How does the crowdfunding platform Röntgen assess the risk of investments?
Amidst higher interest rates and slower economic growth, investors in real estate crowdfunding platforms are scrutinizing the projects offered to them more carefully. Natalja Kozikiene, the Head of Financing at the crowdfunding platform "Röntgen," uses several practical examples to illustrate which real estate developers' applications turn into investment opportunities and which do not pass the selection process.
Crowdfunding as a mechanism is becoming increasingly familiar to Lithuanians. It provides an opportunity to lend capital to real estate developers, a practice previously accessible only to banks, funds, businesses, and professionals. In this process, platform operators play a critical role in selecting and presenting individual projects to investors from the financing applications submitted by developers.
Although the Bank of Lithuania oversees the crowdfunding market and requires operators to develop project risk rating systems, each crowdfunding operator has different criteria for evaluating projects. In other words, two investment projects rated "A" risk on different platforms do not automatically indicate the same level of risk.
Stricter Project Selection
According to N. Kozikiene, the quality of Röntgen's selection process is demonstrated by the fact that banks or investment funds also invest in the platform.
On the Röntgen platform, the first thing evaluated is the collateral, the developer's experience, and the business plan in the current economic situation. Lawyers assess the contracts and obligations. Like banks, we conduct a so-called stress test, calculating the possibilities of realizing the collateral if its value significantly drops. We also assess the human factor, which isn't visible in documents, speaking with the developer's previous partners to evaluate their work ethics, professionalism, contract adherence, and how they manage operations in complex situations.
If a developer passes this stage, a "backup plan for the backup plan" is created—drafting contracts that clearly state where and how the funds collected from investors can be used. The movement of funds within the real estate development projects is continuously monitored. If a developer deviates from or violates the contract, Röntgen can halt financing and initiate the recovery process from the collateral to return investments and interest to investors.
"In our seven years of operation, we have only had our second case of a delayed loan today. While loan delays are unpleasant, they are a likely risk in the financing business. That is why real estate is collateralised, allowing for recovery and repayment of the loan with interest to investors," says N. Kozikiene.
To further clarify how the Röntgen platform operates for investors, N. Kozikiene presents several practical examples of when the operator agreed or refused to raise capital for developers.
Responsible Approach and Experience
One of the success stories is "Juozapaviciaus 13", a complex of two prestigious class apartment blocks in the historic Zemieji Sanciai district of Kaunas. This is the final part of a much wider conversion of a multifunctional area in Kaunas.
The Röntgen team was immediately encouraged by the fact that the project is being developed by UAB "Avadi", an experienced company that has been operating for 17 years, has previously developed the specific area and has completed over 50 projects. The project's owner has the necessary qualifications and personally organises the general contracting work, significantly reducing the project's risk.
"When we asked the shareholder why he does not run the project through a project company (as most other developers, thus separating project risks), he replied that he wanted to provide guarantees from his main company. This demonstrates a responsible approach from the developer," says N. Kozikiene.
Such developers are highly sought after by any credit institution and have options. In this case, even the Röntgen team had to prove that the platform's investor community could raise the larger sums, amounting to several million euros, needed by this developer. During the review of the developer‘s application, Röntgen positively assessed the developer's high level of equity in the initial stage (EUR 1 million out of approximately EUR 7 million in total loan needs), the favorable loan-to-value ratio of the pledged property, and the likelihood of selling quality property for under EUR 1,500 per square meter in case of difficulties, when the planned average sale price for such property is EUR 2,800 per square meter.
Six months after construction began, 31% of the apartments and 76% of the commercial premises in "Juozapavi?iaus 13" have been sold, and construction is nearing completion. It is planned to register 85% building completion and start sales by the beginning of March. For these reasons, the loan rating of "Juozapavi?iaus 13" is expected to be upgraded from B+ to A-.
Demand, Uniqueness and Reputation
Similar reasons led the Röntgen team to start financing the prestigious high-end "Vilniaus džiazas" complex in the Old Town of Vilnius as early as in 2021 and to continue in stages until now. This project, which received a building permit in January 2024, stands out due to its unique location near Vilnius Old Town and its characteristic architectural style: impressive 4.5-meter ceilings, stained glass windows, luxurious interior and exterior materials, high-quality public spaces, and a unique interwar administrative building under restoration. The developer, "Unique Properties", has previously only worked in the premium real estate segment and has developed projects such as the conversion of the Palace of the Counts of Plateriai, the embassy and office complex "Embassy House," as well as "Senamiescio dominija", "Sapiegos dominija", "Gaono 8", among others.
According to N. Kozikiene, in this project, the developer first needed to acquire and consolidate separate parts of the area from different owners and design an attractive complex within a cultural heritage site. In other cases, such projects would be considered riskier, but the developer's experience, strong team of partners, and multiple credit institution offers after receiving the building permit, a large collateral value reserve, and the exceptional location and concept immediately led to an A- risk rating for the project. Moreover, even at an early stage of the project, the developer had preliminary agreements to sell 16 out of 66 planned apartments.
Diversified risks
Another positively assessed project by "Röntgen" was the UAB "Volberna" townhouses. This is an experienced developer, building small blocks of individual houses and cottages in various carefully selected locations in and around Vilnius. Most of the developer's projects already have building permits, and the developments are typically completed within one season: construction starts in spring, and by autumn, the buildings are delivered, and sales begin.
"Volberna" had long been developing its projects with its own funds, and Röntgen was approached by the company with the conviction that with an external loan, they could successfully develop 4-5 projects simultaneously instead of 1-2, while still maintaining as much as a 40% equity share.
The "Volberna" loan on the Röntgen platform is structured on a basket basis, i.e., several different developer projects are pledged and developed for the benefit of investors. The loan-to-value ratio in this investment basket is only 50%.
"Financing on a basket basis ensures greater security because the loan is covered by sales from multiple projects at once. Some projects are already completed and successfully sold, while others are just starting development or preparation. The developer is experienced, their loan needs are not 'aggressive', and the projects are in different but well-thought-out locations in Vilnius. These factors combined resulted in a solid A- risk rating for 'Volberna' even in a more moderate housing market," says N. Kozikiene.
What didn’t convince us?
Despite these positive examples, a larger portion of the development applications received by Röntgen are rejected for various reasons. For example, the Röntgen team refused to finance one developer's application despite a great location, near-completed construction, and substantial pre-sales. In this case, the platform was concerned about the developer's small personal capital investment – the company previously carried out certain work, obtained a new property valuation, and received a new but expensive loan. This process was repeated, with the use of funds not being closely monitored, leading to reaching the loan limit. Eventually, the developer ran out of funds for construction, and neither the developer nor the creditor had the resources to complete it.
"In this case, large pre-sales and advances received became a drawback, since they reduced future income and value reserve. Additionally, many contracts were signed years ago at entirely different market prices – the developer wanted to cancel or renegotiate these contracts, but such a situation almost guarantees lawsuits and other problems. Furthermore, we discovered construction documentation shortcomings – not all developers are willing to discuss these themselves. Such a project could be financed if the developer managed to do their homework and mitigate the mentioned risks, but time has shown that we were not wrong," says N. Kozikiene.
Another loan was not approved on the platform due to a lack of transparency and an overly optimistic property valuation. Although liquid area homes were being built in a good location at a market-compliant sales price, the developer started construction work without obtaining all the necessary documents, with a small personal capital stake and without wanting to pledge other liquid assets.
"In this case, we were also concerned about the reluctance to submit work completion certificates, the unclear company group structure, debts to suppliers. The developer wanted to refinance the loan on the market value rather than on the amount of the works officially carried out. And construction work without a building permit is generally a risk disaster – we understand that some developers expect to just pay a fine, but this is a very short-sighted approach," says N. Kozikiene.
Among other risk-increasing factors, she mentions construction permits not complying with zoning regulations, disproportionately large payable amounts on the balance sheet, negative information in registries or the public domain, seized assets, excessively high sale prices, or too low costs, lack of experience, or a project concept that does not match the location.
"We value low risk on the platform more than potentially higher returns, so we constantly expand our evaluation criteria. Of course, despite these and other security measures, setbacks and delays are still possible. And yet, we are pleased that our conservative risk assessment has resulted in only two delayed projects in our history," says N. Kozikiene.
How does the crowdfunding platform Röntgen assess the risk of investments?
Amidst higher interest rates and slower economic growth, investors in real estate crowdfunding platforms are scrutinizing the projects offered to them more carefully. Natalja Kozikiene, the Head of Financing at the crowdfunding platform "Röntgen," uses several practical examples to illustrate which real estate developers' applications turn into investment opportunities and which do not pass the selection process.
Crowdfunding as a mechanism is becoming increasingly familiar to Lithuanians. It provides an opportunity to lend capital to real estate developers, a practice previously accessible only to banks, funds, businesses, and professionals. In this process, platform operators play a critical role in selecting and presenting individual projects to investors from the financing applications submitted by developers.
Although the Bank of Lithuania oversees the crowdfunding market and requires operators to develop project risk rating systems, each crowdfunding operator has different criteria for evaluating projects. In other words, two investment projects rated "A" risk on different platforms do not automatically indicate the same level of risk.
Stricter Project Selection
According to N. Kozikiene, the quality of Röntgen's selection process is demonstrated by the fact that banks or investment funds also invest in the platform.
On the Röntgen platform, the first thing evaluated is the collateral, the developer's experience, and the business plan in the current economic situation. Lawyers assess the contracts and obligations. Like banks, we conduct a so-called stress test, calculating the possibilities of realizing the collateral if its value significantly drops. We also assess the human factor, which isn't visible in documents, speaking with the developer's previous partners to evaluate their work ethics, professionalism, contract adherence, and how they manage operations in complex situations.
If a developer passes this stage, a "backup plan for the backup plan" is created—drafting contracts that clearly state where and how the funds collected from investors can be used. The movement of funds within the real estate development projects is continuously monitored. If a developer deviates from or violates the contract, Röntgen can halt financing and initiate the recovery process from the collateral to return investments and interest to investors.
"In our seven years of operation, we have only had our second case of a delayed loan today. While loan delays are unpleasant, they are a likely risk in the financing business. That is why real estate is collateralised, allowing for recovery and repayment of the loan with interest to investors," says N. Kozikiene.
To further clarify how the Röntgen platform operates for investors, N. Kozikiene presents several practical examples of when the operator agreed or refused to raise capital for developers.
Responsible Approach and Experience
One of the success stories is "Juozapaviciaus 13", a complex of two prestigious class apartment blocks in the historic Zemieji Sanciai district of Kaunas. This is the final part of a much wider conversion of a multifunctional area in Kaunas.
The Röntgen team was immediately encouraged by the fact that the project is being developed by UAB "Avadi", an experienced company that has been operating for 17 years, has previously developed the specific area and has completed over 50 projects. The project's owner has the necessary qualifications and personally organises the general contracting work, significantly reducing the project's risk.
"When we asked the shareholder why he does not run the project through a project company (as most other developers, thus separating project risks), he replied that he wanted to provide guarantees from his main company. This demonstrates a responsible approach from the developer," says N. Kozikiene.
Such developers are highly sought after by any credit institution and have options. In this case, even the Röntgen team had to prove that the platform's investor community could raise the larger sums, amounting to several million euros, needed by this developer. During the review of the developer‘s application, Röntgen positively assessed the developer's high level of equity in the initial stage (EUR 1 million out of approximately EUR 7 million in total loan needs), the favorable loan-to-value ratio of the pledged property, and the likelihood of selling quality property for under EUR 1,500 per square meter in case of difficulties, when the planned average sale price for such property is EUR 2,800 per square meter.
Six months after construction began, 31% of the apartments and 76% of the commercial premises in "Juozapavi?iaus 13" have been sold, and construction is nearing completion. It is planned to register 85% building completion and start sales by the beginning of March. For these reasons, the loan rating of "Juozapavi?iaus 13" is expected to be upgraded from B+ to A-.
Demand, Uniqueness and Reputation
Similar reasons led the Röntgen team to start financing the prestigious high-end "Vilniaus džiazas" complex in the Old Town of Vilnius as early as in 2021 and to continue in stages until now. This project, which received a building permit in January 2024, stands out due to its unique location near Vilnius Old Town and its characteristic architectural style: impressive 4.5-meter ceilings, stained glass windows, luxurious interior and exterior materials, high-quality public spaces, and a unique interwar administrative building under restoration. The developer, "Unique Properties", has previously only worked in the premium real estate segment and has developed projects such as the conversion of the Palace of the Counts of Plateriai, the embassy and office complex "Embassy House," as well as "Senamiescio dominija", "Sapiegos dominija", "Gaono 8", among others.
According to N. Kozikiene, in this project, the developer first needed to acquire and consolidate separate parts of the area from different owners and design an attractive complex within a cultural heritage site. In other cases, such projects would be considered riskier, but the developer's experience, strong team of partners, and multiple credit institution offers after receiving the building permit, a large collateral value reserve, and the exceptional location and concept immediately led to an A- risk rating for the project. Moreover, even at an early stage of the project, the developer had preliminary agreements to sell 16 out of 66 planned apartments.
Diversified risks
Another positively assessed project by "Röntgen" was the UAB "Volberna" townhouses. This is an experienced developer, building small blocks of individual houses and cottages in various carefully selected locations in and around Vilnius. Most of the developer's projects already have building permits, and the developments are typically completed within one season: construction starts in spring, and by autumn, the buildings are delivered, and sales begin.
"Volberna" had long been developing its projects with its own funds, and Röntgen was approached by the company with the conviction that with an external loan, they could successfully develop 4-5 projects simultaneously instead of 1-2, while still maintaining as much as a 40% equity share.
The "Volberna" loan on the Röntgen platform is structured on a basket basis, i.e., several different developer projects are pledged and developed for the benefit of investors. The loan-to-value ratio in this investment basket is only 50%.
"Financing on a basket basis ensures greater security because the loan is covered by sales from multiple projects at once. Some projects are already completed and successfully sold, while others are just starting development or preparation. The developer is experienced, their loan needs are not 'aggressive', and the projects are in different but well-thought-out locations in Vilnius. These factors combined resulted in a solid A- risk rating for 'Volberna' even in a more moderate housing market," says N. Kozikiene.
What didn’t convince us?
Despite these positive examples, a larger portion of the development applications received by Röntgen are rejected for various reasons. For example, the Röntgen team refused to finance one developer's application despite a great location, near-completed construction, and substantial pre-sales. In this case, the platform was concerned about the developer's small personal capital investment – the company previously carried out certain work, obtained a new property valuation, and received a new but expensive loan. This process was repeated, with the use of funds not being closely monitored, leading to reaching the loan limit. Eventually, the developer ran out of funds for construction, and neither the developer nor the creditor had the resources to complete it.
"In this case, large pre-sales and advances received became a drawback, since they reduced future income and value reserve. Additionally, many contracts were signed years ago at entirely different market prices – the developer wanted to cancel or renegotiate these contracts, but such a situation almost guarantees lawsuits and other problems. Furthermore, we discovered construction documentation shortcomings – not all developers are willing to discuss these themselves. Such a project could be financed if the developer managed to do their homework and mitigate the mentioned risks, but time has shown that we were not wrong," says N. Kozikiene.
Another loan was not approved on the platform due to a lack of transparency and an overly optimistic property valuation. Although liquid area homes were being built in a good location at a market-compliant sales price, the developer started construction work without obtaining all the necessary documents, with a small personal capital stake and without wanting to pledge other liquid assets.
"In this case, we were also concerned about the reluctance to submit work completion certificates, the unclear company group structure, debts to suppliers. The developer wanted to refinance the loan on the market value rather than on the amount of the works officially carried out. And construction work without a building permit is generally a risk disaster – we understand that some developers expect to just pay a fine, but this is a very short-sighted approach," says N. Kozikiene.
Among other risk-increasing factors, she mentions construction permits not complying with zoning regulations, disproportionately large payable amounts on the balance sheet, negative information in registries or the public domain, seized assets, excessively high sale prices, or too low costs, lack of experience, or a project concept that does not match the location.
"We value low risk on the platform more than potentially higher returns, so we constantly expand our evaluation criteria. Of course, despite these and other security measures, setbacks and delays are still possible. And yet, we are pleased that our conservative risk assessment has resulted in only two delayed projects in our history," says N. Kozikiene.
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