Commercial Property P2P Lending - 2016

For more information please call+44 (0)203 397 8290, email us at admin@proplend.com or visit www.proplend.com
Peer-to-Peer Commercial
Property Lending
Why Commercial Real Estate Debt is the Perfect Partner for P2P
Lending
Retail OfficeIndustrial

INTRODUCTION
1
Peer-to-Peer Lending,also knownas LoanBasedCrowdfunding,is the process of
connecting investorsdirectlyto borrowers,circumventing traditionalbanks andfinancial
institutions. This new asset class offersdiversificationandattractive yields to investors,
especiallyin this current long-termlow interest rate environment.
Peer-to-Peer Lending (P2P Lending)has undoubtedlyrevolutionisedthe traditional
banking and lending industries.The introductionof new technologyandthe ability to
draw and process informationquicklyhas left the traditional finance sector napping.
At Proplend,we continuouslyapply the latest technologies,adopting themalongside
traditional lending models to ensure our offering is as efficient,transparent andinclusive
as possible.
The number of P2P Lending platforms continues to rise andchoosing whichone(s)to
invest throughcanbe a difficult task.
Whyis commercialrealestate debt the perfect partnerfor P2P lending?
It providesa well documented incomestream(lease)plusdownside capital protection
fromthe security (the property).
What will your investment be securedby? A income producing commercial property with
a Tenant usually ona FRI (Full Repairingand Insuring) Lease,unlessotherwise stated.
How will you be paid monthly interest? Rental Income fromthe property.
How will your investment be repaidat the end of the termof the loan? A property
can be sold or refinanced.
It’s simple.Commercial Property Peer-to-Peer Lendingplatformsare potentially oneof
the safest and should not to be ignored.

Commercial Real EstateDebt (CREDebt)has along historyas an investment categoryin
institutional investors portfolios,but in the UK, CRE Finance has beenpredominantly
offeredto borrowers bycommercialBanks who retainedit on their balance sheets.
At its simplest,CREDebt is an investment securedoncommercialproperty,comprising
an agreement betweenthe borrower andthe lender,in which the borrower makes
periodic payments to the lender and then repays the loan in full at the contractual
maturity.
Since the financial crisis,banks,for a varietyof reasons (regulationaffecting regulatory
capital ratio requirements,leverageratio limitations & legacyasset concentration)have
vacatedthe market theyusedto dominate.Most notably in the sub £5mcommercial
investment loansector.
This has left many credit-worthy,successfulBorrowers struggling to find suitable sources of
capital to refinance existing loans,whichis where P2P Propertylending has foundits
niche market.
CRE DEBT
2

There is approximately £200 billion of outstanding CRE debt in the UK. 25% of which is in
the sub £5msector andrequires refinancing withinthe next 2-5 years.
Lending for commercialproperty,inthe UK, has traditionally beendominatedby banks,
which accountedfor c.90%of the market.At the height of the market,in the run up to
2007,there were 55-60 banks,building societies andfinancial institutions activelyservicing
this market.Todaythere are only around10 - 12.There is a clear dislocationin the supply
and demandof funding available and required.
Following the financial crisis, banks have increasingly withdrawn from commercial
lending due to severalfactors:
• Stricter capitalrequirements
• Deleveraging of balance sheets
• Higher funding costs
The effect of this funding shortfallis an increase in the premiums that commercial
propertyowners are preparedto payfor commercialpropertyloans,whichleads to an
opportunityfor cashrich,income-starvedinvestors.
By effectivelycrowdfunding the commercialpropertyloanrequirement,borrowersgain
access to funding otherwise not currentlyavailable,andinvestors gainaccess to low risk,
fixedincome producing opportunities.
3
The Marketplace

The main benefit of P2P lending against CRE Debt is security.
Unlike Consumer or SMELending,everyCREloanis supportedbya 1st legal charge over
an income producing commercialproperty.The value of the property(whichis
determinedbya professional,independent valuation)is higher than the loan amount,
and the net rental income generatedbythe propertyis greater thanthe debt service
requirement.
Tenants in a commercialpropertytypicallysignup to a FRI Lease whichcanlast from
between3 to 25 years.This provides a welldocumentedcashflow showing the levelof
rent being paid, how frequentlyit is being paid, how long it will be paid for,when and
how much the rentaluplifts will be and whenthere are any breaks,either fromthe tenant
or the landlord.
Whencomparing CREP2P Lending to traditional investments or other P2P categories we
find that CRE P2P Lending offers:
• Fixedincome returns that exceed qualitycorporatebonds
• Better capitalprotectionthanequityand corporatebonds
• Lower volatilitythan equity and balancedproperty
• A clear legalframework inthe UK offers a low probability of default along with
high recoveryrates
• Diversificationawayfromtraditionalasset classes
• Better risk adjustedreturns thanofferedbyconsumerandSMElending platforms
Benefits
4

At Proplend,we believe CREdebt is the perfect partner for P2P lending.It has
allowedus to offer our investors the opportunityto construct aloan portfolio based
aroundtheir specific investment parameters,suchas:
1. Investment return
2. Loanterm
3. Investment amount (subject to min £5,000)
4. Asset type (office,retail,industrial, leisure,residential)
5. Geographic location(city, regional,primaryor secondary)
6. Tenant type (multi / single)
With the introductionof the Proplend LoanTranche,investors withdiffering risk
parameters andreturnrequirementsare giventhe opportunityto invest in the same
loan alongside one another.The ProplendLoanTranche splits the Loanin up to three
Loan-to-Value (LTV)basedtranches.
In developing this model,Proplendbelieves that our Tranche A investment levelis
one of the smartest P2P loaninvestmentsonthe market,with 200%capital protection
(via the 1st legal charge)plus 6 monthsof retained interest.
The Tranche Effect
5
The Proplend Loan Tranche
A £1m property is financed by a £750,000 loan
at an interest rate of 6.5% p.a.
The Loan requirement is split across thefixed
loan to valuebased tranches. The6.5%rate
paid by the borrower is split across thethree
tranches with TrancheC paying themost and
TrancheA the least interest, investors get to
choosewhich tranchethey wish to invest into.
TrancheC offers 133% capital protection, the
property would haveto fall in valueby 25%
beforethe investor’s investment is at risk.
TrancheA offers 200% capital protection, the
property would haveto fall in valueby over 50%
beforethe investors investment is at risk.
The higher up the trancheor LTV the investor
lender the greater the risk but the greater the
return.
By investing into TrancheA, Proplend believes
that wehavecreated the safest P2P loan
investment on a risk adjusted return basis.
Excellent capital protection plus an attractive
return on capital.

CRE debt is not immune to market value declines,whichcouldalter investment returns.
However,the ability of commercialpropertydebt to absorb significant propertymarket
volatility helps make this a stable,predictable andattractive investment class.
All investments come withrisks,but having the securityof a 1st legal charge over the
propertyinaddition to a rental income streamhelps make CRElending an attractive
and sustainable P2P loan investment.
Risks
6
How Proplend Mitigates Risk
Fall in propertyincome
• Loan amounts and terms will be determinedby the quality ofthe tenants and
occupancyterms, with resultingincome protection features suchas lower initial loan
amounts andinterest cover covenants.
• Proplend retains 6 months worth ofinterest to cover vacancies or borrower default.
Fall in propertyvalue
• In a 75% LTV loan, investors in Tranche C have a minimum cushionofa 25% fall in
property value. Tranches A andB offer a greater cushion.
• Post crisis drops in property values of30-40%, without a full recovery, make a further
significant drop less likely.
• Significant drops in value increase the percentage ofincome relative to value, this then
provides attractive yield returns for distressed asset managers.
Lackof suitable investment opportunities
• Given the size of the outstandingfundinggap, especially in the sub£5m loan sector
and the lack ofmarket participants, investors shouldbe able to benefit from current
market conditions.
Illiquidity
• Investors should expect thatanyloan they enter into will remain outstandingfor the
term of that loan.
• Investors are beingpaid a illiquiditypremium.
• The Proplend LoanExchange offers a secondarymarket for investors who wish to sell a
loan part prior to the end ofthe loan term. It cannot, however, guarantee a buyer for
that loan partwill be found or the price that the loanpartmay sell for.
Prepayment
• Loan terms will include prepayment protectionin the form of penalties, these will be
agreed on a loan by loan basis andbe transparentto investors.
Loan default
• In the case ofa Loan default,ProplendSecurity Limited, who enters into the Security
Documentationwith the Borrower, will commence recovery ofthe debt due under that
Security package.

The UK remains an attractive investment destination, with a high and stable commercial
real estate risk-return profile, aided by a liquid, transparent marketplace, a creditor-
friendlyjurisdiction, and a well understood legalframework.
Asset prices are at sustainable levels andbroadmarket returnforecasts are favourable.
CRE Peer-to-Peer Lending provides a strategic opportunity for a medium term
investment,andoffers diversificationbenefits for a traditionalinvestors portfolio.
Proplend’s mission is to open up the institutional asset class of commercial real estate
loan syndication for the sub-£5m loan sector directly to a wider range of investors in a
simple and transparent way.
Brian Bartaby
Founder & CEO ProplendLtd
Summary
7

8
Contact
Contact Details:
Email:
admin@proplend.com
Office:
+44 (0) 203 397 8290
Website:
www.proplend.com
Twitter:
@Proplend
Resources: Savills Property FinanceReport2014
DISCLAIMER
Proplend operates a peer to peer lendingplatform specialisingin commercial propertyloans
supportedby first charge mortgages. Whilst loaninvestments are securedagainst property,
capital is still at risk and therefore Proplendlenders face the possibility oflosingmoney.
Investments in commercial loans are longterm in nature and maynot readily be realisable.
Proplend Ltd is incorporatedin EnglandandWales registerednumber 08315922, registered
address 145-157 St John Street, London EC1V4PW. ProplendLtdis authorisedandregulatedby
the Financial ConductAuthority (firm registration no. 662661). Lenders on Proplendand other P2P
platforms are not covered by the Financial Service CompensationScheme.
If you are in any doubtas to whether lendingon Proplendis suitable for you, we recommend that
you seek independent financial advice.

Commercial Property P2P Lending - 2016

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