For more than 25 years Eddie Hobbs has forged a career selling his financial acumen. Since his 2005 Rip Off Republic television series captured public anger and gave the then government a hernia, his media profile as a self-styled consumer champion has been constant.
For some, he is an everyman favourite, while others are less enamoured with his chippy style – but the cocksure Cork man takes it all in his stride.
On Monday, however, a different Hobbs showed up for interview at the RDS Members’ Club in Dublin. He was edgy, defensive and emotional at times, but determined to rebuff criticism over his role at Brendan Investments.
Brendan is a boom-time property fund, co-founded and fronted by Hobbs, that raised €13 million from small investors for European property. It later punted this money on a disastrous foray into the abandoned-homes market in Detroit.
Last October, some of the 700 shareholders of Brendan Investments Pan Europe Property (Bipep) met at the Red Cow hotel in Dublin. They were shocked to be told that the fund had lost 90 per cent of their cash. Investors were furious at the lack of detail. The fund will be wound up this year unless shareholders vote to extend.
Hobbs resigned as a non-executive director two years ago but remains a magnet for shareholders’ anger due to his public profile.
Following an investigation by The Irish Times that has thrown up internal documents, leaked emails and various records, we examined what happened to Bipep's cash.
Hobbs admits that Bipep lost money on disastrous deals, that it misjudged the market and that its management company came close to collapse. Some co-founders now barely speak to each other.
The fund also had some rotten luck, but most of its wounds appear self-inflicted.
Emotion
“For me, this is all about integrity,” says Hobbs, bristling with emotion in a private meeting room at the exclusive RDS club.
He has been a member there since 1991, before he built his reputation exposing endowment mortgages and chasing the financial fraudster Tony Taylor.
The consumer champion is answering criticism that his celebrity status may have helped sell a risky proposition in Brendan Investments.
“I can be questioned for my judgment, no doubt about that,” he says. “But I’ll defend my integrity. I’m embarrassed by what has happened. You can see I’m annoyed I have to explain it, but I don’t engage in chicanery.”
Hobbs was approached in 2006 to join what became Bipep. At his insistence, he says, Bipep spent the next year compiling a regulated prospectus. The fund was launched in late 2007, just as the tide went out on the boom.
The non-executive directors were Hobbs and senior counsel Dermot Flanagan, while its executive directors are former Deloitte corporate financier Hugh O’Neill and developer Vincent Regan, its managing director.
Hobbs, however, was the pulling power. The minimum investment was just €5,000. Most investors were ordinary punters, although some well-known names, such as tailor Louis Copeland, piled in.
Hobbs, Flanagan and Regan each invested €600,000. The fund rebuffed media criticism at the time that Bipep was too risky.
It is managed by Brendan Investments Property Management (BIPM), then separately owned by the four men and due a 1 per cent annual fee.
The fund raised far less than hoped, but it proceeded anyway, focusing first on Germany. Bipep lost heavily on an office investment at Düsseldorf Airport that it let to retail giant Arcandor. Arcandor went bust in 2009, leaving a shell for Bipep to deal with. The fund sold it, according to Hobbs, at “the loss of the cost of the refurbishment”, which shareholders estimate was millions.
Bipep then made a profit of nearly €500,000 on a hotel development, before losing again on a Frankfurt office development, F31. Bipep bought F31 on five-year credit, but was unable to refinance it and sold for about €9 million in 2014, minutes show, which was €1 million less than book value.
Stateside
Two years before it sold F31, however, it had already trained its eyes Stateside.
“We could have stayed in Germany and got nowhere. The US was the only western economy recovering,” says Hobbs.
However, shareholders are angry that BIPM could have cleaned up at home if it had waited a while longer, as Ireland soon became rich pickings for vultures.
The board signed off on the US foray. But, according to Hobbs, it was O’Neill and Regan who first suggested investing in Detroit property. Where did they get the idea?
“I don’t know,” says Hobbs, insisting that the executives did all of the “investigative work and pathfinding”.
Regan, who these days is based in Tunisia and would only correspond with The Irish Times by email, has a different emphasis.
He says “the board carried out extensive research including all directors went to Detroit to see for themselves”. Hobbs says he only visited “for a tour”.
BIPM, which was soon building up a private clients’ income stream aside from Bipep, started investing on clients’ behalf in Detroit in late 2012. Its private clients included a handful of wealthy Irish, and others from Germany. Rene Schuster, former chief executive of Telefonica Deutschland, was one.
Detroit is a troubled city, with many blighted areas. BIPM focused on a fair-to-middling district near the university. It often snapped up piles of houses on the same street, sometimes in sketchy locations.
Between 2012 and 2014, BIPM deployed all of Bipep’s capital in Detroit. By mid-2014, minutes show, Bipep owned 130 houses and an apartment block. But its holdings were by now worth only half its initial equity, although it hoped to get back to 75 per cent, or possibly even parity, by 2017.
BIPM initially partnered with local outfit Metro Property Group (MPG), which was supposed to refurbish the properties and run them for BIPM.
Shareholder newsletters spoke of the “significant returns” possible in Detroit, but Hobbs says he saw the first “red flag” in mid-2013, when MPG was sued by US investors for alleged fraud.
“From that day forward, the wheels started to come off,” he says.
BIPM/Bipep was not involved in the case, which was later settled. But BIPM soon parted ways with MPG anyway. US sources suggested that BIPM paid relatively high prices for many assets.
Audit
Over Christmas 2013, O’Neill and Regan flew to Detroit for an audit of the portfolio, and found that much of what they believed MPG was to refurbish hadn’t been touched.
“In January 2014, they came to me and said there was a problem. Alarm bells started ringing,” says Hobbs.
Board minutes taken in June 2014 by Flanagan, then the chairman, show O’Neill told that meeting that MPG had only refurbished “30 units . . . [It] does not have the cash to do the refurb in accordance with the agreement”.
Those minutes also refer to $1.5 million Bipep says it was owed “on security held” under the MPG agreement.
Hobbs says he later criticised the executives heavily for partnering with MPG, after what he read of it in court filings. When The Irish Times asked Regan how much Bipep lost on the MPG contract, he replied: "Internal company business." Did he pursue MPG for any cash lost? "Internal company business."
In spring 2014, BIPM hit a liquidity crisis that could have imperilled Bipep. The fund’s value was falling, so BIPM’s income from fees was too. It was short anyway after the MPG debacle. Hobbs was asked to bail out BIPM with a €30,000 loan.
“I got an email out of the blue from the BIPM executives,” he says. “They basically said: ‘We need money from you, now, or this thing is gone.’”
He lent the cash, which he got back months later. By September 2014, Hobbs had handed back his shares in BIPM for no consideration, and had quit its board. He remained a non-executive director of Bipep.
“The executives knew bloody well I wasn’t happy with the situation the company had gotten into,” he says.
Regan says: “Other directors, including myself, have advanced more money than Eddie Hobbs over the years, but, again, its internal company business.”
BIPM had by then taken €2 million in fees from Bipep, but Hobbs insists he never got a penny. He showed a letter from accountants appearing to confirm this.
By now, Hobbs had also become involved with the putative political party that would soon be launched as Renua. In early 2015, he quit as director of Bipep in order, he says, to avoid the fund becoming a target for political rivals and the press.
Flanagan also stepped down from Bipep and BIPM shortly before this “for my own reasons”.
Both Hobbs and Flanagan say they have had little contact with the executives since then, although Hobbs maintains some dealings with O’Neill.
Regan has since moved to Tunisia, where he has opened other businesses, including a back-office company, GC Partners, that provides services to BIPM. He insists he spends “70 per cent of my time in the US and Ireland”.
Losses
Since Flanagan and Hobbs left the fund two years ago, what has happened to drive losses from 50 per cent to 90 per cent? Both men say they haven’t been told.
Hobbs says that, with hindsight, he believes the area of Detroit that Bipep is invested in is too risky. Tenant churn is too high, and the carrying cost of properties due to taxes, vacancy rates and local ordinance requires expert control.
“There has been a stampede for the exits from some investors,” says Hobbs. “But BIPM should really be giving shareholders a written report on all this.”
A string of emails over the past two years between BIPM and US property agents – seen by The Irish Times – show that O'Neill and Regan have been trying to sell off holdings over the past 20 months or more.
“Everything is for sale,” said O’Neill in one missive.
The emails reveal O’Neill complaining that, due to low sale prices and agents’ fees, Bipep was offloading many units at heavy losses.
“It makes no sense for us,” O’Neill emailed as far back as May 2015.
Other emails detail an ongoing argument between BIPM and agents over the maintenance of an apartment block that had continually had no heating in winter months, causing tenants to withhold rent and complain to authorities. The block had, one agent said, a “47-year-old boiler” that must be replaced. Both sides argued over where to get the money to do this.
After the heating situation made local TV news in January this year, Regan emailed to berate the agents for “talking to the press”. BIPM has since switched agents.
City records also show that Bipep has had many houses listed for forfeit to local authorities over unpaid taxes. Records show it has also accrued hundreds of fines – “blight tickets” – for alleged infractions, such as the poor upkeep of property.
Regan insists that many factors were outside BIPM’s control, but says: “Hugh and myself have stood in front of our shareholders and held our hands up to the problems, [and not] deserted the shareholders.”
Flanagan and Hobbs says they acted correctly. Hobbs regrets what happened.
“It’s handy [for some] that I am a lightning rod,” he says. “But do I accept responsibility? Of course I do. I’m not trying to shirk it.”
Bipep’s long-suffering shareholders, meanwhile, are left to ponder what they might salvage from their investment.
