Arazu - Rough Copy for Comment 20230921.pptx

Development lending is technical and opaque, which drives lenders to limit exposure within their wider real estate debt portfolio.
The main reasons are operational risk on the construction project itself and the complex operational structure required to manage drawdowns to the borrower.

1. Arazu Construction Loan Management Software

2. Operational risk and opacity of development loans scare finance providers and slow down projects Development lending is technical and opaque, which drives lenders to limit exposure within their wider real estate debt portfolio. The main reasons are operational risk on the construction project itself and the complex operational structure required to manage drawdowns to the borrower.

3. Lenders are faced with increased operational uncertainty due to supply chain pressure of invoices paid late in the construction sector in 2022, a 13% increase from 2021. 1 average wait of construction firms to receive payment. 2 52.9% 15 weeks insolvencies in 2023 are in the construction sector. 3 1 in 5 The UK construction industry is notorious for late payments, especially with SMEs. The supply chain is facing “stretched” payment terms, which is “leading to increased distress for those subcontractors at the bottom of the payment waterfall” Philip Stephenson, Partner, Grant Thornton 4 1 CreditNews January 2023, citing a research done my CreditSafe 2 CE Funding and Finance Group, April 2016 3 Supply Management Global magazine, 3 July 2023 4 Supply Management Global magazine, 3 July 2023

4. Asymmetry between the verification of capital and information flow gives a false sense of security Structure Finance Provider Capital Flow Originator Developer Main Contractor Sub-contractors Structure Finance Provider Information Flow Originator Developer Main Contractor Sub-contractors Unverified Unverified Verified Verified Arazu ensures payments are made directly to sub-contractors, which reduce operational risk for the lender AND Provides a centralised dashboard for reporting and monitoring for the lender and capital providers. Verified via a Project Monitor through site visits Verified via periodic audits or unsophisticated verification agents

5. Typical solutions currently used to manage drawdowns Share invoices, spreadsheets and pictures via email: Cumbersome process Information is scattered in people’s inboxes. Not easily accessible and cannot be deemed as the single source of truth Prone to oversights and miscommunication Request Wait until QS report produces a budget and cost to complete overview: Time consuming and delays draws, which puts additional pressure on the supply chain. Does not give the underwriter and lender a clear history of the evolution of the project. Verification Payment supervision by approving each transfer to third parties. Not available or economical on smaller loans and for specialised lenders. Phone verification is carried out but is vulnerable to inaccurate information being provided by sub-contractors. Draw

6. Our goal is to create a construction loan management platform that will reduce operational risk, improve transparency and speed up drawdown turnaround times. See all the project details in one place including budget, performance to date, documents and pictures. Clear Project Overview Streamline drawdown requests by collecting and sharing information with the borrower, the project monitor and your risk and accounts teams. Faster Drawdowns Remove risk of contractors’ non-payment by paying directly via drawdown Payment Certainty

7. Reduce operational risk of construction loans using technology Pay important sub-contractors directly from the drawdown Collaborate with the borrower and the QS to fulfil the conditions of a draw. Receive an overview of unpaid and outstanding invoices Reduce human errors by having a single source of truth. Connect to loan management and accounting systems Transparent and smart view of all documents, pictures and budget for any project, with ability to delve into detail and history

8. Pay important sub-contractors directly, with no reliance on the borrower Choose which invoices you would like to pay directly from each draw. The borrower can also tag invoices to be paid, subject to your or your QS’ approval

9. Direct overview of all unpaid invoices that have been incurred against work progress Know before a draw which invoices need to be paid. It provides greater transparency on the progress of the project and saves time and money for the borrower and the QS.

10. Adopt an easy way for all parties to share documents, photos and budgets. All parties can upload, review and share documents related to a draw easily. Connect with accounting systems to update the financial progress report

11. Review the historical progress of any project or draw easily and share with third parties. The platform allows the lender to build a detailed track record of every borrower. In case of enforcement, the information is easily accessible and shareable with third parties.

12. Future vision Arazu is the platform linking and unifying data from participants at all levels of construction finance - a single source of truth How will we do this? Linking and unifying data: Build an ecosystem of integrations - Loan Management Systems, ERPs, e-Invoicing, Construction Project Management software, Open Banking Using AI to extract and structure data from the many documents involved in the construction finance process, providing access to data in across projects in a standardised format in a way that hasn’t previously been possible Deliver value and insights: Drive operational efficiency for lenders and borrowers by automating the admin intensive process of drawdown request creation, reconciliation Deliver previously unavailable portfolio reporting and insights to lenders and funders Via Machine Learning, leverage a consistent data structure across many projects to power insights and enhanced risk management capabilities

13. Linking and unifying data Structure Finance Provider Originator Developer Main Contractor Sub-contractors Payments Invoicing Performance Tracking Reporting Drawdown Management Monitoring Survey Monitoring Surveyor Phase 1 Phase 2 Phase 3

14. Initial Target Market (UK and Ireland) Total Addressable Market : Loans outstanding from MFIs to construction companies £35.4Bn Sources: ONS, Bank of England, Savills, own data Serviceable Addressable Market : Estimate outstanding <30m per loan in the Private Debt market £2.3Bn £42bn £116 Bn 2013 2021 Total private sector construction output ex-infra. 2022 2025 2X growth of the Private Debt Sector, including Real Estate 2023 2013 Amount of loans outstanding from MFIs to the construction sector £52.2 Bn £34.2 Bn Real Estate non-bank lenders in the UK and Ireland, excluding Family Offices and subordinated lenders 250+ Lenders