Bruton’s Investment in UK Commercial Property Wiped Out

Posted on 20 September, 2012 by Jodee Redmond

Richard Bruton, the Minister for Jobs, Enterprise and Innovation, as well as other investors, has received some bad news about their investments in UK commercial properties. The Irish company in charge of managing them has broken the news that the cash they put up has been wiped out because of declining property values.

The firm informed its investors by letter that while the properties in the portfolio were valued at £159.4 million (€197 million) in March, the amount borrowed was £174 million (€215 million). The value of the portfolio had decreased by nine per cent over a 12-month period. The drop in property value means that the investment has no value.

The money had been invested in a series of Belfry funds, which raised approximately £120 million from Irish investors. The money was managed by Cheval Properties, a firm controlled by Tony Kilduff, a businessman, which invested funds in commercial properties in English towns and outside central London.

The fund was a geared fund, which meant the investment was made with borrowed money but the individual investors are not personally responsible for the amount lent. The investors were made aware of the funds through AIB Private Banking, which is the Bank’s wealth management division.

The company’s investors were advised by letter dated 4 June 2012, that it was in breach of “certain financial covenants” in April and that it was asking for a waiver of the covenants and an extension of the company’s loan for an additional two years to September 2015. The company further advised its investors that it was attempting to maintain and increase income where possible and to find ways to increase the value of the properties in its portfolio.

Investors were advised that it had originally expected their investment would run for eight years but that since market conditions had changed so dramatically and that seven years had already passed, it would be a longer period before they would see a return on their investment. They were also advised that investing in “geared property assets” should be considered high risk.

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