At QB Investing, we only propose projects that have passed a detailed risk assessment process that allows investors to make an informed decision about the projects they would like to partner on.
Our team have a multi-disciplinary background highly relevant for the rigorous due diligence conducted prior to a project being provided to investors.
Six risk areas are assessed as part of this and scored on our matrix according to level of risk:
We assess each construction proposal based on project type to decrease delivery risk, backed up where necessary with a report from a quantity surveyor on the more complex projects. This forms a key part of the dialogue with a developer before a project is agreed to fit in with our low risk development strategy.
We research demand for the end product to establish the sustainability of the market. We verify the developer’s research on the gross development value (GDV) of the project for each of the planned exit strategies.
We analyse project spend (including contingency provisions) to ensure costs are realistic and to avoid budget overruns. This is then used in conjunction with the GDV of the project and the capital investment required to obtain a forecast Internal Rate of Return (IRR) which has to exceed minimum investment criteria.
We look for conservative levels of profitability and leverage ratios to mitigate exit and build cost risks. Worst, medium, and best case financial scenarios are typically assessed for each deal with worst case used at each level to inform decision making about whether to proceed
We carry out due diligence on the developer’s management team and previous experience, including any main sub-contractors. We aim to work with developers who have an extensive track record of successful delivery and with specific knowledge of the relevant local area
We require certain levels of security to be provided on each project to protect investor’s interests. At a minimum, we expect a second ranking charge over the development properties for debt investments. We like to see developers providing equity to show project commitment and to act as a buffer for investor funds. Other forms of security, such as personal guarantees, are also risk assessed as supplementary forms of security on a case by case basis
We assess the risks associated with proposed exit strategies, for example, a sale or refinancing. We target deals with multiple exit options to give us flexibility on how to complete the development and protect capital if the property market changes during the lifecycle of the project. We focus on areas that have strong fundamentals for property investment and typically look to economic development plans and sales information to assess exit risk.”
QB Investing’s assessment of project risk is a detailed review of documentation provided by potential partners, as well as desktop research based on publicly available information that the company deems relevant to the due diligence process. However, QB Investing does not undertake a detailed financial audit of potential partners and operates on good faith that documentation provided for project and financial delivery is accurate and current.
QB Investing’s risk assessment should not be used as advice to invest in a specific project, but instead should supplement investor’s own due diligence into a project prior to investing.