$4.5m Investor Recovery Derailed By Perfect Storm
By NEIL HARTNELL
Tribune Business Editor
$4.5m Investor Recovery Derailed By Perfect Storm
• Dorian damage hits Premier Commerical value
• Compounded by Oxyanos’ move to exit lease
• Wait goes on for long-suffering 2,000 investors
A $4.5m recovery for long-suffering investors in a Bahamas-based investment fund structure has been derailed by a combination of Hurricane Dorian, COVID-19 and the loss of a major tenant.
Myles Culmer, director of BDO Bahamas’ advisory services, confirmed in recent e-mailed replies to Tribune Business questions that he and fellow liquidators face having to start afresh on one of the major compensation sources for investors in the Olympus Univest fund which collapsed almost 16 years ago owing some $471m.
That source is the majority 50.4 percent equity interest in Premier Real Estate Investment Corporation, the former BISX-listed real estate investment trust (REIT), whose commercial property portfolio has gradually shrunk to just the one Freeport office complex it owns presently.
That stake is held by Mosaic Composite, the major investment counterparty for Olympus Univest. Both entities are now controlled by Mr Culmer and his co-liquidators from Richter Advisory in Canada, who have been repeatedly frustrated in their attempts to maximise the value of this holding and convert it into liquid cash for the benefit of investors.
Previous reports by the liquidators estimated this would realise between $4m-$5m, expanding the mere $10.7m recovered for Olympus Univest investors to-date by almost 50 percent and lessening the blow - albeit modestly - from what was seen at the time as a black mark for the Bahamian financial services sector.
However, confirming that such ambitions have again - at least for the moment - been dashed - Mr Culmer told this newspaper: “As you are aware both Hurricane Dorian and the COVID-19 pandemic have had devastating impacts on Grand Bahama’s economy, and these effects have been felt throughout the country.
“We have thus far been unsuccessful in selling Mosaic’s equity stake in Premier Commercial, but The Mosaic joint official liquidators are continuing in their efforts to either monetise or enhance the value of Premier’s last remaining property - all in an attempt to realise upon same while marketing the controlling shares of Premier.”
While Premier Commercial sold the two former Caribbean Bottling properties it owned in 2016, liquidators’ reports obtained by Tribune Business reveal that neither Mosaic nor the Olympus Univest estate received any financial benefits because the sale proceeds were used to pay-off mortgage debt secured on its now-sole remaining property.
That is Freeport’s First Commercial Centre which, besides suffering damage from Hurricane Dorian, also lost a major tenant in the shape of the Okyanos Centre for Regenerative Medicine, the pioneering stem cell therapy provider, which shut down following the storm and is now in Supreme Court-supervised liquidation itself. This almost certainly means Mosaic’s stake is now worth less than $4.5m.
An October 20, 2020, report by Richter Advisory, the contents of which were confirmed as still accurate by co-liquidator Mr Culmer, revealed that Premier Commercial is seeking damages in its capacity as landlord for what it alleges is Okyanos’ breach of their lease agreement.
“The COVID-19 pandemic has affected The Bahamas and further compounds the challenge of disposing of the remaining property,” Richter Advisory said in relation to the First Commercial Centre. “The feasibility of finding a buyer for this asset at an appropriate price and within a reasonable timeframe is currently in doubt.
“Based on the latest appraisal (January 2019), Mosaic’s interest in the remaining property was estimated to have a value of approximately $4.5m. It is clear that the devastation caused by Hurricane Dorian as well as the departure of a large tenant will impact the market value of the remaining property. An updated appraisal has not been commissioned by Premier management at this time.”
The report affirmed that the co-liquidators were reassessing their strategy for exiting Premier Commercial following these developments, while asserting that First Commercial Centre suffered no structural damage. It added that a settlement for property damage and revenue losses had been reached with insurers, with the proceeds used to complete repairs and “support other ongoing operating needs”.
While the CIBC FirstCaribbean International Bank (Bahamas) branch that resides in First Commercial Centre has been repaired and is operational, the Richter report alleged that Okyanos had immediately ceased operations and left “in contravention of its long-term lease with Premier”.
It added: “Legal proceedings were instituted against this tenant as well as its primary shareholder. The corporate entity that was operating the clinic is now in liquidation, and a claim has been filed for the damages incurred in connection with the unexpired term of the lease. Recoveries from these legal proceedings and the liquidation are uncertain at this time.”
The amount of damages was not mentioned in the Richter report, which added that Premier Commercial’s delisting from BISX meant that annual appraisals of the First Commercial Centre’s value and audited financial statements “are no longer required”. No appraisal had been completed “in years”.
Premier Commercial was founded and sponsored by Hannes Babak, the former Grand Bahama Port Authority (GBPA) and Freeport Concrete chairman, to acquire several commercial properties including the First Commercial Centre he himself developed. However, it was never a strong financial performer, and eventually came off BISX.
Among Premier’s founding directors, although he is no longer on the Board, was Stephen Hancock, president and chief executive of Cardinal International, the ex-Bahamian fund administrator for Olympus Univest, Mosaic and a number of other entities in the investment structure.
Cardinal, too, shut down at the time that Olympus Univest and Mosaic went into court-supervised liquidation. The Olympus Univest/Mosaic Composite collapse left around 1,900 small retail investors, many of them Canadian, out of pocket with no explanation as to where most of the money went.
The co-liquidators’ previous reports detailed how recovering investor monies has been made difficult by “incomplete financial records, missing financial information and, in certain cases, the destruction of key books and records”.
Norshield, the investment manager, placed retail investor monies into its Olympus Funds, which then invested them into the asset manager’s wholly-owned subsidiary, Barbados-based Olympus Bank.
The bank co-mingled retail investor funds with capital received from institutional investors, such as pension funds and financial institutions, placing all monies into Bahamas-based Olympus Univest. The latter used these funds to make “substantial investments” in Mosaic, a ‘fund of funds’ structure, which invested in “both hedged and non-hedged assets”, but these were vastly inflated beyond their real value.
Okyanos, meanwhile, lost more than $30m over its lifetime prior to being placed in Supreme Court supervision. Cheryl Simms, the Kikivarakis & Co accountant acting as liquidator, revealed in her first report last year that the company had lost $30.172m - some $14.856m of which was incurred over the three years to end-2019.
These losses provide some insight into why LS Enterprises, Okyanos’ main debt financier, may have been eager to petition for the company’s court-supervised winding-up in the aftermath of Hurricane Dorian’s devastation given that it was owed some $12.438m in outstanding principal and interest.
“From a review of the company’s audited balance sheet as of December 31, 2017, and December 31, 2018, and its unaudited balance sheet as of December 31, 2019, the company has consistently made losses having accumulated $14.856m in total losses over those three years,” Ms Simms wrote.
Tribune Business previously reported that Okyanos had just $5.667m worth of assets, including just $335,218 in cash, to cover $13.22m in liabilities, thereby creating a $7.553m solvency deficiency. L. S. Enterprises was owed more than $12m on some $15.9m that it had advanced to Okyanos via four separate lending facilities agreed between 2017 and 2019.