What’s the buzz about BlackBee’s property bonds?

When Tom Finneran and his wife, Jennifer Curran, went in search of investments as part of their financial planning in 2021, they settled upon a bond being offered by BlackBee Group.
Cork-based BlackBee was one of the most active loan note promoters in Munster since 2014. Run by David O’Shea, a well-known wealth manager in Cork, it had by that stage raised more than €150 million for various projects.
Investments included the purchase of nursing homes, hotels and office buildings.
Finneran decided to invest in Social Housing Bond Series 2 2023, a bond supporting various social housing projects and that would mature within two years.
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The couple liked the proposed investment. It was unregulated, which meant it was not subject to scrutiny by the Central Bank of Ireland or the protection of the Investor Compensation Company. Yet it was purportedly backed by government contracts. Well-known housing associations such as Cluid and Tuath were listed as development partners.
Loan notes, issued by City Quarter Capital II, a BlackBee company, offered an annual coupon of 6 per cent. With interest rates on bank deposits close to zero at the time, the opportunity was enticing.
The couple invested €300,000 in March 2021, with the potential to earn €36,000 within two years.
Three and a half years later, despite assurances from BlackBee, Finneran and Curran have yet to receive their investment back.
In September last year, Finneran started to become anxious when he read a newspaper article that mentioned that the Central Bank had earlier that year applied to the High Court to appoint special liquidators to BlackBee Investments Limited, a promoter of regulated investments that operated separately to BlackBee Alternatives, the promoter of the social housing bond.
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Finneran contacted O’Shea and alleges he was assured that the payment had merely been delayed. Further assurances in March this year came to nought, and in May Finneran petitioned the High Court to wind up City Quarter Capital II, the BlackBee company that issued the social housing bond.
The Galway resident, who describes himself as “a relatively seasoned investor”, alleges that BlackBee has refused to confirm what assets were bought with the money he invested.
“I remain extremely concerned,” he said.
O’Shea vigorously opposed the petition, claiming that Finneran was not a creditor, but an investor, and had no right to seek a winding-up.
Colin Farquharson and Luke Charleton of EY, the joint liquidators of BlackBee Investments Limited (BIL), sought to take over the Finneran petition, claiming that City Quarter Capital II owed them substantial management fees for administering client accounts.
The EY liquidators also revealed that City Quarter bank statements, forwarded to them anonymously, detailed a number of transactions that required explanation. They claimed that, in the interests of investors, a full investigation was required.
Last Friday, the High Court judge Rory Mulcahy allowed joint liquidators of BlackBee Investments to replace Finneran as the petitioners for the winding-up of City Quarter. A hearing is now set for October. O’Shea, who told The Sunday Times that the liquidators’ concerns were wholly unfounded, is expected to strongly oppose the move.
City Quarter was an integral part of O’Shea’s sprawling investment empire. A section 110 company, it acted as a pass-through vehicle for investment money. When money was raised from investors for various deals, it went into City Quarter, which then paid out the money to the various special purpose vehicles (SPVs) set up to buy assets. Equally, interest payments or dividends would pass from the SPVs to investors through City Quarter.
Figures from the liquidators show that BlackBee Investments had an investment portfolio valued at €179.8 million in 49 distinct products, comprising real estate assets, structured retail products, and employment and investment incentive schemes.
BlackBee Alternatives, which arranged the unregulated investments, was not affected in the liquidation. Latest updates showed it had at least a further ten products in its portfolio.
Yet many of the real asset investments were in areas that have suffered badly in recent years, and feature in the transaction that EY wants to investigate.
O’Shea promoted a series of bonds to investors that helped fund the purchase of commercial properties, mostly in Dublin, with RQTwo, run by David and Simon Kelly, sons of the boom-time developer Paddy Kelly.
Properties acquired included the former Quinn’s pub in Drumcondra, which RQTwo hoped to redevelop as apartments, and the former headquarters of Zurich Insurance in Blackrock, Co Dublin. The strategy was to add value to the properties by redevelopment, securing better planning permission or attracting new tenants. The properties would then be sold or refinanced, and the investors would get a quick return.
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In 2019, BlackBee raised €11 million for the Blackrock Bond II, which funded RQTwo’s acquisition of Block 2 in Blackrock Business Park in south Co Dublin.
As part of the deal, on behalf of the investors, City Quarter took an unencumbered first legal charge on the office block. This meant that investors in the bond would have the first legal charge on the property in any sale.
The bond provided for an investment return of 7 per cent a year and repayment of the initial capital at maturity. The investment was due to mature in March 2022.
The bond has not matured. According to accounts for Lana Office Developments, the SPV that bought the property, in June 2022 the company drew down a €3 million loan from Futuredale, a company associated with the wealth manager Warren Private.
Lana says the proceeds of the new loans were used to “part repay its City Quarter II loan”.
On affidavit, EY’s Farquharson alleges that City Quarter’s bank statements show that within ten days of receiving the money, it made payments totalling more than €2.87 million to settle what the liquidators see as “unrelated liabilities” including payments to O’Shea, a relative of his and a construction company.
O’Shea this weekend said that the special liquidators “are conflating completely separate loans and completely different activities of the CQCII business”. He further added that City Quarter operated under a “global issuance programme” and its responsibility was “to manage its assets and liabilities”.
He said EY was “making statements without understanding the construct of the global issuance programme and importantly without visibility over its assets and liabilities”.
The liquidators, however, questioned what benefit accrued to the bond investors by waiving its first priority charge over the Blackrock office block. Last December, Futuredale moved to appoint receivers to the property. The block was put on the market in April with a guide price of €10.25 million.
In similar circumstances, Carl Dillon, a Cork accountant, and Wyverly Unlimited, a company associated with the family of the Cork solicitor Ciaran Desmond, were granted a charge over apartments at Fairways, in Tubbercurry, Co Sligo, and an apartment at River Gardens, Abbeyfeale, Co Limerick.
These properties were bought as part of Social Housing Bond Series 1. Such a refinancing on individual apartments is a means of returning cash to investors. The problem for one social housing bondholder, who contacted The Sunday Times, is that he has no knowledge of when he will get his money back.
O’Shea said he expected the social housing bonds “will mature within the next six months”.
In an affidavit, Farquharson also raised concerns about the so-called Parkgate Office Bond, which raised €24.3 million for RQTwo to buy blocks C and D at the Parkgate Business Park, near Heuston station in Dublin.
Farquharson said that while about €21.65 million went towards buying the property, the liquidators were unable to account for the other €2.85 million raised by investors and transferred from BlackBee to City Quarter.
Peschinn, the SPV set up to buy the property, was unable to pay the stamp duty arising from the acquisition in full and had to enter an instalment scheme with Revenue.
O’Shea said that the difference between the bond issuance and the loan to Peschinn was explained by embedded arranger fees, which were outlined to investors in promotional brochures.
O’Shea added that the Parkgate bond, like other bonds, would be redeemed in the “next six to 12 months”.
The investment boss said there was about €30 million outstanding across eight real asset bonds. “All underlying assets are being sold,” he says. “The sale proceeds will mature the bonds. Legals are being finalised at the moment across all products. The investors will be updated again in the coming weeks.”
O’Shea claimed that about €250 million had been repaid across the group over the ten years, and “90 per cent beat their benchmark returns”. The outstanding real assets were “in challenging sectors”, Dublin commercial real estate and nursing homes, “which are still struggling post-Covid”, he said.
O’Shea’s nursing interests are the most stressed. At one point, he had ambitions of building a €250 million portfolio of homes, through the Aperee group.
In recent weeks, City Quarter appointed receivers to a number of nursing homes. The group has been under pressure for more than a year to meet regulatory standards at a number of its properties, leading to the closure of some and HSE taking over the running of others, including most recently the Aperee home at Ballinasloe, Co Galway.
O’Shea confirmed that a deal to sell the nursing home operation to its former chief executive Paul Kingston, announced this year, was never completed.
O’Shea said that the appointment of the receiver Gerard Murphy was “aligned to a strategy to mature all bonds and return proceeds to investors at the earliest opportunity. Returns will be dependent on market price achieved from each asset”.
Another concern for investors and the joint liquidators is the absence of information. Up to 2022, updates were often sent out on a monthly basis. It is now eight months since the last update for BlackBee’s alternative assets portfolio was published.
In many cases, the nature of investments has changed. Quinn’s in Drumcondra is now operated by the hospitality operator Jay Bourke. Another investment bond was secured on the former Zurich House in Blackrock and St John’s House in Tallaght; these office properties are now under contract to the International Protection Accommodation Services programme.
Rachel McGovern, deputy chief executive of Brokers Ireland, said that people get worried when information was not forthcoming about their investments.
“The lack of information from any promoter causes concern. It is better when there are regular updates for the consumer,” she said.
In July, the Corporate Enforcement Authority secured High Court orders against BlackBee Group Holdings Limited and O’Shea, compelling them to deliver the annual returns and financial statements for BlackBee and City Quarter — none have been filed since 2019.
O’Shea said that delays to filing accounts were due to extensive restructuring of loans required during Covid and then the “stalling” of a remedial plan caused by the appointment of liquidators to BlackBee Investments Limited. He claimed “a dedicated team” was working on getting accounts filed by this November.
By then City Quarter may be in liquidation. For many investors there is also confusion over whether products are regulated by the Central Bank, and therefore covered by the Investor Compensation Scheme, or not.
EY argued that liquidating City Quarter would allow it to interrogate the transactions coming in and out of the company and provide it with the “bigger picture” of where monies came from and were intended to go.
O’Shea believes the move is entirely unnecessary. Its funds kept a lot of business operating during the pandemic, he said — it now just needs time to exit the market.