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Any investment activities, including the investments in real estate, will expose you to the different types of risk.

We have compiled a risk statement proving you with a comprehensive overview of investment, real estate, and operational risks. Please review this document before investing. You can find the document by scrolling down the page and checking the footer for "Risk statement".

Read more about investment risks in our blog post "Investment Risks and Risk Tolerance in Real Estate Crowdfunding".

As a regulated real estate crowdfunding platform and European payment institution, Crowdestate is legally required to maintain strict separation between its own assets and those of its investors. This ensures the safety and integrity of investors' funds and investments under any circumstances.

• Investor cash is securely held in a separate client account, entirely independent of Crowdestate's operational accounts.
• Loan agreements are established directly between investors and Project Owners, ensuring their independence from Crowdestate's operations.
• For equity investments, investor funds are pooled into a project-specific Special Purpose Vehicle (SPV). These SPVs exist solely to safeguard and manage the equity invested by participants, with no other economic activities.

In the unlikely event that Crowdestate discontinues operations or declares bankruptcy:

• No new real estate crowdfunding projects will be introduced on the platform.
• Existing investments remain segregated from Crowdestate’s financial activities and will continue to function until their natural conclusion.
• Investors will retain full access to their accounts and can withdraw funds from the platform at any time.
• Crowdestate Collateral Agent will continue to oversee collateral management, including the safekeeping and, if necessary, liquidation of any secured assets.

While the closure of Crowdestate may cause temporary disruptions, these measures ensure that there is no risk to the security of investors’ funds or investments.

The main risks related to loan-based real estate crowdfunding include:

1. Default risk: There is a risk that project owners may fail to meet their loan repayment obligations due to financial difficulties or unforeseen project challenges, resulting in a default. In such situations, investors may lose part or all of their invested capital, especially if the property value does not adequately cover the outstanding loan.
2. Property valuation risk: The valuation of real estate properties may not always be accurate, which can lead to an overestimation of a property's value. If the property is overvalued, the security for the loan may be insufficient, increasing the risk of potential losses if the borrower defaults and the property needs to be sold.
3. Construction/development risk: Projects involving construction or development are exposed to risks such as delays and cost overruns. Issues like permit delays, rising material costs, slower-than-expected sales, or ineffective project management can lead to increased costs or project delays, ultimately affecting investment returns or delaying interest payments to investors.
4. Market risk: Real estate markets are subject to fluctuations influenced by broader economic factors, including changes in interest rates, economic downturns, and shifts in local real estate demand. These market conditions can lead to reduced property values, which may negatively impact the ability to recover funds in case of a default.
5. Liquidity risk: Real estate crowdfunding investments tend to be illiquid, meaning that investors are generally unable to quickly sell or exit their investments before the loan term ends. While secondary markets may offer some liquidity solutions, investors should be prepared for their funds to be locked in for several years, depending on the loan’s duration.

In real estate investing, collateral should be viewed as an additional security measure, rather than a guaranteed repayment method. Investors’ primary focus should be on assessing the project’s ability to generate sufficient cash flow to meet its obligations, which ultimately drives successful repayment.

When considering the security of an investment in real estate crowdfunding, it is essential to distinguish between loan-based and equity-based projects:

1. Loan-based real estate crowdfunding projects: Crowdestate ensures that investors’ claims are secured with a mortgage placed on the real estate property involved in the project or any other relevant real estate asset. As long as the property’s appraisal accurately reflects its market value and market conditions remain stable, the mortgaged property serves as a reliable layer of protection. If the Project Owner fails to meet their obligations, the collateral can be liquidated to recover investors’ funds. However, investors should be aware that liquidation is a time-consuming process, potentially taking several months to even years, depending on the local legal environment, and it may involve legal costs related to litigation.
2. Equity-based real estate crowdfunding projects: Equity-based investments, on the other hand, are not backed by collateral. These investments carry a higher risk but offer the potential for significantly higher returns to compensate for this increased risk.

When investing in real estate crowdfunding projects, it's important to understand the distinction between the types of projects Crowdestate offers: mortgage-secured loans and equity-based real estate investments.

1. For mortgage-secured loans, investors’ claims are backed by collateral - typically a mortgage on the real estate property associated with the project. This means that, in the event of the Project Owner's default, Crowdestate can initiate the liquidation of the property to recover investor funds. However, while this mortgage provides an additional layer of security, it is not a guarantee of principal recovery, as liquidation can be affected by factors such as market conditions, legal processes, and associated costs. The success of liquidation depends on the accurate valuation of the property and prevailing market dynamics.
2. For equity-based real estate investments, no guarantees or collateral are backing investors’ investment principals or expected returns. These investments carry a higher degree of risk, as they are directly tied to the performance and value of the real estate asset itself. The return on such investments is linked to the success of the project, and investors may benefit from an appreciation in property value or profitable project outcomes. Conversely, in the event of underperformance or loss, there is a risk of partial or complete loss of the investment principal.

Overall, while Crowdestate seeks to mitigate risks by offering mortgage-backed options and conducting extensive due diligence on each project, it is crucial to recognise that real estate crowdfunding involves risks. Crowdestate does not provide guarantees on the return of principal or the realisation of expected profits. We encourage every investor to carefully evaluate their risk tolerance and diversify their investments accordingly.

If a real estate crowdfunding project faces delays or financial difficulties, the response will depend on the type of investment involved.

1. For mortgage-secured real estate loans, these investments are backed by a mortgage on the property, providing an additional layer of security for investors. If significant delays or financial issues arise, our team works closely with the borrower to implement strategies that help bring the project back on track. If the project remains fundamentally sound and completing it would result in a better financial outcome for investors compared to terminating and liquidating an incomplete project, we may choose to prolong or restructure the loans. While this could postpone the repayment timeline, it increases the likelihood of investors recovering their funds and potentially earning higher returns through interest rate step-ups or late fees. However, if the project is no longer viable, the property can be sold to recover the loan amount, serving as a safety net for investors.
2. For real estate equity investments, the outcome is directly linked to the project's performance, as these investments carry a higher degree of both risk and potential reward. Unlike loans, equity investments generally do not have a specific due date for returns. Investors are reimbursed once the project concludes and all senior creditors' claims have been satisfied. In the event of delays or financial setbacks, we maintain close oversight of the project and ensure open communication with all stakeholders. This includes providing regular updates to keep investors informed about the project's status and any changes to expected timelines.

Our priority is to work diligently to protect investor interests while maintaining transparency throughout the process. We strive to address challenges effectively and keep investors informed as much as possible.

A decline in the real estate market can impact the performance of your investment, and the specific effects depend on the type of investment—whether it is a mortgage-secured real estate loan or a real estate equity investment.

Mortgage-secured real estate loans are structured with a significant layer of protection as they are secured by a mortgage on the underlying property. In the event of a market decline, the value of the property may decrease; however, the mortgage provides a safety net for investors. Here’s what may happen:

1. Loan-to-Value (LTV) protection: Loans are typically issued with conservative LTV ratios to ensure the property value is significantly higher than the loan amount. This reduces the likelihood of a shortfall if the property needs to be sold to recover funds.
2. Repayment monitoring: If the Project Owner experiences difficulty repaying the loan, we work closely with them to explore restructuring options that prioritize repayment to investors.
3. Recovery process: In cases where the Project Owner defaults, the property can be sold to recover the loan principal. While a market decline could affect sale proceeds, the secured nature of the loan increases the likelihood of recovering the investment.

Real estate equity investments are more directly influenced by market conditions because they are tied to the performance of the project and the overall value of the property. Here’s how a market decline may affect these investments:

1. Potential for delayed returns: A market downturn could lead to slower sales or reduced rental income for the project, potentially delaying returns to investors.
2. Impact on profitability: Since equity investors share in the project's profits, a lower property valuation or revenue may reduce the overall return.

Crowdestate prioritises investor protection and maintains a strict due diligence process to minimise risk exposure:

• Conservative valuations and due diligence: All projects undergo a rigorous assessment to ensure they are viable even under fluctuating market conditions.
• Diverse opportunities: Offering both loan- and equity-based investments allows investors to diversify their portfolio, balancing risk and return based on individual preferences.

Your investment portfolio on Crowdestate is fully under your control, meaning you decide how diversified or concentrated it is. We offer a wide range of investment opportunities across multiple European jurisdictions, including both mortgage-secured real estate loans and equity investments.

Diversification is a key principle for managing risk effectively. By spreading your investments across different projects, countries, and types of real estate opportunities, you can reduce the risk associated with any single project or market. Crowdestate provides ample opportunities to diversify, allowing you to invest in a mix of real estate assets across different locations and structures.

Ultimately, whether your investment is diversified or concentrated depends on how you choose to allocate your capital among the projects available. We encourage investors to consider diversification as a strategy to mitigate risk and enhance the potential for stable returns.