Investors in Anglo fund may seek redress over ultimate use

Anglo denies conflict of interest in investing private clients’ money into properties developed by firms to which the bank lent

ANGLO IRISH Bank valued a Manchester property, in which it had invested on behalf of private clients, at £29.23 million just three months after it had paid more than £56 million for it in November 2008.

The decision to invest in Chancery Place, a property developed by Alanis Capital, a major borrower of Anglo’s, is one of a number of investment decisions that investors in Anglo’s European Geared Property Fund are querying.

Investors are considering taking legal action, with LKG Solicitors acting on behalf of some of the investors.

The European Geared Property Fund was marketed by Anglo Irish Bank’s private banking division in 2006. The remit of the fund, according to the original documentation advertising it, was to “invest in a portfolio of office, retail and mixed-use properties across Ireland, the United Kingdom and continental Europe”.

An analysis of the 10 initial properties in the fund shows that nine were developed, either wholly or in part, by Irish developers, with Anglo providing the bulk of the lending for each property.

Another was sourced, negotiated and secured by Irish company Corporate Finance Ireland Ltd.

Alanis, the company behind Chancery Place, which is controlled by Dublin developer John McCormack, was the joint venture partner in five of the initial 10 properties in the portfolio.

D2 Private, Howard Holdings Principals, CFI and Wealth and Property Solutions Ltd were joint venture partners in the others, with Spencer Dock in Dublin also included in the initial portfolio.

Anglo Irish Bank was the main lender to most of the development properties in the fund, lending at least €330 million to the original developments in the portfolio. This had the result that most of the properties were financed by a mix of Anglo loans and equity investment from Anglo’s private clients through the European Geared Property Fund.

In addition, it is believed that most of the people who invested in the properties through the fund were lent money by Anglo to do so.

The original brochure advertising the fund states that “each property has been assessed separately to ensure its appropriateness as an investment for the fund”.

Anglo Irish Bank said the bank “strongly rejects that any possible conflict of interest had any influence on the sourcing of properties for the European Geared Property and its marketing of the fund to investors”.

The bank states that “the vast majority of the properties in the European Geared Property Fund were bought on the open market from third parties in conjunction with, not from, the relevant joint venture partner”.

The Chancery Place property, which was not one of the original properties in the fund, was a joint venture between Anglo Irish Bank and Alanis Capital.

The property was developed by Chancery Place Developments Ltd, a UK-based company in which Bernard Duffy, founder of Galway-based TBD Group, and John McCormack were shareholders.

Both Mr Duffy and Mr McCormack, transferred their shares in Chancery Place Developments to their partners in December 2008, a month after the purchase of Chancery Place was completed.

UK filings show that Chancery Place Development Ltd registered a £28.7 million mortgage with Anglo in August 2007, and that Mr Duffy and Mr McCormack provided guarantees.

In relation to the almost halving of the value of the Chancery Place development within three months of the purchase, Anglo said the price was set in August 2007.

“A forward contract was entered into, based on market conditions and third-party professional advice at that time. The building was valued by Jones Lang LaSalle at £56.3 million and a further desktop valuation was obtained from CRBE. CRBE valued the property at £29.23 million in February 2009.”

Anglo said that evidence supporting the transaction also included the successful sale of a similar property in Manchester by the European Geared Property Fund in February 2007 at a much lower yield than the purchase contract, which generated a 72 per cent return for the fund investors.

Chancery Place, which was 10 per cent let at the time of the purchase, is now 50 per cent let. A December 2010 update states that the property is 50 per cent let to institutional standard covenants Barlow Lyde and Gilbert, Jones Lang LaSalle, Clearwater Corporate Finance and Travellers Insurance with a three-year, cash-backed rental guarantee on let space from November 2008.

However, the document also states that “due to the capital contributions required to attract new tenants and provide rent-free periods, support from the lending bank will be required due to address shortfalls in income from 2011 to 2014”.

The property was valued at £28.8 million in December 2010, with the loan balance standing at £38.69 million, representing a loan to value ratio of 134 per cent.

European geared property fund: The 10 initial properties

SPENCER DOCK

DUBLIN

21 per cent of property in fund; joint venture partner: HT Meagher O’Reilly

CITY EAST

LIMERICK

100 per cent of property in fund; joint venture partner: Alanis Capital

WOOLGATE EXCHANGE

LONDON

11 per cent of property in fund; joint venture partner: D2 Private

B & Q PERTH

SCOTLAND

100 per cent of property in fund; joint venture partner: CFI

WEST RIDING HOUSE

LEEDS

25 per cent of property in fund; joint venture partner: Howard Holdings Principals

MOSLEY STREET

MANCHESTER

50 per cent of property in fund; joint venture partner: Alanis

CENTRE ETOILE

BRUSSELS

100 per cent of property in fund; joint venture partner: Alanis

AVE LOUISE 165

BRUSSELS

100 per cent of property in fund, joint venture partner: Alanis

MEIR 23/25

ANTWERP

100 per cent of property in fund, joint venture partner: Alanis

THE DOMI BUILDING

DORTMUND

95 per cent of property in fund; joint venture partner WAPS