A new property investment solution from Quartech aims to put the client back in control.
An innovative funding platform created by Dublin firm, Quartech, effectively enables investors to create their own banks by choosing property to invest in, setting interest rates and repayment terms, and creating a lease and an option to buy the property at a future date at a price agreed today.
Quartech was founded by former Merrill Lynch International Bank CFO, Ben Hoey, and former Real Estate Alliance CEO, Philip Farrell, in 2017 to bring competitive alternatives to existing property funding and investment offerings.
“In a typical transaction, a company wanting to get its surplus cash working could provide a home for a key hire, staff member or anyone it chooses,” explains Hoey. “The property is selected and the company provides the funding to purchase it. The platform can provide additional finance if required. An option to buy at today’s price is sold to the selected individual and a lease is granted on the property for a number of years.”
The rent is set at what Hoey describes as a competitive level and will vary depending upon the platform’s funding cost on a specific property. A proportion of the rent pays the interest on the funding company’s capital while the remainder goes to Quartech.
Meanwhile, the option to buy enables the individual to purchase the property at a fixed price in the future. Alternatively, the option can be sold back to Quartech in the future and the option holder receives the difference between the option strike price and the prevailing market price at the time. Once the option is exercised or cashed in, the funders are repaid their advance.
The premium paid for the option will vary depending upon a number of factors but for residential units, prices are approximately 4% of the property’s purchase price. The option to buy will become increasingly valuable as time goes by in a rising property market.
This creates multiple opportunities as the lease-holder and option holder are selected by the project manager funding the position.
CFOs putting cash to work
It is not only companies seeking housing for employees that can benefit from such investments, however. “With the economy growing strongly, we are seeing many companies become relatively cash rich again,” Hoey notes. “Putting this money to work is a challenge for CFOs. In many cases, the banks are charging for taking it on deposit while traditional property investment is not seen as an option due to liquidity issues and possibly past experience as well. Companies can use that cash to fund a property project with us over a much shorter term.”
Distressed private homes sector
The platform is also seeing strong interest from the distressed private homes sector.
“There are quite a few people out there who own valuable homes and have outstanding borrowings including arrears and interest,” Hoey points out. “The loans have been purchased by private equity firms who are pushing for a resolution. The problem is that the mortgage market is closed to these individuals owing to their history, so they cannot raise the finance to negotiate and pay off the mortgage holder and stay in their home. The Quartech platform offers a viable and attractive solution for people in this position.”
That solution sees the Quartech platform purchase the home and lease it to the former owner. The former owner purchases an option to buy, which they can exercise when their cash flows and credit history have improved sufficiently to obtain a mortgage or utilise funds from other sources. “Everyone wins here,” says Hoey. “The private equity company gets the loan off their books on acceptable terms, the individual continues to live in the home with an option to buy it back, while Quartech’s investors obtain a reasonable return on their capital.”
Bank of mum and dad
The so-called ‘bank of mum and dad’ is also facilitated by the platform. “Many young people find they can’t get on the property ladder at the size of home they are looking for, and their parents want to help,” Hoey explains. “But parental help can be fraught with difficulty. Other children might be envious of siblings receiving what they see as a cash handout and there will also be fears that the child’s relationship may break up and any gifted money could go out of the family. And this is before you even start considering tax considerations, particularly for wider family members who want to invest and help. The platform is extremely useful for succession planning on a number of fronts.”
Generally, there is a wide range of other uses for the platform including enhancing returns on pension investments, according to Hoey. “It appeals to high net worth individuals, business owners, people who have reached the funding threshold on their pensions and a variety of others,” says Hoey. “We are getting an increasing number of enquiries from professional advisers and others who want to avail of its unique features and benefits and its ability to structure bespoke solutions.” Current deals on the platform include:
- A client needs to settle outstanding debt on his family home held by a private equity firm and was unable to obtain refinancing for a myriad of reasons. The platform solution is to purchase the home, grant a long lease to the individual and an option to buy back in the future – generating sufficient cash to allow a settlement with the private equity fund; and
- A company with surplus cash deposits is looking to improve returns over bank rates by lending on the platform secured against a specific property chosen by it. An option to buy the property at today’s price will be sold to another party along with a long lease. The option sale generates the first loss cushion, so the company’s credit position is improved.
To learn more about the Quartech platform contact Ben Hoey directly by email to firstname.lastname@example.org to discuss your particular need.