INVESTORS IN two European property funds at the failed investment firm Custom House Capital have been told that winding up the company behind the funds is the cheapest way to recover more than a third of their money on one fund and a fifth on the other.
Accountants appointed to manage the properties by the Central Bank last year have recommended investors vote to wind up Custom House Capital Investment Property Funds plc in a ballot by a deadline of November 9th.
Investors were told last week in letters from Horwath Bastow Charleton Wealth Management they could eventually recover €22 million of €55 million invested in the first fund and €6 million of €29 million in the second fund.
The firm identified various problems with how the funds were set up and recommended that the cheapest way of returning funds to investors was to have the company wound up via the High Court.
Investors face losses of almost €58 million of the €85 million invested in the funds, according to the letters seen by The Irish Times.
Without any changes, they face costs of €674,000 compared with €216,000 on the first fund if the liquidation route is followed and €196,000 instead of €593,000 on the second.
The bulk of the higher expense relates to compliance costs associated with audit, custodian and administrator fees to meet regulations on qualifying investor funds.
Horwath Bastow Charleton is recommending that a liquidator distribute shares in special purpose vehicles which will directly hold the investment properties.
This was “the most cost effective and expeditious way to bring legal certainty to the investors with regard to their legal rights and resolve legal ownership issues”, they told investors.
Custom House Capital was put into liquidation last year after inspectors found more than €56 million of client money had been misused to cover shortfalls on property investments in what was described by a High Court judge “as a sort of Irish Ponzi scheme”. The firm managed more than €1 billion of funds for 1,500 clients.
Horwath warned investors that property disposals were likely to take up to five years due to tenant arrangements, rent reviews and the recovery in property markets.
The main property in the first fund is the Maximilian shopping centre in Karlsruhe, Germany which was valued at €68.8 million last month but which has a loan of €52 million from German lender Deutsche Pfandbriefbank.
The fund’s only other property is the Plein Ouest office building in Marseilles, France worth €26 million but with debt of €16.5 million from French bank Credit Foncier.
Two properties in Switzerland and another in France were sold.
Horwath Bastow Charleton said it intended to pursue the recovery of “inappropriate” advances made from the first property fund to a number of other parties, mostly other investment vehicles managed by Custom House.
They said this money was paid from investor subscriptions to the first fund and the proceeds of the two Swiss and one French property, and were “not executed in the best interests of the company”.
The firm said it was managing Plein Ouest and the Maximilian Centre from “extremely constrained cash resources” and had “no available funds to finance investigations into historic transactions” or to regularise the compliance obligations of the fund.
Only one property acquisition in the second fund was ever completed: the Panorama Seine/ Dockside office block in Paris, which is valued at €80 million and has borrowings of €73 million from German bank Aareal.
Deposits and costs of €5.1 million were incurred to acquire two properties in France and Germany but the deals were not completed by Custom House Capital.
