Will EstateGuru adviser cause a loss to investors?
EstateGuru has a really good track record when it comes to bad debt recovery and so far no project has caused a loss to investors. But that might change because of EstateGuru’s adviser and minority shareholder (0.1%) Mihkel Roosme.
Mihkel Roosme is involved in many shady real estate deals, but today I will cover the “Zīļu iela 10, Rīga” project that looks suspicious from the start.
Valuation for “Zīļu iela 10, Rīga” land lot on 15.04.2019 was 296k EUR with potential sale in next 18 months. I am not an expert in real estate, but let’s look at background of two persons, who made this appraisal:
A. Zariņš, SIA “Balsts Expert”: last financial report was submitted on 07.06.2018 (for 2017 financial year: 44k EUR in turnover, 1 employee). Companies sertificate to do real estate appraisals expired on 05.09.2019, in 2020 company was suspended by State Revenue Service.
A. Podiņš, independent appraiser, his company did 7k EUR in turnover in 2019, and had 1 employee.
In short - valuation was done by couple of individual real estate experts, but not by one of top companies in this segment. Banks probably would not accept it, but I guess it was good enough for EstateGuru?
Also interesting to look at the last prices when property was sold:
In 2014 DNB Banka sold property to Andrejs for 23k EUR
In 2016 Andrejs sold property to OU Rolegur for 18k EUR:
Could the value of property increase from 18k EUR to 296k EUR in less than 3 years?
15.04.2019: 296k EUR (valuation by SIA Balsts Expert)
31.07.2020: 70.5k EUR (valuation by VCG EKSPERTU GRUPA SIA for forced sale)
Change in valuation: -76%
Of course there is some discount applied for a forced sale, so in normal market conditions maybe the property value is about 100-120k EUR, but I don't think it is anywhere close to 296k as valued by Balsts Expert.
And if that is the case, then EstateGuru provided misleading info to it’s investors - showing collateral value of 296k EUR and LTV: 60.8%
It would be interesting to understand if Mihkel Roosme initial plan was to develop there anything at all? Some things point to a possibility of a fraud:
no real work was done
property was sold in an auction because of debt collection from The Municipal Revenue Office of Riga City, so not even taxes were paid
Mihkel Roosme is involved in other shady real estate deals
no info about what happened to 180k EUR that was raised from investors
The auction of the property was successfully held on 29th of March 2021 and it was won by EstateGuru's debt collection agency who was acting in the name of EstateGuru's investors. EstateGuru remains in control of all the actions in regards to the property and the security agent’s mortgage will remain. After the results of the auction are approved, the property ownership will be transferred to our debt collection partner who will proceed with the sale of the property without the limitations of the forced sale process. This activity was necessary to avoid the property being sold under poor terms to other interested parties and to continue with the agreed activities to realise the collateral on favourable grounds and terms.
How is Mihkel doing?
Looks like EstateGuru is still happy to use his services. At least in December 2020 Mihkel was part of EstateGuru team that opened a branch in Berlin:
The PR agency redRobin accompanies with EstateGuru another market launch of an international FinTech in Germany. Estate Guru, the European market leader for alternative financing, opens a branch in Berlin and now offers its full service to German small and medium-sized enterprises (SME).
Conflict of interest?
Estateguru is one of few platforms where I've seen a special section called “POLICY OF AVOIDANCE OF CONFLICTS OF INTEREST“ and it sounds good in theory, for example:
3.2. In the performance of their functions, all employees of or persons related to EstateGuru must ascertain whether there is any conflict of interest, avoid conflicts of interest or withdraw if there are any potential situations that may cause or provoke a conflict of interest.
3.4. EstateGuru takes measures to ensure that:
a. EstateGuru’s interests have no unfair advantage over the lender’s and/or crowdfunding project owner’s interests and its actions must be compatible with the lender’s and/or crowdfunding project owner’s interests;
b. personal, financial or other interests of EstateGuru, its managers, employees or other associated persons have no influence or appear to have no influence on the provision of services to the lender and/or crowdfunding project owner on behalf of the EstateGuru;
But as we see - in practice it makes no difference, if such a policy is not enforced.
EstateGuru failed to avoid a conflict of interest and failed to properly evaluate if the “Zīļu iela 10, Rīga“ project should be listed in platform at all.
If platform’s own shareholders or management cause a loss to investors and situation is not properly explained, that can create a big damage to investor trust.
EstateGuru plans to realise the collateral on favourable grounds, but it still might cause a 30-40% loss for investors.