Risk Disclosure

Risk Disclosures from UNIVERS Capital GmbH on behalf of our project companies for our users

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If you intend to invest in a crowdfunding service (EU Regulation 2020/1503, Crowdfunding Regulation, also known as European Crowdfunding Service Provider = ECSP) in the form of an ECSP loan, the following risk disclosure applies:

Risk Disclosure

Investments in this crowdfunding project involve risks, including the risk of a partial or total loss of the invested funds. Your investment is not protected by the deposit guarantee schemes established under Directive 2014/49/EU of the European Parliament and of the Council. Your investment is also not protected by the investor compensation schemes established under Directive 97/9/EC of the European Parliament and of the Council.

You may not receive any return on your investment.

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This is not a savings product, and we advise you not to invest more than 10% of your net worth in crowdfunding projects.

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You may not be able to sell the investment instruments at any time. Even if you are able to sell them, you may still incur losses.

If you intend to invest in a MiFID II investment (security token debt instrument), this risk disclosure applies

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Risk Disclosure

The purchase of these securities involves significant risks and may result in the complete loss of the capital invested. Such risks also exist with other investments.

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The following additional risk disclosures apply:

• Introduction
• General Risks
• Special Risks
• Specific Risks Associated with ECSP Loans
• Risks Associated with Bonds
• How Real Estate-Based Investments Work and Their Risks

1. Introduction

Every investment carries certain risks, which is why it is absolutely essential to develop a basic knowledge and understanding of such risks. The following explanations are intended to provide a basic understanding of these risks.

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1.1 Objectives

The goal of any investment is always to grow or preserve wealth. This can be achieved, above all, by consciously taking on risks to capitalize on potential returns. However, this requires accepting the risks associated with the various asset classes and, above all, being fully aware of them.

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1.2 The Interplay of Return, Security, and Liquidity

The three cornerstones of an investment are, specifically, return, security, and liquidity.

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• Return is generally understood as the measure of an investment’s financial success—that is, the income generated by the invested capital over a specific period. This also includes dividends and interest payments.
• Security refers to the preservation of the invested capital. How secure an investment is depends on the risks to which it is exposed.
• Liquidity describes the availability of the invested capital—that is, whether, when, and at what cost the invested capital can be sold.

These three cornerstones of an investment interact with and influence one another. Thus, an investment with high liquidity and high security typically has a low expected return. On the other hand, this means that high returns and high liquidity generally come with lower security. Conversely, if an investment offers both high returns and high security, it is illiquid. An investor must therefore weigh their goals against one another based on their individual preferences and personal circumstances.

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1.3 Risk Diversification

When deciding on an investment, it is particularly important to be aware of the interplay of various risk factors. To reduce risk, investors should spread their capital across multiple investments. In other words, diversification should be employed to achieve a reduction in risk.

Through an appropriate combination of various investment instruments, portfolio risk can be reduced while still taking the target return into account. This targeted spreading of investments to reduce investor risk is referred to as “diversification.” Diversification is based on the fundamental principle that one should not assume the full risk by investing all capital in a single investment, as this approach entails an unnecessarily high level of risk. Diversification can reduce the underlying risk in any case, although the degree of reduction depends on how independently the prices of the individual portfolio components evolve. As a result, losses from one investment can be offset by potential gains from another investment.

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2. General Risks

In addition to the specific risks inherent in individual asset classes, investment instruments, and financial services, there are also general risks associated with any investment. Some of these risks are described here. However, this list is not exhaustive.

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2.1 Economic Cycle Risk

Economic development typically follows a wave-like pattern and is characterized by so-called upturns, peaks, downturns, and ultimately troughs. These economic cycles, in turn, are shaped by and dependent on decisions made by governments and central banks. Furthermore, individual cycles can last from several years to decades and thus have a significant impact on the performance of various asset classes. If the economy is in a downturn, this can have a lasting negative impact on the value of the investment.

2.2 Inflation Risk

Currency devaluation can result in a loss of wealth; this is known as inflation risk. If inflation exceeds the nominal interest rate on an investment, this leads to a loss of purchasing power equal to the difference. This is generally described as a negative real interest rate. The real rate of return can serve as a benchmark for such a potential loss of purchasing power. For example, if the nominal rate of return on an investment is 6% and inflation during that period is 4%, the real rate of return per year would be only +2%. If inflation is even higher than the nominal rate of return, the real rate of return can also fall into negative territory.

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2.3 Country Risk

A debtor based abroad may not be able to settle its debt on time, even if it is technically solvent. This can result from the respective government’s influence on the currency and its transferability. Such influence can stem primarily from political and social factors, a change in government, strikes, or even non-political conflicts. The investor may suffer a financial loss as a result.

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2.4 Currency Risk

If an investment is made in a currency other than the investor’s own, the return does not depend exclusively on the return of the investment in the foreign currency. The exchange rate can have a significant impact on this return. A loss can occur if the foreign currency in which the investment was made depreciates against the domestic currency. On the other hand, this can also result in a financial gain. This fundamental risk applies to cash investments as well as to investments in stocks, bonds, and other financial products denominated in a foreign currency.

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2.5 Liquidity Risk

If an investment can be bought and sold at short notice and the bid and ask prices are close to each other, it is considered liquid. For such an investment, there are normally always enough buyers and sellers, ensuring smooth and consistent trading. However, if a period of insufficient liquidity arises, the ability to sell an investment quickly can no longer be guaranteed. Furthermore, the investment may have to be sold at a lower price. In the event of a price decline, this can result in a financial loss for the client.

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2.6 Cost Risk

Both explicit and hidden costs may arise, which the client should always take into consideration. For long-term investment success, the costs that may be incurred should not be neglected and, above all, should be examined with great care.

Costs that may arise at banks and other financial institutions include, among other things, transaction costs for the purchase and sale of securities, as well as commissions for executing or brokering orders. However, follow-on costs may also occur at banks, fund providers, or other financial service providers in the form of custody fees, management fees,

sales charges, or other commissions that may not be immediately apparent to the client. These costs should be factored into an overall assessment whenever a decision is made. The higher the costs, the lower the actual returns that can be achieved.

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2.7 Tax Risks

As a general rule, investors must pay taxes on their investment income. Changes in the tax framework governing investment income may lead to a change in the tax burden. Furthermore, if the investment is made abroad, the so-called double taxation treaty must be taken into account. Taxes and other levies can thus reduce the effective return on the investment. Tax policy decisions can also have an impact—both negative and positive—on the performance of capital markets.

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2.8 Risk of Leverage-Financed Investments

To increase the investment amount, investors may take out loans or other forms of financing against their investments with the aim of further increasing the investment amount. If the investment loses value, this can result in the investment no longer being able to cover the loan’s interest and principal payments. In this case, the investor may be forced to sell the investment. Financing an investment with a loan therefore involves a very high level of risk and can result in the investor suffering significant losses.

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2.9 Risk Arising from a Lack of Information

Accurate information is the foundation of a successful investment. If this information is insufficient or even incorrect, it may lead the customer to make a wrong decision.

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2.10 Risks Arising from the COVID-19 Pandemic and Force Majeure

It cannot be ruled out that extraordinary risks such as epidemics, earthquakes, environmental disasters, armed conflicts, plane crashes, or other events of force majeure may occur and affect the property. Any of these events could have a significant negative impact on the issuer’s net worth, financial position, and earnings, and could jeopardize investors’ claims to interest and principal.

The COVID-19 pandemic (coronavirus) and the ongoing armed conflict between Russia and Ukraine, as well as the associated—in some cases significant—economic burdens on large segments of the economy and the population, may have a significant negative impact on the issuer and on the project property held by the project company, particularly on the renovation, planning, management, or sale of the property, as well as on the proceeds from the sale and the long-term financeability of the property. Beyond its immediate consequences, the COVID-19 pandemic may also have a long-term negative impact on the future development of the property and the real estate market. The ability to sell the property and to refinance the loan may become more difficult or even impossible. Furthermore, the pandemic—along with other market factors such as market trends, economic conditions, monetary policy, and interest rate policy, have an adverse effect on the real estate development industry, such that the companies involved in planning the property may be unable to complete the planning within the intended timeframe. Furthermore, investors may be less willing to subscribe, leading to reduced or even no success in placing the investment.

As of the date of the offering documents, the consequences of the COVID-19 pandemic cannot be estimated. This risk may jeopardize investors’ claims to interest and repayment.

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2.11 Risks Arising from General Legislation and Market Conditions

The issuer and the project company cannot rule out future changes to the laws, regulations, and guidelines in effect as of the date of the offering documents, nor to their interpretation. For example, the so-called “rent cap” was enacted in Berlin, and its introduction is also being discussed in other cities. In this regard, there is a general possibility that legislative, judicial, or regulatory measures and/or a change in market conditions could have a negative impact on the liquidity of the issuer and the project company, which could jeopardize the repayment of the loan and, consequently, the investors’ claims to interest and principal.

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3. Specific Risks

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3.1 Risks Associated with the Investment

3.1.1 Placement Risk

There is no placement guarantee for the investment. In this respect, the investment is subject to a placement risk, which may result in the issuer having insufficient capital available for the intended investments. In the event that the placement is not sufficiently successful, the issuer will repay the loan to investors at par value. Since the issuer will not have generated any interest income in this case, interest on the loan cannot be paid.

3.1.2 Lack of Marketability of the Real Estate

Although early sale of the investment is possible in principle, its marketability is severely limited. A sale of the investment is only possible outside the stock exchange, which may render a sale impossible. It also cannot be ruled out that an investor may only be able to sell the investment held by him or her at a price significantly below the face value.

3.1.3 Subordination of Investors’ Claims

To the extent that subordination of the loan claim has been agreed upon, please note the following: In insolvency proceedings concerning the issuer’s assets and in the event of the issuer’s liquidation, investors’ payment claims arising from the loan (interest payments and repayment of the loan principal) are subordinated to all non-subordinated claims. This may result in a partial or total loss of the investment amount.

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3.1.4 Risk of Early Repayment of the Investment

In certain cases, the issuer is entitled to terminate the loan early and repay investors. In this case, the investor bears the risk that, as a result of the early repayment of their investment, the total return will be lower than expected. Furthermore, it is possible that the investor may be able to reinvest the repaid capital only under less favorable terms.

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4. Specific Risks Associated with ECSP Loans

4.1 Risks Arising from the Loan

The issuer’s financial success and its ability to meet its interest and repayment obligations depend exclusively on the interest income from the loan and on the repayment of the loan by the project company. The loan is subordinated to the loan agreement (the “Loan”) entered into by the project company with a German financial institution (the “senior lending institution”) (the “Loan”) only to the extent that subordination has been agreed upon. In this respect, there is a risk that, in the event of a failure to sell the project or insufficient proceeds from the sale, the liquidity position of the project company and the issuer will not permit the payment of interest and/or repayment of the loan amount. The loan is serviced only on a subordinated basis relative to the loan agreement.

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This means that the mezzanine loan is often structured as a subordinated liability, which may result in senior liabilities, such as bank loans, being paid first in the event of insolvency.

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4.2 Risks Arising from the Senior Loan

The loan may be terminated at any time by the senior lending institution if there are valid reasons. If a ground for termination exists, there is a risk that the senior lending institution will demand immediate repayment of the loan in full and threaten to foreclose on the collateral. In all likelihood, the project company will only be able to make an early repayment of the loan after the property has been sold. In this regard, there is a risk that the realizable proceeds from the sale of the property will not be sufficient to fully satisfy the senior lender. This risk may jeopardize investors’ claims to interest and principal.

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4.3 Risks Arising from Losses in Value

There is no guarantee that a specific return or income target will be achieved. Past returns or forecasts are no guarantee of future success. Portfolio investments are not subject to market-price valuation by the secondary market and may be subject to write-downs, including extraordinary ones. In exceptional cases, the liquidation of the portfolio or individual investments may result in significant losses in value.

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4.4 Risks Due to Time Limits

In some cases, the provision of mezzanine financing may be subject to a time limit, which can pose a refinancing risk.

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4.5 Risks Due to Higher Transaction Costs

When providing mezzanine capital, investors must bear in mind that transaction costs are higher. Interest costs are higher than with other financing options because mezzanine capital carries a higher risk.

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4.6 Risks Due to Limited Say

Investors have only limited say regarding day-to-day operations. This primarily relates to the right to information and oversight mechanisms

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5. Risks Associated with Bonds

5.1 General Information

The term “bond” generally refers to interest-bearing securities, also known as fixed-income securities. So-called index-linked bonds, mortgage bonds, and structured bonds also fall under this umbrella term. However, the basic mechanism is the same for all types. Both private companies and public-law entities of the state can issue bonds. It is important to note, however, that they do not grant the holder any equity rights. Rather, the issuer raises debt capital by issuing a bond. Bonds are tradable securities with a face value (amount of the debt), an interest rate, and a fixed term.

The issuer commits to paying investors an interest rate, which is due either at regular intervals or cumulatively at maturity. However, the amount of interest depends on various factors. Important factors include the issuer’s creditworthiness, the bond’s term, the underlying currency, and general market conditions. At the end of the term, the investor also receives the face value back. If the interest rate is higher, this generally also indicates a higher credit risk on the part of the issuer. The interest paid on the face value constitutes the investor’s return. However, the difference between the purchase price and the sale price also contributes to the return. Bonds, just like stocks, can be traded on exchanges or over-the-counter.

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5.2 Specific Risks Associated with Bonds

5.2.1 Issuer/Credit Risk

One of the greatest risks associated with investing in bonds is the risk of default by the issuer. If the issuer is unable to meet its obligations to investors, there is a risk of total loss. However, in the event of the issuer’s insolvency, any claims by investors may be satisfied from the estate of the insolvent issuer, since the invested capital is considered debt. An issuer’s solvency is assessed at regular intervals by rating agencies. Based on this assessment, the issuer is assigned to a corresponding risk category. If an issuer has a relatively low credit rating, this is usually offset by a higher interest rate. In the case of a covered bond, the credit rating also depends on the scope and quality of the collateral.

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5.2.2 Inflation Risk

Currency devaluation can result in a financial loss; this is known as inflation risk. For a bond, this means that inflation may rise during the bond’s term to a level that exceeds the bond’s interest rate, resulting in a negative real interest rate for the investor.

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5.2.3 Interest Rate Risk and Price Risk

The level of the key interest rate, which is determined by central banks, influences the value of a bond. If a bond has a fixed interest rate, for example, it tends to be less attractive when interest rates rise, and the price of the bond falls.
Even if the issuer does not pay the interest rate and the face value until maturity, this can result in a loss for the bondholder if the bondholder sells the bond at a time when its price is below the issue price or purchase price.

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5.3 Token-Based Bonds

5.3.1 General Information

A token-based bond is a debt instrument that can be transferred via a token. The debt instrument is subordinated and subject to a pre-insolvency enforcement bar. Token-based debt instruments create interest and repayment obligations of the issuer to the investors, consist exclusively of subordinated, contractual claims of the investors against the issuer, and do not grant any participation, participation, participation, or voting rights at the issuer’s shareholders’ meeting. The pre-insolvency enforcement bar means that, in the event of the issuer’s financial crisis, an investor cannot enforce claims for interest and repayment if such claims would trigger the issuer’s insolvency.

The rights arising from the token-based debt securities are not evidenced by a certificate. Therefore, no certificate is deposited with a custodian bank. For each debt security, the issuer issues a token to the investors, which represents the rights arising from the token-based debt securities.

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5.3.2 Specific Risks Associated with Token-Based Bonds

• Marketability: While early sale of the token-based bonds is generally possible, However, the marketability of the token-based bonds is severely restricted. It also cannot be ruled out that an investor may only be able to sell the token-based bonds held by them at a price significantly below par value.
• Risk due to the pre-insolvency enforcement bar: All claims arising from the token-based bonds—in particular, claims for payment of interest and repayment of the principal—cannot be enforced as long as and to the extent that the partial or full satisfaction of these claims would lead to the issuer’s insolvency (pre-insolvency enforcement bar). The pre-insolvency enforcement bar therefore applies even before the commencement of insolvency proceedings. Consequently, the investor cannot demand fulfillment of his or her claims arising from the token-based debt securities if the issuer is at risk of becoming insolvent at the time the investor demands performance. The pre-insolvency enforcement bar may result in a permanent, unlimited non-fulfillment of the bondholder’s claims.
• Risk of Losing the Private Key: Upon issuance, the tokens are allocated to the investors’ respective wallets. Investors can access the tokens only through their respective personal access (known as the private key) to their wallet. If the private key falls into the hands of a third party, that third party may misuse an investor’s wallet and carry out unauthorized financial transactions. The loss of the private key—even if it is simply “forgotten”—results in the irretrievable loss of the tokens. The issuer does not know an investor’s private key; it can neither retrieve the private key nor restore or grant access to the wallets in any other way. Investors should therefore ensure they keep their private key secure.
• Risks Associated with Blockchain Technology: Blockchain technology, as well as all related technological components, remains in an early stage of technical development. The token is created when the issuer generates the number of subscribed tokens on the respective blockchain and then transfers them to the investors’ wallet addresses by assigning the tokens to the investors’ respective addresses. Blockchain technology may contain errors that could result in unforeseeable consequences in the future. Blockchain technology may also be subject to technical difficulties that impair its functionality. A partial or complete breakdown of the blockchain could disrupt or render impossible the tradability of the tokens.
• Risk of Hacker Attacks: Blockchain technology, smart contracts, and/or investors’ wallets may be vulnerable to attacks by unauthorized third parties, i.e., hacked

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6. How Real Estate-Based Investments Work and Associated Risks

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6.1 Risks Related to the Real Estate

6.1.1 Risks Arising from the Property’s Design

The quality of the property’s planning is of significant importance with regard to its marketability, value appreciation, and price. There is a risk that the planning may contain defects. Unresolved or irreparable planning defects may have a negative impact on the property’s overall value appreciation as well as on the sale proceeds that can be realized for the property.

There is a risk that delays may occur during the property’s planning phase, e.g., due to building permit procedures, delays in or failure to obtain necessary approvals, such as delays in planning, planning errors, contaminated sites, increased project costs, default or poor or non-performance by project partners, the failure to establish or enforce warranty claims, (subsequent) regulatory requirements, strikes or other force majeure events, changes in the general economic situation, the micro- or macro-location, or the legal or tax framework. Furthermore, there is a risk that the costs of planning the property will exceed the projected total investment costs and that the project company will have to raise additional debt to cover these higher costs. Unforeseeable events, such as faulty project planning or incorrect cost calculations, can lead to additional costs that render the property uneconomical.

In the worst-case scenario, the property may not be completed. Any of these factors could negatively impact the issuer’s future income. The materialization of these risks could result in a delay or a partial or total failure to repay the investment.

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6.1.2 Risks Arising from Defective Execution of the Property’s Construction

There is a risk that delays may occur during the construction of the property, e.g., due to building permit procedures, delayed or failure to grant necessary approvals (such as for the shell of the building and/or final inspection), planning or material errors, contaminated sites, construction delays or interruptions, increased project costs, failure or poor or non-performance by project partners, the invalidity or unenforceability of warranty claims, (subsequent) regulatory requirements, strikes or other acts of God, changes in the general economic situation, the micro- or macro-location, or the legal or tax framework.

Furthermore, there is a risk that the costs of constructing and renovating the properties will exceed the financing planned for the project, and that the project company will have to raise additional debt to cover these higher costs.

Unforeseeable events, such as flawed project planning or incorrect cost calculations, can lead to additional costs that render the property uneconomical. In the worst-case scenario, the property may not be completed. Any of these factors could negatively impact the issuer’s future income.

The materialization of these risks could lead to a delay or a partial or total failure to repay the loan.

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6.1.3 Risks Associated with the Property’s Lack of Marketability or the Failure to Secure Long-Term Follow-On Financing

The project company’s ability to ensure repayment of the loan—whether through the proceeds from the sale of the property or by securing long-term follow-on financing for the property—depends on many factors, e.g., the quality of the location, investor demand, market- and property-specific developments (particularly in the real estate and interest rate markets), as well as macroeconomic or industry-specific circumstances. The loan must be serviced on a senior basis. Consequently, if the proceeds from the sale are insufficient to fully repay the loan and the interest due, the issuer would not receive sufficient proceeds from its loan claim to satisfy the investors’ claims.

There is a risk that insufficient sales proceeds will be generated and that long-term follow-on financing cannot be secured on acceptable terms, that the loan will not be serviced or will only be partially serviced, and that this will result in the issuer’s insolvency and a total loss of the capital invested by the investor.

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6.1.4 Risks Associated with the Property’s Lack of Marketability

The project company’s ability to ensure repayment of the loan using the proceeds from the sale of the property depends on many factors, such as the quality of the location, investor demand, market- and property-specific developments
(particularly in the real estate and interest rate markets), as well as macroeconomic or industry-specific circumstances. The loan must be serviced on a senior basis. Consequently, if the sales proceeds are insufficient to repay the loan, the issuer would not receive sufficient proceeds from the loan claim to fully satisfy the investors’ claims.

There is a risk that insufficient sales proceeds will be generated, that the loan will not be repaid or will only be partially repaid, and that this could result in the issuer’s insolvency and a total loss of the capital invested by the investor.

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6.1.5 Risks Arising from Construction Defects in the Property

The construction quality of the property is of significant importance with regard to the property’s value appreciation and marketability, as well as its long-term rentability. There is a risk that, during the construction of the property, contractors involved in the construction work (e.g., general contractors, architects, engineers, tradespeople, interior designers) may occur or have already occurred, or that other undiscovered defects or pre-existing contamination (e.g., soil contamination) exist on the project site. This may result in additional costs to the project, which could ultimately render the project uneconomical. Even if the project company is generally entitled to claims for rectification and claims for damages against the contractors due to defective work, these claims may not be enforceable for legal or factual reasons, meaning the project company would have to bear the costs of remedying the defects itself. Furthermore, poor workmanship may result in follow-up costs (legal fees, expert fees) that would further increase expenses. Costs for remedying unidentified construction defects must therefore be financed by the project company using available liquidity and/or by raising additional debt capital. Unresolved or unresolvable construction defects may have a negative impact on long-term rental/lease income and, consequently, on the property’s overall value appreciation as well as on the sale proceeds that can be realized for the property. Each of these factors may adversely affect the issuer’s future income.

The materialization of these risks could lead to a delay or to a partial or total failure to repay the loan.

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6.1.6 Risks Arising from the Development of the Property’s Location

6.1.6.1 General

Residential real estate (such as apartments and townhouses) and commercial real estate (such as office buildings and retail space) in which issuers invest or which they manage fall under the real estate investment asset class.

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6.1.6.2 General Risks

• Income Risk: When a property is acquired, it requires a significant initial investment that only pays off over time through potential cash flows such as rental income. However, an initial investment may be limited in its usability, both in terms of time and physical characteristics. This can mean that the debt associated with the initial investment takes longer than planned to be repaid.
• Valuation Risk: Location, surroundings, usable area, year of construction, etc., play a decisive role in the valuation of a property. Additionally, there is the issue that there are various submarkets that are geographically separate from one another. As a result, a valuation depends on a vast number of criteria, and making forecasts is difficult.
• Liquidity risk: Due to the various submarkets and the unique nature of individual properties, real estate is generally classified as illiquid. This can impact the processes of valuation, sale, and transfer of title, potentially prolonging them. As a result, it is generally difficult to quickly realize the property’s value.
• Transaction risk: The valuation, sale, and transfer of ownership of direct real estate investments can incur relatively high costs.

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6.1.6.3 Specific Risks

• Risks related to the condition of the property: Construction quality is of particular importance here, as it influences the long-term ability to rent out the property and its value appreciation. There is a risk that undetected construction defects may arise. Costs for repairs or similar measures may arise. Even structural defects that cannot be remedied may lead to a reduction in rent and thus adversely affect future rental income. These risks can therefore jeopardize investors’ claims to interest and principal.
• Risks arising from the rescission of the real estate purchase agreement: Although many properties are purchased under a contract for the transfer of a right, ownership has not yet been transferred in rem. If the purchase price is not paid when due, the business model described in the respective prospectus cannot be implemented, as the purchase agreement may be rescinded. In this case, the bonds are repaid to the investor at face value, but no interest is paid.
• Risks Associated with Property Renovation: The renovation costs for a property may turn out to be higher than planned. In particular, unplanned events—such as flawed project planning or persistently poor weather conditions—can significantly increase costs. Construction delays can also increase the costs of completion. As a result, the issuer may no longer be able to pay the interest and principal on the loan obligations. This then creates a risk of insolvency on the part of the issuer.
• Risks Arising from Construction Defects in the Property: There is a risk that the construction or renovation of a property will be defective. Even though the issuer generally has claims for damages and rectification, these claims may not be enforceable. Consequently, costs may arise to remedy the defects, as well as consequential costs. Construction defects that cannot be remedied may also lead to reduced rent and thus adversely affect future rental income. These risks may therefore jeopardize the bondholders’ claims to interest and principal under the bond.