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Oxford Capital launches Residential Development Bond

Unlisted secured corporate bond targeting a 7% fixed return over 12 months term

Specialist investment manager Oxford Capital has announced the launch of its Residential Development Bond. It is a co-investment alongside Oxford Capital managed funds, allowing investors to leverage Oxford Capital’s due diligence and deal flow. Returns are generated by charging interest and fees on loans to smaller, but experienced UK house builders that are under-serviced by banks, but crucial to resolving the UK housing crisis. The bond issuer is experienced in lending to UK house builders through its activities for Oxford Capital’s Estate Planning Service (OCEPS). It has already lent £50 million and has several well-advanced projects.

Security is provided in the form of a debenture over the assets of the development projects, including the underlying land, and all of the construction work and materials on the site. This £1 million tranche is likely to be the first of a series with subscriptions sought from direct retail investors in multiples of £10,000.

Development finance expertise is provided by Aberclay Property Finance (the trading name of Aberclay Limited) and Clarke Willmott is the legal adviser for the development loans and the bond issuer. Gross development valuations for the current projects in the bond issuer’s portfolio are provided by Savills PLC.

Richard Roberts, Director of private clients at Oxford Capital, said, “We are very excited about bringing this offering to investors as it represents a real opportunity to earn an attractive return in a low interest rate environment, backed ultimately by bricks and mortar.”

 

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  1. You could lose all the money you invest
    1. If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
  2. You are unlikely to be protected if something goes wrong
    1. Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
    2. Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
  3. You won’t get your money back quickly
    1. Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.
    2. The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
    3. If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.
  4. Don’t put all your eggs in one basket
    1. Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
    2. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest
  5. The value of your investment can be reduced
    1. The percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
    2. These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

 

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.