Real estate investment with 10 euro banknote. Here is the original concept behind Bricks.co, a startup created in April 2021 by Cedric O’Neill. A rather unique model in the paper real estate world as Bricks.co is neither a real estate investment company (SCPI) nor a real estate crowdfunding platform. What is Bricks.co Selling? Contracts for the sale of future earnings [ou contrats en royalties]. Specifically, a company buys buildings and then divides them into thousands of shares (called bricks) of 10 euros each. In this case, investors are entitled to receive a portion of the rent and capital gains from the building. However, the company remains the owner and manager of the assets. With breathtaking promises of profitability (rental and potential capital gains) ranging from 6% to 14% per year, the youngsters already have a well-filled hunting list: 35 properties totaling €45 million, 200,000 registered on the platform and 45 employees.
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A craziness that didn’t conflict – far from it – with their fundraiser at the end of April. While they planned to collect 5 million euros from the platform’s clients, the entrepreneurs earned 20 million. It must be said that the promise given to the participants was tempting: investing in a startup in the same way as for buying shares in buildings, that is, contracts for royalties that can be was exchanged at any time in the secondary market.
Discord over fundraising
But this unconventional fundraising effort was nipped in the bud, much to the chagrin of Cedric O’Neill. “When the authorities saw that we had raised funds from 11,500 people, they asked us to change our contracts from royalties to financial securities, as they believe that investing in a start-up does not carry the same risk as investing in real estate. . So we’re going to start with an equity format, but all of a sudden those who decide to stay in the fundraising are going to be faced with unsecured liquidity and could face having their funds locked up for 2, 3 or 5 years,” Bricks CEO lamented. co. The problem is that the status change was announced after a fundraiser from a Youtube video less than two minutes long that reported bad news without explaining the reason for the change.
The result: a monumental outcry and investors murmuring about the trap and “unprofessionalism” on social media. A blow to the brand image of proptech (real estate start-up). To put out the fire, Cedric O’Neill wants to reassure: “We’re going to send out a subscription form around June 15th. Investors will be able to accept the new fundraising terms or withdraw their money.”
Not enough to assuage the anger of customers who also point out the lack of information provided by the company. Thus, an investor in his thirties laments “that there is no fundraising earnings report, nor any data to tell the true price of the box.” The lack of transparency, which the team justifies with the youth of the startup, “but we brought in an independent appraiser, in the form of a subscription there will be a cost to date,” Cedric O’Neill assures. However, the fundraising failure and poor communication is just the latest stone in a pyramid of critics who have been influencing Bricks.co for months.
Yield below stated
Detractors focus on one point in particular: disappointing performance. Promises of return on investment, sometimes double digits, now backfire on the startup as soon as they are not met. “The announced tariffs are very ambitious. Currently seeing profitability [dans l’immobilier] fluctuates from 4 to 6% per year. In general, this type of super-attractive returns goes hand in hand with assets that are more at risk of being out of lease or having difficulty releasing.”, warns Jessica Cooper, director of real estate agency Cushman & Wakefield Bordeaux.
Risks that turn into missing income for some of the buildings offered on the platform. The rent, usually divided between the mortgagee and the depositors, is in some cases fully reserved for the repayment of loans. Here’s what happened to a building located in Clermont-l’Hérault facing non-payment of rent: Brix explained in May that “in terms of rent collected, we won’t be able to pay the income this month. [aux investisseurs]. The collected income allowed to repay the loan and fees.” This situation annoys Damien, who invested in the platform for a short period of time before selling his shares. “In the end, we get a lower return 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 in order to reduce the risk of losing capital in the event of a fall in property value. A different strategy from the Bricks strategy, which invites its investors to bid on one or more properties they can choose from.
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Blocked investors
Some “brickers” are not even able to collect their rent when their tenure period (the period between fundraising from investors and the final act of buying a property) is extended. Sometimes endless delays. “I invested 1,000 euros in a building in Bretville on December 24, but there are delays with the notary’s signature, so I still do not receive rent and cannot resell my shares,” the twenty-year-old investor chants. Two other properties he has invested in are also facing delays. Serious issue for Bricks.co who claims to be aware of the issue. “We have had delays with this property as the sellers are in divorce proceedings. After this misadventure, we avoid collecting money from investors immediately after signing a compromise. We try to be accurate on the date of the final deed or wait to be sure there is a notary signature,” adds Cedric O’Neill.
Serial errors
Managing errors and crashes on a platform or projects has also attracted a lot of criticism. On Wednesday, the user was surprised, for example, to see his account display a balance of 40,000 euros, while he claims to have deposited only 5,000 euros. Various bugs that parasitize on the platform and are rarely explained to investors. Last week, 250 customers who funded their account with a bank card did not see their deposit on the site. To address this anomaly, Bricks has decided to freeze the relevant accounts for several days and delay the sale of certain buildings without informing other customers of the reasons for the delay.
In response to growing criticism, the startup wants to recruit new employees and improve its platform to avoid mistakes in the future. “We have only been in existence for a year, so it is difficult for us to do everything well. But I am happy when I see negative and constructive comments, because they allow us to become better, ”says Cedric O’Neill.
Legal framework needs clarification
The development of Bricks.co will certainly depend on the refinement of its legal model. Since March 4, the company decided to leave the status of an intermediary in crowdfunding (IFP), because it “does not correspond to the sale of contracts in the form of royalties”, Cedric O’Neill justifies. Bricks hopes to become a crowdfunding service provider (PSFP) by November, but is currently in legal limbo.
“This is the problem of innovative startups, they do not have a clear basis for their activities. Often little financial information is reported, so investors take risks and take risks. Even the companies in question should not be sure that they will develop without a solid foundation,” explains Guillaume Aubatier, Associate Lawyer August Debuzy, specializing in real estate law. A missing structure that can lead startups to make mistakes in their operations and get caught by regulators after the fact. The same thing happened to Bricks.co during a fundraiser that was interrupted at the last moment by the Autorité des Marchés Financiers.