DevDosh Ltd Risk Management
is the act of positioning capital to benefit from future events
is the degree of uncertainty and/or potential financial loss inherent in an investment decision
is to identify risk in advance and take precautionary measures to curb the risk
DevDosh Ltd protects our clients capital using strict Risk Management protocols
Risk Management is a constant dynamic process
Risk is the “what if” of investing. “What if something goes wrong and I don’t make as much as I hoped or even lose money?”. Risk management is the process that identifies potential risks and puts measures into place to curb them to an acceptable level. Traditionally risk management is a two stage process, identify the risk and then curb the risk.
DevDosh Ltd takes the protection of investor capital a lot more seriously than the traditional route allows for.
DevDosh Ltd professional Risk Management approach
To ensure client capital is optimally protected during the DevDosh Ltd investment cycle we employ a risk management matrix strictly adhering to the the Risk – Reduce – Remedy – Reward framework.
The framework highlights areas of capital risk; reduces that risk to an acceptable level using preemptive strategy; has an effective action plan with proven track record of success to execute and remedy the reduced risk in the unlikely event that it becomes reality; materially quantifies the reward of executing the remedy relative to the investor.
The act of investing is to position capital to benefit from future events. In the DevDosh Ltd investment process the future event is a property developer repaying their loan with interest. But what are the risks and how have DevDosh Ltd addressed them to protect our investors?
DevDosh Ltd Risk-Reduce-Remedy-Reward Framework
Investors have three primary sources of risk. The investment, the finance house & its professional support services and the market. The table below illustrates how the the DevDosh Ltd risk management matrix deals with each of these for the benefit of the investor.
DevDosh Ltd risk matrix: Investment
Property Developer is delinquent on interest payment
Delinquent interest payment (Developer does not pay interest on loan).
All loan structures are “full term retained interest”. This structure requires the loan interest for the full term of the facility to be calculated in advance and retained by the lender.
In this instance the Reduce and Remedy step are one and the same. The interest payments are retained from the original loan amount so the borrower is never in a position to be delinquent of interest payment as they are not responsible for making interest payments.
Zero interest payment delinquency.
Property Developer defaults on capital repayment
Default on capital repayment (Developer does not repay capital sum borrowed).
Stringent loan application process including exit strategy credibility and fiscal strength marshaled by external RICS valuers and appraisers target high quality debt borrowers.
Lender has 1st charge over land/development rights/structures with minimum 30% equity. Should a borrower default on their repayment of capital sum then the development will be repossessed and two subsequent courses of action present themselves.
- Development will be disposed of at up to a 20% discount for expediency.
- DevDosh Ltd will refinance development and release capital sum to investors.
Where LTGDV (Loan to Gross Development Value) falls bellow 70% additional security against the loan is required from borrower. E.g. GDV equity 20%, other collateral 10%.
Capital sum repaid via possession/foreclosure and disposal of assets.
Property Developer does not complete development
Incomplete development (Developer does not complete development).
Stringent loan application process including scheme feasibility, cash flow and vetting of development team including main contractor targets well funded developers with a track records of delivering completed projects.
All loan structures require that the developer provide a Performance Bond. A performance bond is an assurety paid for by the developer and provided by an independent institution which completes and delivers the development in the case that the developer does not meet its contractual obligation.
Developments completed and delivered by third party surety institution.
Property Developer mismanages capital sum
Mismanagement of capital sum.
Stringent loan application process including development teams financial standing and track record of fiscal responsibility targets well funded developers with a history of trusted behavior.
Staged payments with minimum 30% equity ratio. The capital sum is made available for the borrower to draw down in tranches at different stages of development. To qualify for draw down the developments previous stage must be signed off as complete by a third party RICS Development Monitoring Surveyor.
Total capital sum is never exposed to mismanagement or negligent spending. Development is always within at least 30% equity should repossession and disposal action be required.
Property Developer delivers substandard development
Development is substandard.
Stringent loan application process including development specification appraisal targets correctly valued schemes.
Third party RICS Development Monitoring Surveyor regularly surveys standards of workmanship and materials. If the developer is constructing a development substandard to the contractual obligation of the loan the performance bond will be invoked and the development will be delivered by a third party institution.
Developments are delivered to specified standard.
DevDosh Ltd risk matrix: Finance house and professional support services
DevDosh Ltd fail to act in the investor/shareholders best interest
DevDosh Ltd becomes insolvent/makes bad loans/does not act in investors best interest.
- Investors place their investment capital within an SPV of which they are a shareholder.
- The SPV has it’s own appointed solicitor to act in the best interest of the SPV and its shareholders.
- Invested funds are paid directly to an independent third party regulated commercial escrow service.
- All funds are ring fenced and administered by an independent third party regulated commercial escrow service that works within strict guidelines.
- Lending decisions are based upon reports filed by independent third party RICS valuers, appraisers and reference agencies.
- The SPV holds 1st charge status over land/development rights/structures for the purpose of commercial mortgage security.
- Staged payments to the borrower are signed off by independent third party RICS development monitoring surveyor, issued by independent third party commercial escrow service under the purview of the SPV’s solicitor.
- Repayments from the borrower are held by the independent third party commercial escrow service and paid out to investor/shareholders directly.
In this instance the Reduce and Remedy step are one and the same. DevDosh Ltd has structured a process where we regularly monitor but are effectively locked out of the financial administration of the investment/loan. DevDosh Ltd have everything to gain by providing a fantastic product and service and absolutely no route to negatively impacting the SPV, its investor/shareholders or developers.
Multiple third party professionals and services are in place to protect investor/shareholders.
Professional service providers fail to execute duties
Third party professional service provider fails to execute their duties.
Stringent professional service provider selection process including evidenced due diligence showing relevant experience, financial standing, proof of professional indemnity insurance and membership of industry professional body (FCA/RCIS/SRA).
Third party professionals and service providers who fail in their duties will be sued and given the opportunity to claim on their professional indemnity insurance to make whole any loss sustained by the SPV as a result.
Financial reimbursement should a professional service provider make a mistake, breach contractual obligation in the course of their work or are negligent.
DevDosh Ltd risk matrix: Market
UK residential property market devaluation
UK residential property market crash.
RICS valuers carefully value every property over the period of the development cycle. As well as bricks, mortar and location they take forward variables into account such as projected residential property supply & demand, affordability, residential mortgage availability, interest rates and consumer confidence at post project completion levels.
Two remedies present themselves
- Minimum 30% loan to GDV equity is retained at all times. Maximum loan term 18-24 months. Two largest falls in UK residential property market crashes since 1975. Q3’89-Q1’91=13.11% down and Q3’07-Q1’09=18.69% down. Ergo on previous market performance 30% equity hedge is sufficient to protect the lender subject to a test of GFC proportion.
- Pre-arranged exit funding preferred in all applications and requisite in some.
- Where LTGDV (Loan to Gross Development Value) falls bellow 70% additional security against the loan is required from borrower. E.g. GDV equity 20%, other collateral 10%.
Loans are asset backed to a level greater than the percentage residential property value drop of the Great Financial Crisis of 2008/2009 and often already have exit finance in place prior to loan delivery.
INVESTORS / DEVELOPERS
If you are a risk averse investor looking for the best fixed income return for your capital
If you are a property developer looking for achievable property development finance
OFFLINE TILL POST COVID-19
+62 (0) 877 5836 5211
The DevDosh Ltd fixed income investment product is not suitable for everyone. Please visit our suitability page to gain a deeper understanding of your compatibility with the product. As with all investments capital is at risk and there is a chance that you will get back less than you invested.
The information on this website does not constitute or represent a financial promotion; nor it is financial advice or a personal recommendation. Do not make investment decisions based purely on the information contained on this website and seek professional advice if you are unsure of your best investment choices. We have made every effort to ensure all information on this site is accurate. However we cannot guarantee that to be the case.