Brickvest Administration Shows Fragility Of PropTech Business Model
One of the first major insolvencies in the PropTech sector highlights how difficult disrupting real estate can be.
Brickvest was one of the leading lights of PropTech, particularly in the field of capital markets. The crowdfunding platform, which allowed investors to buy into real estate deals in the UK, U.S. and Europe for an investment of as little as $1K, had achieved a level of success.
It had raised more than £15M of equity to grow its business from a variety of investors including two German banks and venture capital firm Global Founders Capital, which has backed big names in tech including Facebook and Slack.
It crowdfunded capital from individual investors to buy into large real estate deals and was targeting £100M of assets under management, making it one of the largest real estate crowdfunding platforms. It even sold out of one deal giving its clients a 31% return.
Yet in November the company went into administration, collapsing without warning. The business is still trading and is likely to be sold.
A report published this week by administrators at Resolve said that, unlike with some crowdfunding and peer-to-peer property platforms, the collapse had nothing to do with the quality of investments the company made, which are all trading well and unaffected. Rather, the company's shareholder structure meant it simply ran out of money and could not continue to operate.
Brickvest was set up in 2014 with an initial investment of just £20K from founders Adalbert Wysocki and Emmanuel Lumineau. Its model was to partner with institutional property owners and allow private investors to buy a very small slice of large assets through its online platform. It made its money by charging a commission of up to 3% to investors.
Examples include a portfolio of 23 German retail assets owned by fund manager Corestate; or a $134M Hilton Hotel in Chicago owned by Swiss investor Acron. The latter was its eighth and most recent deal; it raised €15M from private investors to take a stake in the property. It sold out of the Corestate deal at a level that provided a 31% return for its investors.
Brickvest raised about £5M of equity across five funding rounds between 2015 and 2017, before in October 2017 Berlin Hyp, one of Germany’s conservative regional landesbanks, made a £7M Series A investment in the company. In early 2019 Aareal followed its compatriot’s lead, making a Series B investment of more than £4M. This gave the two banks a stake of 14% and 9%, respectively, in the company.
In 2018 Brickvest raised a further £1M from smaller investors in the form of loans that on 30 September 2019 would either convert to shares in the company or be instantly repayable.
According to the administrators’ report, in mid-2019 there was a falling out between the shareholders, although the report did not specify which ones. But the dispute meant the company was unable to raise more external capital or convert the loan notes to equity.
This meant the company was running out of cash, because it was still a loss-making business. The most up-to-date set of accounts for the company show it lost £1.8M in 2017.
In a stroke of bad luck, Reyker, a custodian company that holds funds for clients like fund managers, went into administration in October, making £140K it held for Brickvest inaccessible to the company.
All told, the company was insolvent, without the cash to meet its running costs or pay back the £1M loan, and went into administration in November.
Resolve said in its report it decided to keep Brickvest running and sell the business as a whole to get the best result for creditors. The administrators said it marketed the business to competitors, distressed investors and private equity firms, with 46 signing nondisclosure agreements. It said it picked a preferred bidder, which signed an exclusivity agreement and paid a deposit, with the possibility of a deal being agreed as early as this month, but did not say who the bidder is.
While the business will be sold, creditors are still expected to be left out of pocket to the tune of a combined £3.5M, Resolve’s report estimated.