Eddie Hobbs new Brendan Investments vehicle

[Duke of Marmalade]

I agree about the outside leverage. This is suitable only for HNW investors.

I don't get that - why coz they can afford to lose? i agree with most contributors that this outside borrowing is totally unsuitable for anyone.

However, and I guess this is where EH is coming from, if the motivation here is to bring to the masses what is normally only availble to the wealthy, then it is consistent with the theme to enable borrowing to the same constituency. In short the borrowing is targetted at the lower end not at the HNW.

 

[gonk]

Lord spare us, I don't know where to start . . . but I'll give it a go anyway

The Augusta fund charges 3 million in upfront fees on equity of 20. By this measure 250m would be charged 37.5 million upfront. This loss is huge to investors in this arrangement.

On page 18 of the Augusta brochure ([broken link removed]) the following up front charges are listed as percentages of investors' equity:

Fundraising costs: 3.0%
Stamp duty 3.5%
Broker fees 3.0%
Legal, notary and survey fees: 1.4%
Professional setup fees and marketing costs: 0.75%
Total 11.65%

Augusta are aiming to raise €20m, so this would amount to €2.33m in initial costs - not €3m as you suggest. I also don't know where you come up with the figure of €250m; Brendan's prospectus states they intend to raise €50m and gear this up 3:1 to €200m, so up-front charges of the same proportion in the Brendan fund would amount to €5.825m - not €37.5m.

As Harchibald has noted above, in their prospectus Brendan themselves disclose the following similar categories of charges and costs which their fund will be subject to, in addition to their annual management fee and final performance fee:

1. Acquisition of properties
2. Development of real estate
3. Interest and admin costs
4. Development management expenses
5. Costs of external advisors
6. Costs of the offer itself, estimated as a one off of €750k

But because Brendan have no specific plans publicly disclosed at present, they are unable to quantify any of the above charges except the last - investors must buy a pig in a poke. Suffice it to say I see no reason to believe Brendan will be able to bring these costs in at a significantly lower proportion of equity than Augusta - I take it they haven't a sweetheart deal with Brian Cowen or Angela Merkel on stamp duty, for example.

The last item is interesting - Brendan have made a big deal of the fact they have no entry fee. But in fact, the charges for the costs of the offer (i.e., advertising, roadshows, etc.) are estimated at 1.5% of investors' equity of €50m - an up front charge of similar scale to entry charges on other geared property funds, except in this case the investors get no advice tailored to their specific financial circumstances in return.

The Brendan offer aligns the interest of the investors with the mgt.

Lots of funds have final perfomance fees and they are always explained in these terms. To be frank, I have no problem with management being properly rewarded for their efforts. But - and I'm really sounding like a broken record now - there is no other fund I know of which has its performance fee at such a high percentage rate (20%), nor which levies it on returns over such a low threshold (8%). Can you identify one? Also, if you look at the prospectus, you will see the final performance fee is paid to the owners of "Founder Shares" and is due by virtue of the fact of ownership - not for any specific work undertaken. On the face of it, it would appear any of the founders could withdraw from the company tomorrow (or, God forbid die) and the performance fee would still be payable to the owners of these shares.

Bottom line - Brendan are heavily promoting their product as having low fees and charges compared to other geared property funds. I am of the view that the opposite is the case and nothing in this discussion so far has given me reason to alter my view.

 

[Ticasht]

What I don't understand is how my money can quadruple if only €1 in every €10 that I invest can give me a return on investment! Am I correct in assuming that the other €9 is stagnant as Loan Notes? If I invest €20K then I get 2k shares = €2000 x 4 = €8k +€18k = €26k return?

 

[RainyDay]

I attended the NIB roadshow in Dublin this evening - updates as follows;

- EH clearly stated that they intend to raise up to €250m and gear up to €1 billion
- 75% of the total fund will go into commercial property purchases and 25% into development projects
- EH made a big play on the open, regulated nature of the fund, given their listing on the ISE and compliance with some EU Prospectus directive.
- The directors seem to have a track record in similar projects, though the case study projects they present were all 'work in progress' rather than completed projects.
- They cannot predict returns, but they noted that similar funds return 12%-14% on the property projects and they mentioned a target (though they possibly didn't use that word) of 37% return on development projects.
- EH mentioned negative media coverage of fees, and countered that many competing funds have 'hidden fees' (e.g. bank arrangement fees) which go directly to the directors without ever hitting the fund.

 

[Duke of Marmalade]

What I don't understand is how my money can quadruple if only €1 in every €10 that I invest can give me a return on investment! Am I correct in assuming that the other €9 is stagnant as Loan Notes? If I invest €20K then I get 2k shares = €2000 x 4 = €8k +€18k = €26k return?

You can ignore all this loan note stuff. It is not a scam. Just allows the scheme more flexbility.

 

[Duke of Marmalade]

I attended the NIB roadshow in Dublin this evening - updates as follows;

- EH clearly stated that they intend to raise up to €250m and gear up to €1 billion
- 75% of the total fund will go into commercial property purchases and 25% into development projects
- EH made a big play on the open, regulated nature of the fund, given their listing on the ISE and compliance with some EU Prospectus directive.
- The directors seem to have a track record in similar projects, though the case study projects they present were all 'work in progress' rather than completed projects.
- They cannot predict returns, but they noted that similar funds return 12%-14% on the property projects and they mentioned a target (though they possibly didn't use that word) of 37% return on development projects.
- EH mentioned negative media coverage of fees, and countered that many competing funds have 'hidden fees' (e.g. bank arrangement fees) which go directly to the directors without ever hitting the fund.

Good feedback Rainy. THe prospectus clearly states 250M max, doesn't matter though. The regulation point is bunkam, where is Eddie's beloved RIY? Suggestions of returns exceeding 14% and up to 37% are totally unacceptable.

 

[gonk]

I attended the NIB roadshow in Dublin this evening - updates as follows;

- EH clearly stated that they intend to raise up to €250m and gear up to €1 billion

They must be getting a good initial response, because that's five times what the brochure says they plan to raise. Guess Eddie figures this is the 31st way to spend your SSIA.

 

[Ticasht]

Hi HArchibald. I'm not suggesting for a minute that it's a scam. I am wondering if my % return would be on my total investment or just on the actual shares? Thanks for your help.

 

[Duke of Marmalade]

Hi HArchibald. I'm not suggesting for a minute that it's a scam. I am wondering if my % return would be on my total investment or just on the actual shares? Thanks for your help.

Total investment

 

[Ticasht]

Thanks for clearing that up. Well on balance, they are being up front with their generous slice of the action. Reputations are sound so happy to invest.

 

[IHateTolkien]

- EH made a big play on the open, regulated nature of the fund, given their listing on the ISE and compliance with some EU Prospectus directive.

This is one area of the promotion of this product that I find deplorable. The prospectus has been approved by the Financial Regulator; the product itself is not regulated by the Financial Regulator. How many Evening Herald readers or Late Late Show viewers will have spotted that subtlety?

 

[ClubMan]

- They cannot predict returns, but they noted that similar funds return 12%-14% on the property projects and they mentioned a target (though they possibly didn't use that word) of 37% return on development projects.

Past performance etc.

- EH mentioned negative media coverage of fees, and countered that many competing funds have 'hidden fees' (e.g. bank arrangement fees) which go directly to the directors without ever hitting the fund.

I don't get it - is EH actually implying "everybody else is doing it so why don't we?"!?

 

[Sunny]

If Eddie Hobbs is saying that other funds return 12-14% on property projects and up to 37% on development projects, does this not make their 8% performance hurdle sound way too low?

 

[IHateTolkien]

I see there's a thread on this product over on [broken link removed].

Mollox makes the good point that the high costs involved in sourcing and/or developing property for the fund will be incurred during the early years of the fund. But the 4% annual charge continues for the full duration.

 

[gonk]

If Eddie Hobbs is saying that other funds return 12-14% on property projects and up to 37% on development projects, does this not make their 8% performance hurdle sound way too low?

In short, yes. I've been banging this drum for a week, but 8% p.a. would be a poor return on a geared property fund and to my mind a "performance" fee on returns above this low threshold completely unwarranted. The rate at which it is applied - 20% of gains over 8% - is also the highest I've ever seen.

 

[Duke of Marmalade]

Call to any mathematicians out there for help.

Page 13 of the brochure describes the working of the Performance Bonus.

If a cash investment of 100K is involved the "strike price" (to trigger the PB) is 215,892. I get that - it is 8% compound over 10 years.

If the cash investment is 100K and borrowings are 100K the strike price is 270,535.

What is that all about? What borrowings - internal? external? And for the Math where on earth does 270,535 come from?

 

[gonk]

What is that all about? What borrowings - internal? external? And for the Math where on earth does 270,535 come from?

I'm only moderately stupid, but it beats the hell out of me too. There must be information missing - the table makes no sense on the basis of the facts stated.

 

[Mantus]

Perception becomes reality in the absence of facts. There has been much comment on the thread that is inaccurate.
1. The comments about uncompetitive costs fail to stand the test of scrutinising the non-prominent costs of other syndicates, most of the costs of which are higher even though no Development projects are contained. Augusta, used earlier, by Gonk and others deducts about €3m of the €20m raised in rebated property selling agent commissions, in establishment fees and in marketing commissions. The cost of retail life products where the only charges on display are those directly relating to the administration , investment services and distribution of life policies are, in most cases higher. These wrappers also don’t give investors access to the substantial costs behind them in property investment. Life funds are opaque. Surface costs relate only to life office admin, management services and sales commission. A substantial level of undisclosed costs operate below these levels especially in property including selling commissions etc. The comments about the performance bonus in the vacuum of adequate analysis indicates lack of reading, understanding and research and are invalid as a consequence.
In addition these vehicles are compelled to pay the Revenue 23% of gains on their properties on the 8th anniversary. In the absence of liquidity this means borrowing by the fund. In design terms it means that syndicates will restrict terms to less than 8 years, a term which many believe is too short to weather cyclical downturns.
The Brendan model as a Plc avoids this tax charge and its cost model best aligns shareholder and director interests. There is no deduction from shareholders to pay commission. There is no % of equity raised being deducted to pay directors. There is direct cost recovery capped at a flat 750k clearly explained. The incentive at 10% IRR earns the investors 9.6% and founding director 0.4%, but at 20% IRR the former earns 17.6% which doubles their money every four years and the latter earn 2.4% pa. Evidently the motivation of the Directors will be to grow the assets as strongly as possible. Both the CEO Vincent Regan and Director Hugh O’Neill will be full time, and not part time consultants which is the feature of other syndicates. The Chair Dermot Flanagan SC and Pat Owens are independent of the incentive.
2. Speculative comments presented as fact have been made. The CEO Vincent Regan is an ex-Revenue auditor and Tax Partner at Deloitte where he dealt with developers. He is a full time developer for several years directly involved and invested in €600m Gross Development Value. Pat Owens is an Architect by profession and is directly involved in projects with a GDV of €1,000m. Hugh O’Neill ex-Deloitte is a Chartered Accountant involved in €40m of investment property mostly in Germany where he is to reside full time. Hobbs is already well known and is a Director of the National Consumer Agency and his firm is an Authorised Advisor under the Investment Intermediary Act. Flanagan is a Senior Counsel with an impeccable record in infrastructure, public and private properties including Adamstown, the M50 and Spencer Dock
3. The comments about IRR% made earlier are mathematically inaccurate. IRR% is the return to investors on their equity after all costs excluding their CGT liability except for Pension Scheme shareholders who are tax exempt.

 

[Cameo]

This offering reminds me of shell companies that were launched around 1999 to offer small investors opportunity to get involved in tech type companies.

A board of high profile people got together and money was raised to pursue exciting opportunities....

 

[Mantus]

Sorry one additional fact. The facility is 25K (min) requiring Net Investment assets of 250k and earnings of 8k plus pa. Loans from NIB 50k to 100k requires NIA of 500k and earnings of 100k plus. The process is of course regulated by IFSRA under the CPC. The speculation here has been made in the absence of these facts which show that the NIB borrowing is clearly targetted at those with strong balance sheets. Existing debt servicing will form part of the due diligence.

NIA excludes home etc and loans cannot exceed 10% max of it.