Debt investments available on The Restack platform are through privately placed Non-Convertible Debentures (NCDs) secured by real estate projects. You can read more about NCDs in our earlier blog: Debt Investments: What are Real Estate Non-Convertible Debentures (NCDs)?

Diving deeper, we’ll explore the process of how these NCDs are serviced from the cash flows of the underlying real estate project security. This will provide a deeper understanding of the security mechanism and its operation by a Debenture Trustee to safeguard your investment.

How does the NCD investment process work?

Investors can explore the diverse real estate investments on the platform and select the one that best matches their investment goals.

• Upon choosing the desired investment, investors need to make a token payment of 5% of their investment amount. This grants them access to the data room which contains the diligence documents for the investment. The balance 95% is called once the investment opportunity reaches its funding target. The token & balance 95% of the investment amount are collected in a separate escrow account. This provides complete security on your investment funds.
• Simultaneously all transaction documents including Debenture Trust Deed are executed and security on the real estate project is created. These documents are kept in custody with the Debenture Trustee and lay the foundation for safeguarding your investment.
• The funds are then disbursed to the developer and subsequently NCDs are issued directly to the investor’s DEMAT account.

How is your high return investment secured?

Echoing the principles outlined in our earlier blog Debt Investments: Screening Process for Real Estate NCDs, all Debt Investment Opportunities of prominent developers on The Restack platform are fortified with multiple layers of security managed by an independent third-party Debenture Trustee:

• Mortgage on Project with a significant Security Cover upwards of 1.75 times
• Escrow on Project Cash Flows
• Corporate Guarantees

How does the payment of Interest & Principal happen?

• As the Developer (Issuer of debentures) constructs the project, for every unit he sells in the project, he requires a No Objection Certificate (NOC) from the Debenture Trustee. This is because the Project is mortgaged in favour of the Trustee, on behalf of the debenture holders. The NOC stipulates that all the sales proceeds from the customers are deposited in the project Escrow Account.
• All collections collected in the escrow account are further managed and controlled by the Debenture Trustee, ensuring full control on project sales proceeds. This ensures priority for scheduled interest and principal payments to the debenture holders. This meticulous management safeguards your investment throughout the tenor.
•  Additionally in case of any adverse market condition that impacts project sales, the corporate guarantees provided ensure that the developer infuses his own money for debenture servicing, adding an additional layer of security.

Experience Hassle free investments with The Restack. Earn up-to 16% IRR with Real Estate backed Debt Investments. Starting at Rs.10 Lakhs.

Disclaimer:

NCDs are subject to risks. Please make your own independent assessment of the merits and the risks of the investment opportunities available on the platform or mentioned in this blog, and conduct your own diligence and consult your own advisors on the legal, business and tax matters. The Restack does not give any investment advice or recommendation in respect of the opportunities available on the platform or mentioned in this blog and accordingly, nothing on the platform or in this blog should be considered as an investment advice or recommendation. Please refer the terms and conditions for further details.

Glossary:

Debenture Trustee: A third-party institution, usually a Bank or Trust Company which protects the interests of debenture holders. They monitor the company’s compliance with the Debenture Trust Deed, such as timely interest and principal payments and proper fund utilization. They also operate and control the cashflows of the real estate project (security) through an Escrow mechanism. In case of any defaults, the trustee has the right to take legal action on behalf of the NCD holders to recover their investment dues through Mortgage and protect their interests. Overall, the debenture trustee safeguards the rights of NCD holders and ensures transparency and accountability in the NCD issuance process.

Mortgage: A financial arrangement in which the developer pledges the project/asset as collateral to the NCD holders in the name of the Debenture Trustee. This gives the right to the Debenture Trustee to take possession of the project/asset through foreclosure and protect their interests.

Escrow: A financial arrangement in which the Debenture Trustee controls and manages cashflows of the project in a dedicated controlled bank account.

Corporate Guarantee: A commitment made by the developer’s parent company to take financial responsibility for its borrowing company’s obligation in case it fails to meet them.