Lares Dig­i­tal Bond is debt financ­ing of an afford­able hous­ing project — “UK Com­mu­ni­i­ity Homes Group — Impact Inno­va­tion Income” (UKCH), which is seek­ing to acquire up to 10,000 ten­ant­ed afford­able hous­ing prop­er­ties (main­ly 2–3 bed­room hous­es, apart­ments, and HMOs) in the Mid­lands and North­ern Eng­land. The Lares Dig­i­tal Bonds will be used to finance up to 2,000 of the 10,000 total prop­er­ties sought. With a com­bi­na­tion of pur­chas­ing pow­er to buy large col­lec­tions of prop­er­ty at a time, and the reduced costs of economies of scale in man­age­ment, the project is achiev­ing gross rental yields of 8–12% p.a.

The port­fo­lio will take advan­tage of long-term mar­ket trends (short­age of afford­able hous­ing in the UK, more peo­ple rent­ing, gov­ern­men­tal pref­er­ence of pro­fes­sion­al land­lords etc…) to pro­vide val­ue while pro­vid­ing an oppor­tu­ni­ty for work­ing-class fam­i­lies and indi­vid­u­als to get qual­i­ty hous­ing at an afford­able price.

Lares Investors pur­chase dig­i­tal bonds issued by IDAP Alter­na­tive Invest­ments S.à r.l., with matu­ri­ty in May 2025 with 100% redemp­tion price and a 7% annu­al return paid in sev­en semi-annu­al coupons.

UKCH is acquir­ing, pri­mar­i­ly, ten­ant­ed 2–3 bed­room, hous­es, apart­ments, and HMOs (Hous­es in mul­ti­ple occu­pa­tion) in the Mid­lands and North­ern Eng­land using a net­work of local sourc­ing and prop­er­ty man­age­ment firms. These regions are rel­a­tive­ly dense with gov­ern­ment-sup­port­ed areas that are per­fect for steady rental yields from work­ing fam­i­ly ten­ants, which tends to be a rental prop­er­ty seg­ment unaf­fect­ed by downturns.

The goal is to acquire cash-flow gen­er­at­ing, res­i­den­tial assets in the UK with no per­mit­ting or build risk. Most prop­er­ties are ten­ant­ed upon acqui­si­tion and there­fore cash flow pro­duc­ing from day one. The aver­age rents of £ 300–700 have been sta­ble over sev­er­al decades and can be well sup­port­ed by aver­age wages in the area of £ 1,200 per month. Due to the local short­age of afford­able homes the occu­pan­cy rate is kept high, often exceed­ing 90%.

Apart from a sta­ble source of income, the UKCH invest­ment strat­e­gy is also to have its own pos­i­tive impact strat­e­gy regard­ing improved ten­ant liv­ing con­di­tions and sup­port of local communities.

UKCH is already acquir­ing prop­er­ties using its seed cap­i­tal, qual­i­fied investor funds, and local UK bank financ­ing, and is suc­cess­ful­ly rent­ing the prop­er­ties between 8% and 12% gross yield. Lares Dig­i­tal Bonds will enable UKCH to extend their acqui­si­tion by 500 to 2,000 addi­tion­al units over the next 36 months.

More infor­ma­tion about the com­pa­ny can be found under http://www.ukc-homes.com.

This acqui­si­tion in New­cas­tle is a per­fect exam­ple of a low-entry, poor­ly-con­di­tioned prop­er­ty in need of some clever refur­bish­ment to increase the mar­ket val­ue. This immac­u­late­ly pre­sent­ed, large 3‑bedroom ter­race prop­er­ty locat­ed in Hartle­pool, New­cas­tle, with a ten­ant pay­ing £500 per month has seen a cap­i­tal gain of 27% post pur­chase and refurbishment.

✓ £29,950 Pur­chase Price

✓ Ful­ly refur­bished £12,000

✓ Let out to sin­gle tenant

✓ £500 PCM rental Income at a yield of 14.3%

✓ Mar­ket val­ue post refur­bish­ment: £53,100

Most UK PRS funds are acquir­ing new “build to rent” stock for mid­dle- and upper-mid­dle-class fam­i­lies, result­ing in a short­age of buy­ers for UKCH’s tar­get­ed prop­er­ties. Addi­tion­al­ly, dis­tress among ven­dors (eco­nom­ic cycle, Sec­tion 24, Brex­it and for­eign cap­i­tal exit, etc…) is caus­ing a large vol­ume of port­fo­lios to come on the mar­ket as exit-sales by pri­vate own­ers. These fac­tors com­bine to enable UKCH to acquire tar­get prop­er­ties at 10–15% below open-mar­ket value.

Obverse­ly, con­tin­ued lack of afford­able hous­ing in the UK (a short­fall of 300,000–400,000 homes per year) and the need for good pro­fes­sion­al land­lords to take care of the exist­ing stock, ensure high occu­pan­cy rates. That, com­bined with the fact that these ten­ants often have their rent gov­ern­ment sub­si­dized, sup­press­es cash-flow volatility.

These two fac­tors com­bine to enable UKCH to gen­er­ate 8–12% gross rental yields.

These con­di­tion have been heav­i­ly influ­enced by cur­rent events, such as Brex­it and Sec­tion 24, which have led to uncer­tain­ty in the mar­ket. A com­pa­ra­ble sit­u­a­tion occurred in Eng­land 17 years ago, with sim­i­lar indi­ca­tors not found in a typ­i­cal prop­er­ty cycle. This con­flu­ence of events and con­di­tions pro­vides a rare oppor­tu­ni­ty of which UKCH intends to take full advan­tage, and which rep­re­sent a unique invest­ment oppor­tu­ni­ty through Lares Dig­i­tal Bonds.

As any buy-to-let prop­er­ty own­er knows, prop­er­ty man­age­ment can be a great deal of work. More­over, most prop­er­ty man­age­ment com­pa­nies are lack­ing in one of sev­er­al key areas:

✓ Geo­graph­ic coverage

✓ Scale

✓ Ser­vices

✓ Cost

✓ Pro­fes­sion­al­ism

To address these chal­lenges, UKCH has devel­oped a pro­pri­etary data­base of prop­er­ty man­agers. The estab­lish­ment of this data­base was both ardu­ous and time con­sum­ing, and it rep­re­sents a strate­gic advan­tage. With a tar­get of over 100 new acqui­si­tions per month, the abil­i­ty to quick­ly and effi­cient­ly assign a prop­er­ty man­ag­er who offers the pro­fes­sion­al­ism and ser­vices that are required for the social impact that UKCH desires to achieve, while simul­ta­ne­ous­ly oper­at­ing at a cost-point sup­port­ing tar­get yields, is crit­i­cal to long-term success.

After thor­ough analy­sis, UKCH has been able to assem­ble a vir­tu­al team of prop­er­ty man­agers who are able to address the cov­er­age, scale, and pro­fes­sion­al­ism required, pro­vide a com­pre­hen­sive man­age­ment pack­age, and gen­er­al­ly oper­ate at less than 10% of gross rent (before VAT).

Once UKCH has devel­oped a large base of assets and com­plet­ed the acqui­si­tion phase, it plans to shift its busi­ness strat­e­gy towards prop­er­ty man­age­ment and pur­sue the fol­low­ing options:

✓ Devel­op own “in-house” prop­er­ty management

✓ Buy­out an exist­ing prop­er­ty manager

✓ White-label an exist­ing prop­er­ty manager

UK Com­mu­ni­i­ity Homes Group brought togeth­er a team with exten­sive expe­ri­ence with­in the inter­na­tion­al prop­er­ty and invest­ment man­age­ment sec­tors. Through their exper­tise and estab­lished track records, they have amassed a com­pre­hen­sive net­work of qual­i­fied local sourc­ing, prop­er­ty agents and prop­er­ty man­agers, and senior UK finan­cial and legal advisors.

Jan Hybler, Paul Mor­ri­son, Craig Adder­son, Jaromir Smetana (from left to right)

Lares Dig­i­tal Bonds will be issued by IDAP Alter­na­tive Invest­ment S.à r.l., a secu­ri­ti­za­tion plat­form oper­at­ing under the Lux­em­bourg Secu­ri­ti­za­tion Law. Lares Dig­i­tal Bonds are issued sub­ject to, and will be enforced in Lux­em­bourg, if applic­a­ble, in accor­dance with the pro­vi­sions of the Secu­ri­ti­za­tion Law 2004 and its Terms and Con­di­tions. Lares Dig­i­tal Bonds are issued as an unreg­u­lat­ed secu­ri­ti­za­tion under­tak­ing accord­ing to Secu­ri­ti­za­tion Law.

Bonds will be issued and reg­is­tered in elec­tron­ic form on the plat­form oper­at­ed by Globa­cap Lim­it­ed, an enti­ty licensed by the Finan­cial Con­duct Author­i­ty. The Bonds bear 3.5% semi-annu­al coupons until their redemp­tion at matu­ri­ty day.

The dig­i­tal form of the bonds allows easy access by an investor to infor­ma­tion about his hold­ings at any time, and the abil­i­ty to eas­i­ly receive dis­tri­b­u­tions and redemp­tion. Lares Dig­i­tal Bonds are ful­ly trans­fer­able until their matu­ri­ty, sub­ject to cer­tain restric­tions and limitations.