What is an SPV?
A special purpose vehicle (SPV) is either a subsidiary or sister company created to execute a special purpose, e.g. for real estate investment deals, to control (own) the property title and/or to reach a designated objective or to implement a specific project. For real estate deals, where applicable SPV responsibilities would also include property maintenance and tenant management. For equity related projects, it is a legal entity established for a special purpose or a business objective, i.e. to consolidate crowdfunding investments. If, under a traditional scenario, an investor (a physical or a legal person) invests and receive shares directly in the company, which is raising capital, then under an SPV scenario an investor would receive a share in the SPV, whose sole purpose of existence is to acquire and successfully manage in the future the ownership of shares in the company. The SPV typically does not have any other operations or goals which are not related to ownership and management of those shares in a given company.
What is an LTV?
LTV is Loan to Value ratio. It shows the amount of project funds (loan) that is being (or will be) provided to or for the project in relation to the current valuation (before the implied project investments have been made and/or conditions precedent and subsequent have been met) of the collateral or the underlying asset.
What is an FLTV?
FLTV is Loan to Future Value ratio. It shows the amount of project funds (loan) that is being (or will be) provided to or for the project in relation to the future valuation (after the implied project investments have been made and/or conditions precedent and subsequent have been met) of the collateral or the underlying asset.
What is an XIRR?
Extended internal rate of return (or XIRR) is a function (as a built-in Excel function XIRR) which is adjusted for when (date) the investment was made and when (date) the payouts were made. It reflects in percentages the performance of your investment given the exact time it took for your investments to get repaid. The Internal Rate of Return (IRR) by definition is the discount rate that makes the net present value (NPV) of a project zero.
What is a gross yield?
Typically for real estate projects, gross yield is (in percentages) an estimated return for the project on an annual basis prior to operating expenses and prior to cost of capital. And without the capital gain of the underlying asset (e.g. a real estate).
What is a net yield?
Typically for real estate projects, net yield is (in percentages) an estimated return for the project on an annual basis after all operating expenses were covered and prior to cost of capital. And without the capital gain of the underlying asset (e.g. a real estate). For real estate, it would be rental income minus operating costs and minus direct amortization costs.
What types of an amortizing loan or a loan with an amortization schedule are there?
There are typically three types of an amortizing loan or a loan with an amortization schedule:
- A loan with linear principal repayment schedule: total principal is divided by the number of payment periods, which gives a principal payment amount at each given payment period. Accrued interest is added to the principal payment to get to the total payment due at for a given payment period.
- A loan with annuity principal repayment schedule: total principal is divided by the number of payment periods, which gives a principal payment amount at each given payment period, and accrued interest is added to the principal payment so that the total payment due at for a given payment period is the same for any period. This would (mathematically) imply that the total payment under the annuity principal repayment schedule is smaller than with the linear principal repayment schedule in the earlier payment periods of the life of the loan, and then greater towards the second half of the life of the loan.
- A loan with an individual principal and/or interest repayment schedule, which is determined manually prior to or at closing of the transaction.
What is a bullet loan?
A bullet loan is a loan type with such repayment schedule for principal, which implies that the principal is repaid as a whole at maturity (a bullet).
What is a full bullet loan?
A full bullet loan is a loan type with such repayment schedule for both the principal and interest, which implies that both the principal and interest are repaid simultaneously and as a whole at maturity (a full bullet).
What is equity crowdfunding?
It is a process of raising and managing equity capital for a project or a business from multiple investors by effectively selling shares of the respective company (as a legal entity). And additional capital is raised and transferred directly to the share capital of that project or business (as a legal entity).
What is a convertible loan or a safe-type Instrument?
In certain cases where the investment (loan) cannot be directed immediately to the share capital due to legal and/or project development issues, such us certain conditions precedent to be fulfilled prior to conversion of shares, the financing could be transferred to the project company in form of a convertible loan instrument. A convertible loan (or a safe-type) is thus an investment instrument, which entitles the investor (the representative of the investor) to convert the investment to company shares at a specified conversion rate within a specified timeframe and subject to previously specified conditions precedent for conversion of the investment (loan) to shares.