Big Fundr offers real estate-backed alternative to banks’ fixed deposits
Quah Kay Beng, director of Singapore-based Trinity House Investments, has been structuring real estate financing deals and investments in the UK and Ireland since 2015 when the private equity investment management firm was founded. Quah’s clients are predominantly Asian investors looking at real estate investments outside of Singapore.
One such investor is Aspial Corp, a Singapore-listed conglomerate that is involved in jewellery, financial services and real estate, which invested in Trinity House Commercial Property Fund I. Aspial Corp’s financial services subsidiary, Maxi-Cash, has been listed on the Singapore Exchange since 2012.
Aspial and Trinity House’s relationship goes back seven years. “The direct real estate investments that we did together had performed well,” says Quah. “We lent to property developers in the UK together with high-networth investors, and we used to get double-digit returns.”
That set Quah thinking: Why shouldn’t retail investors have more investment avenues where they can enjoy a higher rate of return? The company applied for and obtained approval for a capital market services licence to deal in securities from the Monetary Authority of Singapore last year.
It marked the inception of Big Fundr (BFD), Quah’s brainchild, which is 85% owned by him and the founding directors, with Maxi-Cash holding the remaining 15% stake. “The idea behind Big Fundr is to help retail investors enjoy a higher rate of return than what they are getting from the banks’ fixed deposit rates,” says Quah, the CEO of Big Fundr.
BFD is an investment instrument that aims to generate a better-than-market rate of return of at least 3% per annum compared to banks’ fixed deposits, savings and bonds, adds Quah. For instance, most banks are offering minimum annual interest rates of 0.01% to 0.05% on initial deposits, with a maximum annual interest rate of 3% for the DBS Multiplier Account, BOC Smart Saver and Maybank Save Up Programme. The Singapore Savings Bonds offer an average return of 1.91% over a 10-year period, or from 0.71% in the first year to a projected 2.28% in the 10th year.
Meanwhile, the Central Provident Fund (CPF) offers a 2.5% interest rate per annum on the Ordinary Account and 4% interest per annum on the Special Account. For sure, CPF offers a higher rate of return, “but you have to leave your money in your CPF account for many years”, points out Quah. “BFD is for the short term, but we encourage investors to roll over.”
Real estate-backed loans
The BFD platform gives Singapore investors the opportunity to purchase
real estate loan notes of their choice. Maxi-Cash will co-invest in the loan notes alongside the retail investors, and will guarantee the loan, says Quah.
For as little as $1,000, retail investors of BFD can subscribe to a loan note with a six-, 12- or 18-month term. The 3% interest will be paid out monthly. At the end of the loan note term, the investor will be able to redeem their principal. Both the interest payments and the principal are guaranteed by Maxi-Cash, Quah adds.
In order to guarantee the loan and to provide a better-than-market rate of return to investors, BFD will be lending to real estate developers in Australia and the UK at a rate of at least 6%.
Trinity House has experience in lending to UK developers, while Maxi-Cash has experience in lending to developers in Australia. “Together, we have a good market coverage,” says Quah.
BFD is willing to finance projects ranging from developments — commercial, residential or mixed-use — to asset enhancement or even addition and alteration projects, as well as provide bridging loans. “We work with various small- to medium-sized developers in the UK and Australia,” Quah explains. “The challenge will be in building a sufficient pipeline of deals as we anticipate strong demand for the loan notes.”
Loan sizes will generally be in the ballpark of $1 million to $10 million. “We have a corporate guarantee, first charge on the real estate asset and a maximum loan-to-value [LTV] ratio of 70%,” says Quah.
As the loans extended are either in Australian dollar or British pound, the currency will be hedged in order to protect the retail investors from currency exposure, he adds. “They will still receive their monthly payments and principal amount in Singapore dollars; we see BFD as an alternative to savings.”
Pilot launch fully subscribed in an hour
A pilot scheme was launched last July, exclusive to Aspial staff. The property was a mixed-use development in Melbourne with 23 apartments in a low-rise block, with commercial retail space on the first level and basement parking with 38 spaces in car stackers. Each apartment comes with a balcony and the roof terrace comes with communal facilities including barbeque facilities and seating areas.
The loan amount was close to $3 million, and broken into three notes of $500,000, $1.388 million and $1.08 million. The loan tenor was six months, with subscribers getting a net interest rate of 4% per annum.
All 23 units in the project were pre-sold with gross sales of more than A$18 million. The pre-sale debt cover was 117.3%. The LTV was 64.96%, with the Aspial staff who are loan note holders having first charge over the asset and Maxi-Cash providing the guarantee on the loan.
When it was open to Aspial staff, all three notes were fully subscribed within an hour.
For Quah, what was reassuring was being told by some of the Aspial staff that they had broken into their fixed deposit accounts to subscribe to the loan notes. “They said that they were getting only 0.5% interest rate on their fixed deposit, and in BFD, they were getting 4%,” he says. “So it made sense for them to do it.”
Quah reckons given the current market uncertainty, especially the volatility of the equity markets, such an instrument will be in demand, especially for those who are risk-averse. “We have longer-term aspirations than just the current volatile equity markets,” he says. “We want to change the way people save. Hence, our name, Big Fundr or BFD, which stands for ‘better than fixed deposit’. That’s what we’re aiming to do: offer a safe product backed by real estate, at a higher interest rate than banks’ fixed deposit rates.”