Property developer Bernard McNamara may invest only €5 million of his own cash in the €1.5 billion redevelopment of the Irish Glass Bottle site that he is spearheading.
In return, Mr McNamara stands to make a profit of more than €62 million, according to an information memorandum circulated to other prospective investors.
The developer will have a 41 per cent stake in the project through an investment vehicle called BMcNCo, which will invest €57.5 million in the project. BMcNCo will, in turn, raise €52.25 million in loan stock issued to clients of Davy Stockbrokers.
The remaining €5 million will come from Mr McNamara.
BMcNCo will be entitled to 41 per cent of the projected €296 million pre-tax profit from the development, which will be €121 million, according to the memorandum prepared by Davy for its clients.
However, he will have to repay the loan stock with interest at a minimum cost of €73 million after two years, leaving him with a profit of over €62 million.
If Mr McNamara repays the loan stock after more than two years, he will have to pay additional interest of 17 per cent a year and must redeem the loan stock within seven years in any case.
The money to repay the loan stock will come either from BMcNCo's share of cash generated from the development or from a refinancing of BMcNCo.
The developer has given a personal guarantee to repay the principle of €52.25 million but not the interest. The loan stock is also secured against the shares of BMcNCo and its interest in the shares of the development company.
In a section entitled "risk factors", the memorandum points out: "Although we understand that Bernard McNamara is currently of significant net worth, there is no guarantee that will be the case should the guarantee ever be called upon."
The structure put in place by Mr McNamara, known as mezzanine finance, is becoming increasingly common in large property transactions which, despite being very highly leveraged, need to be underpinned with equity.
The structure of the Irish Glass Bottle site deal by dedicated buyout vehicle, Bidco, is set out in detail in the 25-page memorandum. Mr McNamara's company, BMcNCo, and the other principals will invest a total of €136 million.
The Dublin Docklands Development Authority will invest €32.2 million and an unidentified third party investor will put up €46.3 million.
According to the memorandum, the third party investor is "a prominent Dublin-based property investor who is a co-investor with Bernard McNamara on a number of other projects". Mr McNamara's best-known partner is fellow developer Gerry O'Reilly.
The development company Bidco will, in turn, borrow an additional €288.4 million from Anglo Irish Bank to purchase the "Irish Glass & Bottle site" for €424.4 million through the €412 million takeover of South Wharf plc plus costs.
The memorandum estimates that developing almost 2,116 residential units and other facilities on the site will cost another €1.04 billion. "It is anticipated" this will also be borrowed from Anglo Irish Bank.
The total income from the development is projected to be €1.76 billion, leaving a profit of €296 million.
The project will be phased over five years with the phasing dependent "on market conditions prevailing once construction commences".
Bidco plans to develop 76,737 sq m (826,000 sq ft) of retail and commercial space on the site, which will include 2,166 apartments. More than 1,250 of the apartments will be two-bed units at an average cost of €625,000.
Shareholders in South Wharf, the listed company originally known as Irish Glass & Bottle that owns the site, will vote on December 14th whether to accept the offer from Bidco.
