DevDosh Ltd Risk Management

Risk
Delinquent interest payment (Developer does not pay interest on loan).

Reduce
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.

Remedy
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.

Reward
Zero interest payment delinquency.

Risk
Default on capital repayment (Developer does not repay capital sum borrowed).

Reduce
Stringent loan application process including exit strategy credibility and fiscal strength marshaled by external RICS valuers and appraisers target high quality debt borrowers.

Remedy
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.

1. Development will be disposed of at up to a 20% discount for expediency.
2. 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%.

Reward
Capital sum repaid via possession/foreclosure and disposal of assets.

Risk
Incomplete development (Developer does not complete development).

Reduce
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.

Remedy
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.

Reward
Developments completed and delivered by third party surety institution.

Risk
Mismanagement of capital sum.

Reduce
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.

Remedy
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.

Reward
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.

Risk
Development is substandard.

Reduce
Stringent loan application process including development specification appraisal targets correctly valued schemes.

Remedy
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.

Reward
Developments are delivered to specified standard.

Risk
DevDosh Ltd becomes insolvent/makes bad loans/does not act in investors best interest.

Reduce

• 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.

Remedy
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.

Reward
Multiple third party professionals and services are in place to protect investor/shareholders.

Risk
Third party professional service provider fails to execute their duties.

Reduce
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).

Remedy
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.

Reward
Financial reimbursement should a professional service provider make a mistake, breach contractual obligation in the course of their work or are negligent.

Risk
UK residential property market crash.

Reduce
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.

Remedy
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%.

Reward
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.