for the lenders (investors) I reckon we are more accessible.
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james
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Post by james on May 15, 2014 19:21:57 GMT
we do not charge any fees to lenders. While true for direct fees, that's misleading because the lenders are in effect paying anyway, just indirectly. The measure I use for this is total interest, fees and all other costs paid by the borrower except protection funding less all interest and other non-capital money and losses to defaults received by the lenders. That gives the cut of borrower costs that the lenders get and illustrates the total overhead of the intermediaries and all service providers that they use. For Zopa I think it's currently well in excess of 50% going to Zopa and other service providers. For a typical bond fund I expect it's more than 25% (1% or so TER plus assorted other costs being taken out of I assume 5% or so underlying bond yield). I'm not happy with the costs disclosures of any P2x firm. All seem to bury margin somewhere in their pricing and not disclose some part of it or its actual impact on the revenue split between provider and lender.
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davidg
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Post by davidg on May 21, 2014 15:44:26 GMT
Thanks for all your comments. For what its worth, here is my comparison.
Wellesley & Co:
- Liquidity - not tested. Who knows how they would cope with a run on their assets following a property price crash?
- Complexity – Wellesley’s web site contains a lot of reassuring statements, but very little hard fact.
- Details of loan book - Maybe I’ve not looked in the right place but I can’t find any details of loan book on the web site apart from the overall Lending Statistics
- Dealing directly with the lending organisation – yes, exactly the same for both propositions
- Minimum investment – £10
- Fees – entirely opaque
- Return – Wellesley “guarantee” rates
- Lending to - Retail Property Investment & Development
- Weighted average loan to value = 58% (21 May 2014)
ICG Longbow UK Property Debt (LBOW) investment trust:
- Liquidity - as for any investment trust, selling your shares is unlikely to be difficult, but the market may force you to sell at a (possibly significant) discount to net asset value
- Complexity – the LBOW annual report makes their set up pretty clear.
- Details of loan book – Annual report clearly describes loan book.
- Dealing directly with the lending organisation – yes, exactly the same for both propositions
- Minimum investment – for practical purposes eg. trading & platform costs, I would suggest a minimum of £1,000 seems realistic
- Fees – 1.0% of net assets
- Return – LBOW aim for a “dividends of circa 6%” but make no guarantee of returns
- Lending to – Commercial Property investment
- Weighted average loan to value = 61.66% (31 Jan 2014)
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pikestaff
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Post by pikestaff on May 22, 2014 8:06:59 GMT
And you can put the investment trust in your ISA today. P2p unlikely before next April.
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Post by wellesleyco on May 22, 2014 10:58:23 GMT
davidg. Thank you for your comparison. May I just make clear one or two points. - Return – We do not ‘guarantee’ rates as it is not legal to do so. No Peer-to-Peer lending platform is legally allowed to guarantee a return. If you mean ‘Fixed’ then yes we believe it is beneficial for customers to know exactly what return they are expecting to see and when. (not ‘Circa x%’) - Lending to – ‘Retail Property investment & Development’. We lend on Residential (Not retail, retail property is more formally known as shops.) and do look into commercial property lending also however to date have not found a loan suitable for our lenders. Without much knowledge of the Longbow Investment trust it is difficult to comment on it specifically. What I would suggest is that a diverse portfolio of investments is a sensible way of spreading risk.
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davidg
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Post by davidg on May 22, 2014 12:13:27 GMT
Agreed, I used the wrong term. I should have said "Residential Property investment & Development"
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