Audrius Visniauskas
Audrius Visniauskas

Why there are no new Skin in the game projects?

May 14, 2020

The depth and length of economic impact due to COVID-19 remains not clear. Even though the stock market has almost recovered and is trading at 2019 October levels, we do not see the world and economy the same as we did 6 months ago.
 

 

 

The rising curve of new cases has been flattened and most countries have started to revitalise the services. However, there is still a risk of a second outbreak, which could roll the lockdowns back. When the lockdowns will finish and businesses will reopen, for some it will be too late and they will not be able to pay the bills - and that in our opinion will start causing the domino effect.

Airbnb, a socially responsible business, decided to lay off 25% of its employees and other socially responsible employers will have to do the same. This way the domino effect would start, as people who are paid an above-average salary are the buyers of residential Real Estate. This means that the volume of the residential Real Estate market could have a negative effect.

Even those, before the COVID-19 who were planning to buy properties and already had the cash and credit ready, after the lockdown they are likely to postpone their decision. Such a decision, sometimes might not be financially related, but rather psychological, if the uncertainty will remain, people will not want to tie up in longterm commitments.

While looking at the global Real Estate trend, we can already see a strong shift to remote work philosophy. Being a fully international team at EvoEstate, we have already implemented such practice from day one, therefore we are able to continue working without any interruption even during the lockdown. However, for some this is new- Twitter, a $25 Billion Tech giant, will let employees work remotely forever. While remote work has already been trending in the tech scene, it’s safe to assume that even traditional businesses with innovative and modern management teams will begin to practice this. Consequently, this will have an influence on the commercial Real Estate market.

The Real Estate market usually lags behind the stock market to market fluctuations. In simple words, we did not see a 35% drop in real estate prices. In reality, even the people who wanted to acquire couldn’t due to the lockdown and some of the deals that EvoEstate helped to co-finance are not an exception.

We are patient and cautious - while we remain the only Real Estate Crowdfunding Platform where investors' interest comes first. When we started out the company and people would ask what we are aiming to achieve, we always said that we are not the first ones who do real estate crowdfunding, but we are the first ones to build an investors-focused crowdfunding platform. Currently, all the market participants have introduced high fees on the Secondary Market, while we have kept 0 fee model and intend to do so.

As we have written personal emails for our top investors, we expect high-quality Rent and Equity deals to appear soon and only when we are confident we will pull the trigger.

The good Rent deals might come fastest as some property owners will be forced to sell the asset, either for preparing cash to protect other business or due to missing mortgage payments.

The good Equity deals might take longer to appear as the fundamentals of equity deal are cheap land and a good business plan. As with the rent example, there might be good land deals coming, but the business plan (lower demand) is still a tricky part.

 

 

 

For the fixed interest loans based one their sub-types we have the two following approaches:

  1. Development loans have become riskier, due to the possibility of price and demand decline. Especially mid-phase loans have elevated risk because no buyer will want to purchase a half-built house.
     
  2. Bridge loans- We are looking for this type of deals and they have to meet both of the criteria:
    A. A strong underlying asset with low LTV or high liquidity.
    B. Clear repayment strategy, which would be better from non-real estate activity.

As the investing rule says to buy when everybody is fearful and sell when everybody is greedy. We do not see people fearful yet.

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