Global Real Estate and Ideas for Optimising Private Client Portfolios

On September 12 Hubbis and Shojin co-hosted a private discussion event in Singapore on emerging opportunities in the international real estate markets for private clients in Asia. The invited guests were all experts and leaders from private banks, independent wealth firms, family offices and even trust firms. All comments from the guests remain off-the-record, but we have summarised in brief below the observations from Jatin Ondhia, Co-Founder and CEO of Shojin, as to why he believes they have such an interesting property investment proposition for private clients in Asia.

A Hubbis Discussion Event with exclusive co-host Shojin

The exciting world of Shojin according to Co-Founder & CEO Jatin Ondhia

Jatin welcomed the guests and explained that Shojin is a UK based hybrid FinTech and PropTech business. Established in 2009, the mission was from the outset to enable investors from throughout the world to invest into the real estate sector in the UK.

He reported that to date, Shojin has raised over GBP34 million to fund over GBP200 million worth of real estate development across twenty-nine projects, and with plenty more in the pipeline, including international deals as well.

He said their proposition is ideal for HNW and UHNW type investors and reported how Shojin is expanding its range of products from equity and mezzanine funding into the senior funding tranche, particularly for family offices. And he noted that in 2017, the firm added a digital distribution arm to its business, to further democratise access to such investments beyond the typical HNW they deal with mostly.

A unique proposition

“We think what we do is rather unique,” he said. “Without going into the details, we identified pockets of value overlooked by most family offices and even the private equity firms, and using technology, we are able to unlock this from the origination and the due diligence process, all the way through to the investment process.”

He said the platform focuses on middle market projects in the UK regional markets between GBP10 million and roughly GDP50 million, and sometimes up to about GBP70 million. Unlike the top and bottom of the projects scale, where investment margins are very tight, the middle ground offers significant room for good returns, he explained.

Working with the wealth management community

He said Shojin works increasingly closely with family offices and the broader independent wealth community, those that have clients who are wealthy professionals and business owner types, citing St James’s Place as a good example. “Independent wealth managers are free to seek the best selection of deals from different parties, and that is what we seek to provide them in our field,” he said. “We are here in Singapore for this week, meeting with wealth managers, private bankers, and directly with family offices to explain who we are and what we propose.”

And Jatin set the scene by noting that the UK is generally a lot more robust economically that it is sometimes considered to be from the outside. “Despite headwinds, the UK has so many positives,” he said. “The finance sector is vast, regulation is excellent, there are great developments taking place in FinTech, HealthTech and a host of different sectors. The UK property market remains robust with solid fundamentals, especially in the segments in which we operate.”

The UK is surprisingly resilient

“Does the UK have a long-term future?” he pondered. “Of course, it does. Do we anticipate growing investor demand from overseas for properties? Yes, and with the currency so weak, it is a good time to enter. There is a major imbalance in supply and demand in the UK residential real estate sector, because for several decades there has not been enough building. Every prime minister says that must change, but the planning system is stuck, and there is often a lot of local resistance to new developments.”

He added that every year, half a million people are graduating from universities in the UK, and soon enough, 10% to 20% of them might want to buy a property, meaning another 50000 to 100000 more people joining the queue to buy property. The rental market is incredibly strong, he said, as people like the flexibility of renting, as they can move cities, change jobs, expand with their families and so forth. “The rental market is the golden opportunity in the UK right now,” he enthused.

Solid fundamentals

And he said the property ownership market is also very strong in the UK for the same reasons, as people evolve their ownership in keeping with their jobs and family situation, and then later in life when the children fly the nest and are settled, they then start downsizing, keeping the market active and liquid.

“We have addressed concentration risk by offering smaller, manageable investment sizes, rather than inviting investors to place a huge amount of capital into a single transaction,” he explained. “And we handle all the due diligence, and we are co-investors alongside our clients, so these are fully researched. We are also backed by a family office in the UK that underwrite each of our investments, so our capital is aligned with our customers. And with our approach, investors can build diversified exposures in the UK, a step at a time.”

Plugging the gaps

Jatin reported that Shojin targets residential apartment development of projects of between GBP10 and GBP50 million and sometimes up to GBP70 million.

The typical projects might include residential, student accommodation, Private Rented Sector (PRS), and specialised senior living properties, almost exclusively to date in the UK. All those segments, he reported, are dynamic and robust, with student numbers rising and more well-to-do foreign students, with a strong rental market for good quality apartments in regional cities, and with an ageing population that at the upper mid and upper levels is well funded to pay for quality retirement homes and high-grade care homes in old age.

Regional diversification

Jatin said Shojin steers away from central London and focuses mainly on the regional cities, such as Manchester, Birmingham, Leicester, Nottingham, or Leeds, amongst several others, all of which he said have seen a massive resurgence of activity and offer excellent development opportunities. “Over the next 10 years, some of the biggest upside will come from the regional cities, more so than London,” he stated.

Dancing to their own tune

He explained that those markets are increasingly dynamic, the cost of living is lower than in London, there is more and more talent moving to them, good train and road links, good regional airports, and many of the larger companies have been moving there or opening offices and facilities in those locations.

And he added that Shojin does participate in interesting projects in what he calls Greater London, for example to the west in Slough, near Heathrow Airport, or further along the M4 motorway, but still commuting distance to towns such as Reading. “New build apartments in the GBP300000 to GBP600000 are manageable for new buyers and the mid-market there, whereas in Central London those units would be far higher,” he said. “These types of locations outside London are strong markets.”

Specialisation pays off

He said that when they first started Shojin, they did their own developments, but soon graduated to the other side, plugging funding gaps for mid-tier developers.

“Our biggest USP is really understanding developments, because we've been developers,” he explained. “We have about 200 different items of due diligence for each project. And we say “no” to maybe nine out of 10 projects that come our way. We are looking for the gems, the outliers, where a project is so good, and our risks really low. And we get our returns because there is almost nowhere else for developers to go. We have a true niche here. Perhaps in a few years more people will come into this market, but as it stands today, we don't have much competition.”

Rigorous due diligence

Additionally, as Shojin has the intricate due diligence processes and structuring expertise, he said they will increasingly look at selling senior funding to bigger investors such as family offices. “We have clients who want to take senior funding exposures, and we price our upfront and carry fees at appealing levels compared with the competition,” he reported.

He said this senior/bridge funding can produce returns of around 7% to 12% annualised over 12 to 36 months and with the first charge on the assets. He said they also sometimes structure in and sell debt subordinated to the senior finance, secured by a second charge and producing target returns of 15% to 25% annually. “And as the drawdowns take place at different stages of the projects, lenders see the progress and that each project is properly risk managed,” he added. “They do not need to commit the full funding on day one.”

Jatin also explained that there is a solid market for smaller scale mezzanine finance and that Shojin has had very considerable experience of that segment since they started the business.

Wrapping up

Jatin thanked the assembled guests for their interest, their various comments and their questions. He reiterated his belief in the great opportunities open to private client investors from Asia in the UK and reminded them that their physical or virtual doors are always open to wealth management community participants. “We are growing our network in Asia, expanding awareness in Singapore and Hong Kong, and further afield into nearby markets such as Malaysia and other ASEAN countries,” he reported. “Asia is very important to our business, accounting as it does already for some 40 per cent of the firm’s active clientele, and we plan to grow that in the years ahead.”

Note: For more insights into Shojin’s business and proposition, and into the background of the founders, we refer readers to the recent, detailed Hubbis report on Shojin and Jatin (https://hubbis.com/article/uk-real-estate-investing-unlocked-with-shojin-s-ceo) and also to Shojin’s presentation document (see: http://pdf.hubbis.com/pdf/shojin-thought-leadership-presentation.pdf).

Additionally, for Shojin’s special report on the role of property amidst a rising inflation and interest rate environment, see this link.