EstateGuru is beginning to build up some significant traction in continental Europe.
Estonia has emerged as an unexpected hub of alternative financing innovation. Frequent AltFi readers will already be familiar with the Estonian consumer lender Bondora and its earlier-stage, SME-focused rival Investly. The real estate space, as it happens, is also covered.
EstateGuru has been making steady progress of late, with over 1,000 registered investors and some fairly large-ticket loans now arriving on the platform. For example, A €490k bridging loan is currently being sought by a local science and production park for the sake of expansion.
And much like its P2P compatriots Bondora and Investly, EstateGuru is also eyeing up European expansion. Indeed, the platform already facilitates investment from across the EU, with the majority of its investors sourced from Estonia, Germany and the UK.
We interviewed CEO Marek Pärtel to shine a light on how both the market and the EstateGuru platform have been developing.
Can you give us a brief overview of the EstateGuru platform?
EstateGuru is a peer-to-peer lending platform for commercial property loans currently in Estonia.
All loans on the EstateGuru platform are secured with real assets, making us the first marketplace for secured loans in Estonia. Our nearly 1,000 investors are mostly from Estonia, Germany and the UK, but we have registered investors from all over Europe.
The average interest rate for investors is 11.48% to date, average LTV is about 48%. We intend to fill the funding gap that the local banks have created by not financing small developers and by being slow and inflexible about bridge loans.
The EstateGuru team consists of property development, investments, valuation, finance and IT professionals.
Can you provide some insight into the types of loans that you're facilitating - in terms of interest rates, terms, fees, the sophistication of investors, etc.?
Borrowers can apply loans through EstateGuru platform with terms from 6 months up to 5 years. Interest rates are between 8-15% depending on the nature of the project, borrower background, security location, LTV and other factors. We intermediate mainly flip loans, bridge loans and mezzanine loans. The loans are always secured with property. Security is held on behalf of lenders by a leading law office of Baltics – Varul. Max LTV can be 75%. Our latest loan is a 490K bridge loan designed to help an Estonian Science and Production Park to expand.
We charge a loan origination fee to the borrower and there are no fees for investors.
There is no certain profile of an EstateGuru investor. We have college students who make their first steps in investment field starting with 50 EUR and also professional investors that have put 100,000 EUR into a single loan application.
EatateGuru’s professional team of property experts makes DD of the business plan and other documentation and orders an independent valuation by a respected valuator (DTZ for example). Our founders have 30+ years of combined experience in international property finance and investments.
Soon we will open a secondary market that will enable Investors to exit from the investment or part of it within a day.
Tell us about the market opportunity for lending to real estate developers in Estonia?
In the market there are developers, who have real estate projects with solid business plans, but often do not get financing from banks due to their high-level of bureaucracy, inflexibility and for other reasons.
For example Swedish banks have the regulation to not finance zoned land but start financing construction. We believe that building in the right way always has value if the location is good. They also do not like to fund flip deals but prefer bigger developers.
According to Estonian Central Bank the Estonian mortgage industry was worth of 14.6 billion euros in 2014 and is growing. In Europe the market for non residential mortgage loans is worth more than 1 trillion EUR.
Estonia is proving to be a rather active P2P market - why do you think that is?
This is probably because of our country’s status as a leading IT country (e.g. e-residency). Our country offers a great deal of support for IT-studies, and so a lot of people choose this path. Also we have many incubators and supportive institutions which help and encourage you to start a company, especially a Technology Company that solves certain local problems.
As many companies cannot get much-needed capital, fin-tech companies have opened platforms where those who are in need for financing can get capital. These platforms are opened thanks to innovative people, who have courage to change things, complimented by strong local IT knowledge.
Estonia is also a great market in which to build a proven product to then take to larger markets subsequently. In our business of property loans, size is very important, but we aim to be known for our professional deal sourcing and underwriting skills that make all the difference for investors.
Do you have plans for cross-border lending - or are you very much focused on the Estonian market?
Yes, we do have plans for cross-border lending, and currently we are looking for strategic partners with the ability to provide us with access to deal flow and underwriting in different European countries. We aim to build a strong brand as a cross-border marketplace for property loans. At MIPIM 2014 (world’s biggest real estate show) our business model was chosen as a top innovation idea. So we had to make it happen. We are hoping to announce news of expansion in the coming months and are currently open to partnership proposals.
Finally, from a personal perspective, what inspired you to get involved in the peer-to-peer lending industry?
I believe that property finance should be more flexible as long as the risks are covered. Very often banks just do not serve or want to serve borrowers with solid security and a sound business plan. Working in the Real Estate sector for over 10 years has shown me lots of opportunities, also in the property finance sector.
As one of our partners is a founder of Bondora – one of the top 3 marketplaces for consumer loans in Europe, we decided to combine our skills and make a real difference in the property finance sector. In addition I have always looked for investment options where my earnings from property business could earn 10% interest with low risk. To summarise what has driven me in a single phrase:
You never change things by fighting the existing reality. To change something build a new model that makes the existing model obsolete.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.