This post comes about because a few people have written to me asking is Eddie Hobbs’ new US property venture worthy of consideration. The price threshold at €500k is pretty steep, so it rules out most investors, in a diametrically opposed strategy to that taken by Brendan Investments some years ago. Therefore, quite a few others have written on the back of the ads wondering if they should be looking at property investment in the US themselves because Eddie is getting involved there. It’s a logical question when you see Eddie taking out quarter front page ads in the national media to highlight that fact that he is promoting opportunities Stateside.
Eddie Hobbs US Property – How is Brendan Investments Performing?
The obvious first question for anyone considering an investment with any vehicle with which Eddie is involved is ‘what is his history in overseas property investment?’. This is not that difficult a question to answer, because he’s been involved with Brendan Investments Property Management Plc., which invested predominantly in Germany, for some years. I asked Eddie himself how it has been performing.
His response: “BI plc is having another profitable year. Its accounts are well covered by the media (and, sorry to say, occasionally subject to petty and vile distortion) but, from a shareholder’s perspective we’ve received very strong endorsement for our strategy and continue to make up ground while we await the liquidation of Germany’s largest retailer, Arcandor (owner of Thomas Cook) and with whom we have a €15m claim for our five floor office asset at Dusseldorf Airport which we, subsequent to Arcandor’s fall, refurbished, fully let and then sold. We’ve had several years now of profitable trading and hold assets in Germany and in the USA.”
He continues: “Over the crisis years, let’s call them that, through BIPM ltd, I’ve successfully acquired c. €100m of German hotel and office assets for private clients, all of which has shown strong valuation growth and is well bedded in with rental yields linked to German inflation well above historically low ten year fixed borrowing costs. In the past two years however, together with my property partners at BIPM, we’ve been undertaking detailed due diligence on the US market in the expectation of strong recovery there. That work on the ground from our offices there has borne fruit and we’ve already invested quite substantial sums for a range of private clients in a very specific market sector where we have a very good operation.”
“The results are that for c.€500k or $660k an investor can acquire a portfolio of 16 newly refurbished middle class homes, fully tenanted at gross yields after costs and local property taxes of 15% to 16%. There is no intermediation, no fund, the investor, whether private or a pension fund, holds the assets directly. When you net out taxes under the DTA, the return is double the after tax return in Ireland and the scope for capital uplift higher and quicker because the market is not subject to artificial distortion. As the housing recovery gathers momentum this window will close in the US market which we can reasonably say has hit a genuine bottom and clear out unlike the artificial situation here because of extend and pretend policies.”
Eddie Hobbs US Property – Where is it Located?
So there you have it, that’s Eddie’s pitch. So I asked the obvious question – ‘Where are the properties located?’ Let’s be honest, that really is the deciding factor as to whether they are worth considering for investment purposes or not. But I got no answer, really, in a kind of Eddie-esque fashion (see below, we did eventually find out that they are located in Detroit, which may explain why he’s so reluctant to name the location). I’ve known Eddie in passing for a few years now and always found him to be very direct. He’s an interviewer’s dream if he wants to tell you something as he will load it on with all the charm he can muster, lots of witty anecdotes, etc. If, on the other hand, he doesn’t want to expound on something he can be a tough nut to crack and can get pretty defensive – so it appears to be at present. He also finds it very difficult to disguise his distaste for the media. I know, the irony is stark, but in his defence, he has had to put up with some terrible drivel written by people who have not a clue what his business entails. Anyway, the answer I did receive.
“It is a question not just of where but also of how and with whom i.e. the entire due diligence process which we outline to clients who contact us. I deliberately didn’t specify on the ad for this reason. In 2007 we gave 90 pages of info, the most complete disclosure document ever produced in this country for the retail investor and the only one ever to comply with the rigour of the EU Prospectus Directive. The result was to be slaughtered by a mob of the ignorant, the envious and the bitter.”
“Since then none of the others who’ve lost 100% of their client monies, including leading stockbrokers, have been covered by the media but the same crew hammered us following the liquidation of Arcandor and the, relatively speaking, modest fall in equity – a matter now quickly reversing. When we established that strong u-turn, that too was ignored and when it was covered in the accounts, one newspaper Photoshopped a clown’s hat on me.”
“If the media thinks I’m going to defend another property market or our professionalism all over again, it has another thing coming to it.”
Eddie finishes up by saying: “Regardless of area reputations I would not recommend any investor to buy anywhere in the USA including distressed properties without undertaking rigorous on-the-ground due diligence otherwise they would get fleeced. We are positioned at the beginning and end of a process that involves full refurbishment from cellar to ceiling, tenanting and then passing fully complete to our clients in very specific and carefully selected middle class areas. We’ve invested our own cash in pilot investments from 2011 and put huge amounts of time into getting to know the market sector and our US partners. I’ve personally invested pension fund monies in the exact same assets and process as my clients. There is no leverage.”
“You’ll see that we are avoiding small investors in favour of those who are using the US Housing recovery as part of a wider mix of diversified and uncorrelated assets. These end up with a multiple house portfolio and their US assets represent a small proportion of their balance sheet. The last thing we need is the inexperienced, speculative-type investor desperate to make a quick buck to recover lost ground from concentrated investments. This is really about buying into an income stream for the long haul and if capital uplift comes, that’s a bonus. Our intro page contains, upfront a full list of risk warnings and we intend to be careful about who we take on board.”
Eddie Hobbs US Property – Should I Invest?
So that’s about it. Eddie has said that he will write a full report on the investment opportunity, when he does I’ll put a link to it here. In the meantime it’s impossible to urge people to consider the investment because the most important part of the jig-saw, no matter what Eddie says, is missing. Without knowing where the properties are located you’d have to say ‘give it a miss for now’. (Update: Knowing where the properties are located I’d still give it a miss. I don’t claim to know much about Detroit and its housing market but what I’ve managed to ascertain wouldn’t have me rushing there. I’m sure Eddie and his team have done their due diligence and are comfortable with the product for their purposes).
On the question of whether the US as a market is worthy of consideration then the answer would have to be ‘yes, it certainly is, but be very careful.’ The US is enormous and contains thousands of micro-markets, often dozens within the same city. To say the US is a definitive ‘buy’ is far too simplistic. Some areas are ripe for investment, others are being over-promoted and investors are being over-charged for what is pretty shoddy product. I’ve seen, and reported on, buy-to-let houses being promoted for US$44k that are available locally for US$8.5k – you need to know the areas, what is available, what letting demand is like and, most importantly, what that property is really worth locally. It would also help to know if the property is in tax arrears, as almost one third of Detroit properties are – this website may help on this front and a check here is highly recommended.
Update: One eagle eyed reader pointed out to me that Eddie has actually stated on his own website that he is, in fact, investing in Detroit – see here from January 11th 2013.
[quote style=”1″]Finally on property we remain unconvinced that the floor has yet been found in the Irish market and favour distressed property in fast recovering economies like the USA. We are currently investing heavily for clients in Metro Detroit at rental yields of 15% and scope for capital uplift as the remarkable Midwest recovery continues with the US manufacturing rebound. There is no leverage required and minimum investment is €1m.[/quote]
Before packing your bags and heading for the US Midwest, I’d have a quick read of this – it might give some perspective – from the Daily Mail, but don’t hold that against it. The rough end of Detroit is not obviously where Eddie and his investors will be camping out, but it does give an overall view of just why property is so cheap in the city. Buyer beware, etc. Here’s a different take on the story from the Detroit Free Press (featuring Metro Property Group, read on).
In May 2013 Brendan Investments was denying vehemently that it was connected in any way to alleged wrongdoing of which Metro Property Group, mentioned above, is accused. The US firm is being taken through the courts with allegations of fraudulently creating a market for low value Detroit property – see article in the Irish Independent here. On May 10th Brendan Investments issued the following statement on its website www.bipropertymanagement.ie:
[quote style=”1″]Dear Clients/Shareholders,
We have become aware of a case filed in the United States District Court Eastern District of Michigan, Southern Division recently against our main US service company, Metro Property Group (Metro). It is to be noted that no claim or alleged impropriety is made against Brendan Investments.
We have worked with Metro for the past 2 years and have found the company to be professional. Metro is now dealing with Canadian Funds, USA REITS and high net worth individuals who send due diligence teams to assess Metro’s abilities and professionalism. We have assessed the market in Detroit including service providers over the past 2 years. Many of our investors have met the Metro team and have seen its work first hand and subsequently invested. Metro has provided us with full transparency from the start to the end of the process.
We emphasise that we are involved in all aspects of the due diligence process and in particular the acquisition of the properties and the final hand over of refurbished and rented properties to the client. We have no reason to be concerned about the integrity of Metro, having worked with the company on a daily basis over the past 18 months in particular, but will always remain vigilant to protect the interests of our clients/shareholders.[/quote]
For its part, Metro Property Group claims that it is confident that the case will be thrown out of court. There is a follow up piece on May 10th in the Independent available here.
The court filing includes as item no. 33, page 7 (see entire court filing at bottom of page):
[quote style=”1″]33. The conduct in which Defendants engaged against Plaintiffs is not only fraudulent but characteristic of what is commonly known as a “Ponzi scheme,” and, in fact, Defendants have engaged in the same fraud and schemes detailed herein against many other similarly situated parties, spanning the globe, encompassing multi-millions of dollars, and reaching mini-Madoff proportions. In most cases, the parties cheated and defrauded by Defendants, including Plaintiffs, have been defrauded of virtually their entire retirement funds and/or pensions by Defendants. Ponzi Scheme Defendants recently partnered with an Irish investment consortium, Brendan Investments Property Management (hereinafter, referred to as “Brendan”) to form a company called, “Woodward Capital,” with Brendan reportedly giving Ponzi Scheme Defendants an infusion of 15 (fifteen) million Euros, enabling Ponzi Scheme Defendants tofurther engage in the massive Ponzi scheme fraud. Ponzi Scheme Defendants Sameer Beydoun and Ali Beydoun, as well as one of their employees are listed on the Woodward Capital website as part of the Woodward Capital “team” for real estate investments in Detroit, attached as “Exhibit A.”[/quote]
Brendan investments claims that this connection between it and Woodward Capital is factually incorrect and that none of the company’s directors are in any way associated with the US entity. It is also important to note that Brendan Investments is not being sued nor is it accused of any wrongdoing, it is merely mentioned in the court filing. According to plaintiff Kathryn Llewellyn Jones: “As claimants we have no evidence that Brendan Investments was involved in the fraud perpetrated on us and that is why we have not sued them in our claim.”
After that you can make up your own mind on the whole situation.
It is also probably wise to consider that, with the US, your investment options are enormous, in fact they are so huge it can be very difficult to fathom just how many alternatives there are coming from small islands like the UK and Ireland. The advert earlier in the piece for EB5 investment in order to gain an American Green Card is just one such available option, there are many, many others.
As always, readers, Caveat Emptor.