Carrick Developments - advertising

These ads keep popping up when I visit the forum: https://www.carrickdevelopments.com/invest

Does anyone know much about this outfit?

I've invested some money with CapitalRise which is a London-based real estate investment portal running a similar concept and done well out of it so far.

 

I would not invest. If any of the developers go bust, then you are years away from recovering your money, if you recover your money at all.

The fact that they are paying you 12% p.a. means the developer is probably paying 16% p.a. after margin. This means they are unable to secure funding for anything less than 16% p.a, in this easy financing market. This is the exact definition of "high risk" borrowers that you do not want to lend to.

"If a deal sounds too good to be true, it is."

 

When perfectly good lenders like me are lending directly to developers for 10% with 24 hour turn around. I would hazard to say that there is very little intention to pay back if they are offering this kind of money. In return this is only my opinion and you should always do your own research.

 

suggest you do your due diligence if they have done similar development projects before and ask for references who invested in the past.

 

Hi All,

I am the Managing Director of Carrick Developments. Apologies I am a year late in replying to this, but I have only just seen it.

We can easily obtain senior debt on our projects from private construction lenders up to ~80% of project costs, at an all in rate of around 7-9%pa. Banks are cheaper still, but not worth the hassle of dealing with. The purpose of this offer is to raise cheaper and more flexible mezzanine finance.

As a quality development project should be producing at least a 20% return on costs, with the developer contributing 20% of the costs in equity, you should be doubling your money over the course of the project. For example, if a project has total costs of $10m, with $12m of revenue, there is a $2m project profit. If the developer contributes $2m of the cost in equity, with the rest borrowed, then $2m profit on $2m of equity is a 100% return on equity. If a project takes two years to complete, this would be a 50%pa return on equity.

A mezzanine loan is a loan that sits between the senior lender's loan, and the developer's equity. It is riskier than the senior loan, but not as risky as the equity. As a result, the return is higher than the senior lender, but not as high as the developer's equity.

The market rate for mezzanine finance to quality development projects is currently around 2-3% upfront in line/application fees, then an interest rate of 16-20%pa, for a combined/blended rate of roughly 19-23%pa. Even though the raw figure seems very high, as the developer should be targeting a 40-50%pa return on equity, it makes perfect sense for a developer to involve mezzanine finance in their projects, even at these rates.

Our public offer allows us to secure this mezzanine finance at a rate of 12%pa, so almost half the cost of mezzanine finance from a traditional lender. Contrary to Lucidity's comment, there is no margin on top of this as we raise it directly from investors. From our point of view as a developer, we obtain much cheaper and more flexible mezzanine finance, and improve our return on equity even further. From an investor's point of view, they get access to a much higher return than they can get elsewhere. Mezzanine debt funds offer these kinds of returns, but are typically only open to institutional investors.

Of course, an investor does take a higher level of risk in investing in a mezzanine loan versus senior debt. However, we only involve investors' funds in a project after construction has already commenced and the project has been substantially de-risked. By that stage, costs are largely fixed - the land has already been purchased, the construction price is locked in through a fixed price build contract, and all other costs are known. Revenue risk is substantially reduced because we will typically have pre-sold at least 50% of the units.

Taking my example above of a project with $10m of costs and $12m of revenue, let's assume instead that a senior lender contributes $8m of the cost, Carrick investors contribute $1m, and Carrick as developer contributes $1m of equity. There is a $3m buffer in place before Carrick investors are in any way threatened with loss (i.e. you would need to eat through $2m of profit and $1m of developer's equity first). That's a 25% deviation from the feasibility. With revenue and costs largely fixed by that stage, it is unlikely (though not impossible) for that to occur.

Regards,

Ryan