There’s been a lot of nonsense talked about RiverOak, with some airport lobbyists flogging the idea that RiverOak has hundreds of millions of pounds of cash at its disposal to fund the acquisition by CPO of the old airport at Manston. There’s also been a lot of tosh talked about RiverOak suggesting that they own/run Alliance Fort Worth airport. In tune with our abiding love of facts and evidence, we thought we would take a look at RiverOak’s business. See what you make of this…
RiverOak invites investors to put money into a fund which RiverOak then invests in property. That property then belongs to the fund, not to RiverOak. RiverOak will collect any rental income and distribute it. RiverOak will also charge a management fee to the fund. RiverOak’s directors might also put a little bit of their own money into the fund. They will then share any profit that the fund makes proportionately with other investors.
Let’s take an example. One of RiverOak’s active funds (there are only three of them) is RiverOak Realty Fund III. It looks as if this RRFIII invested in three assets. One was liquidated in 2013 with no profit coming back to RiverOak. One is a limited service business hotel. The third is a development that was going to be a block of flats. RiverOak ran into construction problems and the lender demanded its money back. Judgement has been awarded to the lender and it looks as if RiverOak will lose the money that it put into this investment. Total money made in management fees by RiverOak for 2013? $90,000 – less than £60,000. Total RiverOak director money in this fund? £59,000.
Let’s look at another fund, RiverOak Realty Fund IV. One asset, an office block, was taken back by the lender via a “deed in lieu of foreclosure.” The other assets are a block of flats and various blocks of student housing. RiverOak’s management fee for 2013? £275,000. Total RiverOak director money in this fund? Zero.
And the third fund? That’s MKRO I. The deadline for investing in this fund was extended. Normally this happens when you go to the market to attract investors and you don’t get knocked over in the rush. The fund’s two assets in 2013 were a 25% share in a portfolio of flats spread over four blocks and a 60% share in an additional, separate, block of flats. Total RiverOak director money in this fund? Zero.
So, RiverOak invests in flats, student housing, a bit of house building, and the odd hotel or office block. In the three current funds, RiverOak’s directors appear to have just £59,000 of their own money invested. They can’t play with the rest of the money invested in the funds – it’s not theirs. Management fees earned by RiverOak look pretty small and a couple of investments have gone belly up.
This means that RiverOak actually has very little cash to play with. If it wants to buy the airport, it’ll need to raise a new fund. RiverOak has never raised a fund to buy a UK asset before. RiverOak has never raised a fund to buy an airport before. Quite simply, nobody knows whether RiverOak could do this successfully.
Now, what about that aviation experience?
Has RiverOak ever owned an airport? No.
Has RiverOak ever operated an airport? No. The only operational experience on the RiverOak team is that of Mr Freudmann – the same Tony Freudmann who was in charge at Manston when it went belly up and who led the Wiggins’ airport buying spree. You’ll remember that not one of those airport purchases turned into a viable operation and the whole failed strategy was later described in damning terms by the turnaround expert brought in to rescue Wiggins.
What exactly is RiverOak’s aviation experience apart from the track record of Mr Freudmann? Sometime between 2002 and 2004, Niall Lawlor worked on the bond desk at Morgan Stanley and was part of a team helping Alliance Fort Worth Airport raise money in the market by punting out their bonds. Between 2004 and 2007 when he was part of the bond team at UBS he placed the debt (i.e. found buyers for it) that was used to build a new fuel facility at LAX.
That’s it, folks. Mr Lawlor has found sources of finance for aviation businesses. He has never run an airport.
So: little cash; no experience of raising a fund to buy an airport; no experience of running a successful airport; a business focus on buying and letting out flats and student accommodation. Sound like the most obvious partner to you for a successful airport acquisition and turnaround team? Nah. Us neither.
Makes you wonder why they want it, doesn’t it?
Courtesy of Manston Pickle