AN IRISH company that invested in UK commercial properties has told its Irish investors, which include Minister for Jobs, Enterprise and Innovation Richard Bruton, that the cash they invested has been wiped out by the decline in property values.
The firm behind the fifth in the Belfry series of property funds told investors in a letter last June that the properties in the portfolio were valued at £159.4 million (€197 million) in March but that borrowings totalled £174 million (€215 million).
The value of the portfolio had declined by 9 per cent in a year.
“Unfortunately, the decrease in the valuation of the property portfolio means that all equity within the company has been eroded and your investment is valued at nil,” accountants BDO, administrators to the company, told investors.
The series of Belfry funds, which raised about £120 million from Irish investors and are managed by Cheval Properties, the firm controlled by businessman Tony Kilduff, invested in commercial properties outside central London and in English towns.
The fund was a “geared fund”, meaning the investment was made with borrowings but that the loans are non-recourse to the investors, meaning they are not on the hook personally for the loans.
Investors were brought into the funds through AIB Private Banking, the bank’s wealth management business. The later funds in particular have been badly affected by the declining value of UK commercial properties.
A spokeswoman for the bank said: “In what has been a very difficult property market, the fund has continued to manage the properties – minimising vacancies, managing the existing tenants and looking for opportunities to add value for investors.”
Mr Bruton lists his share of the Fifth Belfry Properties (UK) Plc on his register of interests for 2011, according to records at the Dáil. A spokesman for the Minister declined to comment on the matter.
Investors in the company were told in a letter of June 5th, 2012, that it was in breach of certain financial covenants last April and that the company had sought a waiver of these covenants and an extension of the company’s loan for two years to September 2015.
The company said it was trying to maintain and increase income “wherever possible” and to exploit ways of increasing the value of properties in the portfolio.
“Investors should note that in addition to any value created via an active asset management strategy, the group will also require a sustained turnaround in the performance of the UK property market if investors are to receive any return of their initial capital investment,” the firm said.
“Unfortunately, the performance of the UK property market is a factor that remains outside the control of the group.”
The firm told investors it had originally expected their investment to be for eight years but, given market conditions and that this was the seventh year, it would have to run for a longer period if they were to benefit from any upturn in the market.
“This, of course, will be subject to continuing financial support from the lenders. As your investment is focused on geared property assets it continues to be a high-risk investment,” said BDO.
The accountants told investors the administration of Total Fitness UK, a tenant in two properties in Lincoln and Stockton on Tees, had “a significant negative impact” on the overall value of the properties in the fifth Belfry fund. Another property, at 304 High Street in Lincoln, was sold for £3.6 million, about £400,000 more than it was purchased for in 2005, and the proceeds were used to repay borrowings with the lenders.
