Property development lending

My starting point would be to say that I'm not a professional in private lending. My background is macro investing, mainly in EM FI/FX. I would posit that I have no competitive edge in P2P, so perhaps I shouldn't try to 'add alpha' by active investing (say via "loan picking"). I should take a passive approach; building a diversified portfolio of loans to capture the beta of the P2P market. In many ways this is analogous to my equity investing; I generally buy index trackers rather than engage in "stock picking". This still argues for setting concentrations limits to enforce diversification levels across a number of factors (say sector, platform and a single borrower limit). 

Given the above statement, I then break those rules! Partially that's a tendency to tinker but there are some rational justifications. First, the benefits of diversification aren't just a function of the number of loans. It's a function of the correlation between those loans. It's not at all clear to me at this stage what the correlation structure of P2P will look like, especially in a stress scenario. Second, on some platforms the quality of loans is rather variable. I don't think sectors such as high-yield development lending can be easily scaled. To increase origination volumes, without dropping yields, the platform will have to present increasingly high risk propositions. Taking exposure to all these loans would suppress returns. So my concern is that by over-diversifying I could end up accumulating poor quality or highly correlated loans ("diworsification"). The third reason I don't want to be 100% passive is that is that the P2P market hasn't been at all efficient. Loans are often priced to liquidity rather than credit risk. Some P2P sectors seem more attractive than others, favouring tilting toward better value sectors. Investors clearly have different aims and objectives, creating distortions and opportunities that can be exploited. This all argues for active investing.

So my actual approach has been to diversify across investment strategies where possible. I feel this is actually more effective that just diversifying across more loans. Examples might be:
a) Buy-and-hold approach. Uses "loan picking" (i.e. your DD), mainly on platforms that provide the most borrower information (AC, TC say). This strategy tends to deliver a more concentrated portfolio (as I'm rejecting 80% of loans). 
b) Underwriting. The aim here is simply to rotate capital to collect fees, while hopefully maintaining liquidity. DD to make sure loan is decent and will be popular with investors. AC and TC have been used for this.
c) Trading: Some platforms like FC and SS were suited to an automated algo/rules-based trading strategy (zero DD). On FC it was buy in primary, strip cashback, sell for small cap gain. On SS it was buy in primary, stripping interest for six months and then sell three months to redemption.
d) Passive: Where I don't see any way to generate an edge I go passive. A good example was LendInvest. Given the paucity of the loan info provided, the nature of their product (mostly property in SE England) and the lack of an SM, it became clear that picking loans was futile. Far better just to invest in their SICAV fund but with a higher return and some liquidity. FCIF and the new form of FC are good examples of this option if you like it. 

To be fair though the above is getting harder as opportunities close, and I'm tending back to option (d) passive diversification. 

In terms of something I'd be willing to hold, I'm not sure whether you are on TC, so I'll go for PBL92 (now DFL12?) on SS. The basic proposition seems sound (vulnerable to collapse in the student flat bubble but that's inherent in the project). Location decent. The developer has achieved pre-sales (this means it's not a first charge but I prefer to see sales/pre-lets on development projects). It could still default but the risk is less here and the downside recovery scenarios would probably on result in either no loss or a modest haircut. Biggest reason not to hold more of the loan: the platform it's on!

I suppose if there were any there would be no p2p.

Probably none Hey man, can you borough me 700k, there is a field with barn on it going cheap, I'll knock it down and build a castle, when I'm done with me plan it will be worth 1m, thrust me man I have 15 years experience and stuff... when the bank says no they turn to Ly.

I think GDV should be banned from headline figures.  It can easily mislead. LTV should be tightened too - not what the security may be worth, but what you can realistically sell it for.

One or more Surveyors are surely going to swing in the not too distant future?

Too many people are about to lose too much money when they made informed decisions based on formal information which contained downright lies.

Lies, in fact, which were often unmasked by using basic schoolboy techniques.

A further "in fact", does such a scenario count as fraud?

I fear it may be even worse than that. I think that in many cases the QS's client is the borrower not the platform.

Yes, we've seen that many times.  And it's really not on.

Perhaps not the best thread to post this into but I came across this from Bridging & Commercial (www.bridgingandcommercial.co.uk)....
www.lenderindex.co.uk

Features COL, FC, Kuflink, LI, Lendy, Octopus among several others