A Dublin property company has been assembling a portfolio of apartments throughout the city with debt raised from LetterOne, the Luxembourg-based investment firm co-founded by Russian bankers Mikhail Fridman and Petr Aven, an examination of new corporate information by The Currency has found.

Investors in the portfolio also include Irish companies and individuals including well-known business figures in Dublin and Co Cavan. Although their vehicle has disclosed details of just nine properties to date, its sophisticated corporate structure and the profile of its backers suggest it is on course to acquire many more.

The company purchasing the individual apartments in various complexes around Dublin is iLiv Apartments (Ireland) 2 Ltd, part of the iLiv institutional landlord group grown over the past four years by property entrepreneurs Jarlath Moran and Padraic O’Reilly.

As previously detailed by The Currency and the Dublin Inquirer, iLiv has assembled a first portfolio of over 400 apartments in Ireland north and south with funding from the UK fund manager Arrow Group and the US investment bank Morgan Stanley, aiming to sell it as a fully-let residential investment to a long-term holder in the next two years.

As reported at the time, iLiv had established its new subsidiary iLiv Apartments (Ireland) 2 in October 2022 and immediately used it to engage in a first acquisition in Tallaght.

New documents available from this vehicle and its partners reveal the identity of its backers and some details of the advanced structured finance agreement they have put in place.

While iLiv Apartments (Ireland) 2 was initially established as a wholly-owned subsidiary, this changed last month when it amended its constitution and issued new shares to equity investors. O’Reilly and Moran remain in control, through both a majority stake and a capital structure that excludes external shareholders from voting rights.

The funding round closed on May 15 was led by Stephen and Jackie Gregory, the owners of Co Cavan-based construction firm Blackwell Contracts. Blackwell maintains a Dublin office at Castlewood House in Rathmines, the headquarters of iLiv. The office is also the base of businessman Conor Ridge’s investment vehicle Bua Private, an early investor in iLiv.

Neither Ridge nor Bua Private appear among the investors specifically backing  iLiv Apartments (Ireland) 2. However Ridge’s business partner Martin Jacob, a veteran of corporate secretarial practice, has become a shareholder in iLiv’s new property acquisition subsidiary through his personal vehicle ACV Badge Investments.

Smaller stakes have been purchased by Co Westmeath-based Josephine Geraghty and Co Cavan firm Agrilink Farm Services. 

iLiv maintains strong links in Co Cavan, where its two founders are from and O’Reilly was previously captain of the senior football team. The property firm sponsored a fundraising event for Cavan GAA last year.

The new shareholders in iLiv Apartments (Ireland) 2 together paid €3,000 for the shares establishing their rights, suggesting equity is not a significant investment channel for the company.

Instead, its property portfolio is to be funded entirely by debt, with filings revealing details of subordinated loan notes subscribed by its two corporate shareholders, ACV Badge Investments and Agrilink Farm Services. It is likely that its individual shareholders, too, are contributing funds through the same “A loan notes”. 

The documents also show that iLiv Apartments (Ireland) 2 is borrowing from a senior lender called Bolt Property Finance DAC.

Nine apartments to start with

On June 14, iLiv Apartments (Ireland) 2 then registered new charges held against its own assets by Bolt. The debt is specifically secured on a first batch of nine apartments at various locations in central Dublin or well-connected suburbs. Seven of the homes have appeared on iLiv’s letting website where photographs and descriptions show that they are one- to two-bedroom apartments renovated to the same standardised design as those included in the group’s first portfolio.

Of those, all were let except one available at the time of writing: a one-bed apartment in the Swift House building near Christchurch, Dublin 8, for €2,200 per month.

Bolt is a special-purpose vehicle claiming eligibility to Section 110 of the tax code. This means it can remit profit-participating interest to its debt investors without paying corporation tax on the corresponding profit.

While the Government generally closed this tax regime to investors in Irish property in 2016 in response to its widespread use by overseas funds to acquire non-performing loans here, many exemptions remain, such as bona fide securitisation transactions and the origination of new loans.

In its first year of significant activity in 2021, Bolt generated over €1 million of interest income, which it entirely passed on to its own lenders as corresponding tax-free interest expense. This left the company with a corporation tax liability of just €300 that year.

At the end of 2021, Bolt had advanced €28.1 million in debt funding to unidentified borrowers and reported that all these loans were “secured against Irish real estate assets”. This was before iLiv Apartments (Ireland) 2 was established last year and there are no figures available yet for the period since they began doing business with each other.

Irish property as a treasury investment

While Bolt is a so-called orphan entity owned by a corporate secretarial services firm with charitable status in compliance with Section 110 rules, it is also a vehicle for debt investment by LetterOne in Ireland. 

Since September 2020, its assets have been pledged as collateral for a loan facility advanced by LetterOne Treasury Services entities in London and in Luxembourg, and it does not report any other source of funding.

Bolt’s UK-based director Robert Maddows is the chief financial officer of LetterOne Treasury Services, also known as L1 Treasury. This division of LetterOne reported $9.5 billion in assets under management at the end of 2021 and its website describes its mission as follows:

“L1 Treasury manages the liquidity and financial investments of L1 Investment Holdings. When the group makes strategic investments, L1 Treasury provides the necessary funds, and when investments are sold or dividends received, L1 Treasury manages the available funds through a portfolio of financial investments in public and private equity, fixed income, real estate and direct lending markets, and investments in special situations and private equity funds.”

Another example of LetterOne Treasury’s presence on this island has been its participation in the 2015 refinancing of the Eagle loan book secured on properties in Northern Ireland and sold by Nama to Cerberus in 2014.

By contrast, strategic investments by the wider LetterOne group are made by specialist funds, which have Irish nationals among their leaders.

LetterOne came under scrutiny during the first days of Russia’s full invasion of Ukraine last year when international sanctions targeted its co-founders Fridman and Aven, along with their Russian-based financial institution Alfa Bank. EU officials described the two men as oligarchs with close connections to Russian President Vladimir Putin.

LetterOne immediately distanced itself from the sanctioned individuals, who left the board in a reshuffle led by the firm’s current chairman Mervyn Davies, a former Labour minister in the UK. LetterOne also embarked on donations to charities supporting the victims of the war in Ukraine. Although Fridman and Aven remain among the ultimate beneficial owners of LetterOne, The Currency understands that their interests in the firm, including voting rights and dividends, are frozen.

LetterOne itself has never been subject to EU or UK sanctions. The company declined to provide additional information on its investments in Irish property-backed debt when contacted by The Currency.

iLiv directors O’Reilly and Moran did not respond when contacted by email and phone this week with questions regarding their business with LetterOne.