Investing in real estate with a bill of 10 euros. Here is the original concept of Bricks.co, a startup created in April 2021 by Cedric O’Neill. Quite a unique model in the world of paper real estate, as Bricks.co has neither the status of a real estate investment company (SCPI), nor a crowdfunding real estate platform. What does Bricks.co sell? Future income purchase and sale agreements [ou contrats en royalties]. Specifically, the company buys buildings and then divides them into thousands of shares (so-called bricks) for 10 euros. Then investors have the right to receive part of the rent and capital gains of the building. However, the company remains the owner and manager of the assets. With exciting promises of profitability (rent and potential capital gains), from 6% to 14% per year, the young shoot already has a well-filled hunting list: 35 facilities for a total of 45 million euros, 200,000 registered on the platform and 45 employees .
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A hobby that did not contradict – far from it – their fundraising in late April. If the platform’s customers planned to raise 5 million euros, the entrepreneurs earned 20 million. I must say that the promise given to the participants was attractive: to invest in a startup with the same vehicle as in the purchase of shares in buildings, ie royalty contracts, which could be exchanged at any time on the secondary market.
Discord Fundraising
But this unconventional fundraising attempt was stopped in its infancy, unfortunately by Cedric O’Neill. “When the authorities saw that we had raised funds from 11,500 people, they asked us to change our royalty contracts to financial securities, as they believe that investing in a startup is not associated with such a risk as investing in real estate. . So we will start with the shareholder format, but suddenly those who decide to stay in fundraising face unsecured liquidity, and their funds may be blocked for 2, 3 or 5 years, “said the CEO of Bricks.co. The problem is that the change of status was announced after a fundraiser via YouTube video of less than two minutes, which reported bad news without explaining the reasons for this change.
The result: a monumental resonance and complaints from investors who shouted about the trap and “lack of professionalism” on social networks. A blow to the image of the proptech brand (novice real estate). To put out the fire, Cedric O’Neill wants to reassure: “We are going to send out a subscription form around June 15. Investors will be able to accept new fundraising conditions or get their money back. ”
Not enough to quell the anger of customers, who also point to the lack of information provided by the company. Thus, the investor at the age of thirty regrets “that there is no declaration of income for fundraising, nor any data to find out the true price of the box.” The opacity that the team justifies with the startup’s youth, “but we have hired an independent evaluator, in the form of a subscription will be relevant today,” says Cedric O’Neill. However, the failure of the fundraiser and its poor communication is just the last stone in the pyramid of critics that has affected Bricks.co for several months.
Profitability is less than stated
Enemies focus, in particular, on one point: disappointing productivity. Promises of a return on investment, sometimes ambiguous, now run counter to launch as soon as they are not fulfilled. “The announced prices are very ambitious. At the moment, profitability is observed [dans l’immobilier] ranges from 4 to 6% per year. In general, this type of super-attractive profitability goes hand in hand with assets that are more prone to the risk of vacancies or difficulties with re-leasing., warns Jessica Cooper, director of real estate agency Cushman & Wakefield Bordeaux.
Risks that translate into loss of revenue for some of the buildings offered on the platform. Rents, which are usually shared between mortgages and investors, are in some cases fully reserved for loan repayments. Here is what happened to a building located in Clermont-L’Ero that faced unpaid rent: Brix explained in May that “we will not be able to pay income this month for the rent collected. [aux investisseurs]. The collected income allowed to repay the loan and expenses. ” This situation irritates Damien, who invested in the platform for a short period before selling his shares. “In the end, we get lower returns than SCPI, but with much more concentrated risk because we are betting on both a recent launch and one property at a time.” SCPI proposes to invest in the entire real estate portfolio to reduce the risk of capital loss in the event of a fall in property values. A strategy different from the Bricks strategy, which invites its investors to bet on one or more properties that they can choose from.
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Blocked investors
Some “brikers” do not even have the opportunity to receive their rent when their term of use (the period between the collection of funds from investors and the final act of purchase of property) is extended. Sometimes endless delays. “I invested 1,000 euros in a building in Bretville on December 24, but there are delays signed by a notary, so I still do not receive rent and can not resell their shares,” – says the investor from twenty years. Two other facilities in which he has invested are also facing delays. The main problem for Bricks.co, which claims to know about the problem. “We have had delays with this property because the sellers are in the process of divorce. After this accident, we avoid collecting money from investors as soon as a compromise is signed. We try to be precise about the date of the final act or wait to be sure of the notary’s signature, “adds Cedric O’Neill.
Serial errors
Managing bugs and crashes on a platform or project is also widely criticized. On Wednesday, the user was surprised, for example, to see his account show the balance of 40,000 euros, and he claims to have contributed only 5,000 euros. Various errors that parasitize on the platform and are rarely explained to investors. Last week, 250 customers who replenished their account with a bank card did not see their deposit on the site. To correct this anomaly, Brix decided to freeze the relevant accounts for a few days and postpone the sale of some buildings without informing other customers about the reasons for the delay.
To respond to growing criticism, the startup wants to attract new employees and improve its platform to avoid mistakes in the future. “We only have a year of existence, so it is difficult for us to do everything well. But I’m happy to see negative and constructive comments because they allow us to improve, “said Cedric O’Neill.
The legal framework needs to be clarified
The development of Bricks.co will, of course, depend on the clarification of its legal model. From March 4, the company has has decided to retain its status as a crowdfunding intermediary (IFP), as it “does not correspond to the sale of contracts in the form of royalties”, justifies Cedric O’Neill. Bricks hopes to become a crowdfunding provider (PSFP) by November, but is in legal action.
“This is a problem of innovative startups, they do not have a clear framework for their activities. Financial information is often reported little, so investors take risks and take risks. Even the companies in question should not be assured that they will grow without a secure structure, ”explains Guillaume Obatier, auxiliary lawyer for August Debouzy, who specializes in real estate law. There is no structure that can encourage startups to make mistakes in their activities and be caught by regulators. This also happened to Bricks.co during its last-minute fundraiser, which was closed to the Authorité des Marchés Financiers.