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05
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05
.
2021

Underwriting at LINUS: Technology-based approach plus network expertise

LINUS receives financing requests worth several billion euros every year - but only a fraction of these are actually disbursed as financing for real estate projects. The underwriting process decides who receives financing and who does not. We asked our Managing Director Investments Maximilian Könen how this actually works.

Maxi, you head the Investment Team together with Lucas Boventer. You are both responsible for underwriting. What exactly do you do there - and what is special about the process at LINUS?

The heart of underwriting is, of course, the question: Do we extend a loan or not? And if so, on what terms? This check often takes months in conventional lending. With a technology-based approach and our lean processes, it takes just four to six weeks at LINUS after the financing request until the financing is disbursed. In doing so, we act with the same diligence as large banks and other alternative financiers.

What happens in this underwriting process?

Depending on the type of project, the process involves 30 to 35 steps - but it can easily be broken down to three milestones: First, the investment team conducts an initial internal review. If this is successful, LINUS and the project developer ensure mutual exclusivity before the more in-depth due diligence begins in the third step: The due diligence is the joint responsibility of the investment team and our independent back office team with our CRO Julia Kneist in the lead.

All right. What happens in the preliminary examination by LINUS?

In the first phase, our investment team reviews the financing request: depending on the project, we look at 10 to 15 different parameters, such as the location, the economic parameters, e.g. rental and sales prices, and the business plan. If the project passes this first preliminary examination, it is presented to our first internal committee for a vote.  

In this first internal committee , a vote is taken by the investment team: the responsible team member presents the project to Lucas, our CEO and founder David and me. Only if all open questions can be clarified will the project make it to the next round.

In the second internal committee , the vote is not only with the investment team, but also with Julia Kneist. Before joining LINUS, Julia spent 12 years at CBRE, the world's largest commercial real estate services company. In addition, she is qualified as a real estate valuer for financial purposes according to HypZert and is a member of RICS, the professional association for the real estate industry: Julia's expertise and the vote of her team are very central components of our audit.

Once a project has passed these two internal committees and received the approval of our investors, we agree on mutual exclusivity with the project developer: the process of due diligence, the deeper examination, is set in motion to finally make the decision whether to finance the project.

Ok, so the first test has been passed: What happens now in the due diligence?

While the preliminary review is carried out internally, we also commission reviews by external experts during due diligence in order to analyse certain aspects of the financing request in greater depth.

What we check, and how carefully, always depends on the type of financing. A comprehensive legal review of all existing contracts is, of course, always carried out. In the case of existing properties, for example, we also request a technical report on the building in order to assess whether further renovations are necessary - such assessments are of course irrelevant in the case of land purchases.

If the respective project developer reliably meets its estimated budgets in projects that have already been completed, we include this in our assessment, for example. So it is also always a matter of assessing what we trust the respective project developer to do. To this end, we also obtain second opinions from our network.

That sounds very manual at first. What exactly is this process technology-based?

In the end, it is an interplay of both: we work with huge databases, such as realxdata, so we can determine data such as rents and sales prices to within 300 metres and check them for plausibility using our own database.

However, we then evaluate this data ourselves and compare our assessment with those of the best real estate experts. Of course, we don't get such second opinions from databases - that's where we pick up the phone.

At some point, the evaluation of data will certainly be mapped with the help of artificial intelligence. But we are still a long way from being able to technically map the evaluation of data based on years of experience by Julia, Lucas, me and the best real estate experts in Germany.

Thank you, Maxi!

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