Fintech Tips: What new Property Partner fees mean for investors?

The Proptech firm has changed its chief executive and introduced new fees for investors.

Property Partner, one of the largest Proptech’s firm’s in the UK, is changing the fees it charges to investors.

The firm, founded in 2014, has more than 10,000 investors and manages a £144m portfolio of residential, student accommodation and commercial properties. 

However, Britain’s property market has slowed down since the 2016 Brexit vote, particularly in high-priced London and the South East, with analysts divided on whether the EU referendum is to blame, or whether the country’s long property bull run is coming to an end.

This week, the average asking price for a British home fell by 0.2 per cent month-on-month, for the first time this year to £308,692, according to online estate agency Rightmove. Prices were also 0.2 per cent down on a year ago.

Rightmove director Miles Shipside said: “The housing market fundamentals remain largely sound in many parts of the country, but the current political climate means that the crucial ingredient of confidence has been impaired, and that is causing some potential buyers and sellers to hesitate.” 

New Property Partner chief executive Warren Bath, took up his post yesterday, taking over from Marshall King who was at the helm for 15 months. King remains a non-executive director at the business.

Bath said: “Since the EU referendum in June 2016, we have tripled the size of our property portfolio. But the current environment presents significant challenges. The conditions for investment have tightened continuously, sustained by unprecedented levels of political and economic uncertainty.”

He added: “We have extended our offering to student accommodation and development loans, and reduced the cost base of the company. But further changes are required to make the business more durable and drive returns for our clients.”

The business has made three major changes to the fees it charges investors that will come into place on 5 August, it explains in a chief executive’s update.

New assets under management fees

Property Partner has not charged investors this fee previously. The firm said it had made its revenues “almost entirely” on upfront fees on new listings until now.

It said the new assets under management (AUM) fee will amount to 1.2 per cent per annum on portfolios valued up to £25,000, and 0.7 per cent on the portion of portfolios valued over £25,000.  

It added that clients with portfolios valued at £325,000 or above on 5 August 2019 will receive a cash rebate to cap the total cost of the AUM fee across this portfolio at £200 per month. Additional shares acquired after 5 August 2019 will be subject to the AUM fee at 0.7 per cent a year.

Bath said: “The introduction of the AUM fee is a significant change for our clients and we are making some related changes as a result.”

He said the business will do two things in a bid to cushion the blow for investors:

• Any shares owned on 5 August 2019 that a client sells on the resale market before 31 January 2020, will automatically receive a rebate of the AUM fee that has been paid on those shares sold.

• With the AUM fee in place, the firm’s “direction of travel” is to reduce upfront fees on new listings. It said that the process will begin immediately by cutting the combined vendor and sourcing fees from 3.5 per cent to a sourcing fee of 3 per cent.

A new property portfolio central fund

The firm has set up this fund because it said it is a fairer way to manage the “ceaseless challenge” of “tenant issues and unforeseeable costs”. 

The scale of its portfolio allows the firm to establish a central fund covering all investors. All of the firm’s properties are held in special purpose vehicles (SPVs), and each SPV will contribute 1 per cent of their purchase price to a ring-fenced central fund. Properties that need additional funding will be covered by the central fund extending a short-term, interest-free loan to the SPV.  

The company said to ensure “strong” properties are not subsidising those with management issues, it will reduce the dividend of the borrowing SPV to create the surplus required to repay the loan over six to 12 months.  

It added, the central fund benefits investors, as long-term property management decisions are not solely determined by the cash available inside a single property SPV. 

Under the current system, when a property needs extra cash, Property Partner has funded the amount needed by extending a short-term, interest-free loan to the SPV.

A new account fee

The firm said it has always allowed clients to “invest relatively small amounts in an asset class that otherwise requires substantial amounts of capital”.

However, to continue that the business has to recognise “that there is a minimum ‘cost to serve’ all clients”.      

As a result, from 5 August, it will charge clients an account fee of £1 per month – deducted on the same day that dividends are paid out. The firm adds, this fee is only applicable to clients with investments or deposits on account. 

A remarkable way for a new chief executive to introduce himself to investors. Closing his update, Bath said: “I welcome any feedback you may have, and I look forward to discussing our business plans and these changes with as many of you as possible in the coming weeks and months.”