Anglo knew risks of New York hotel deal, court hears

ANGLO Irish Bank is contending it relied on the hotel expertise of a US businessman when entering into a $50 million (€36.4m) deal to fund the purchase and development of two hotels in New York, the Commercial Court has heard.

That man, Timothy Haskin, general partner with Anglo in the Anglo Irish Hotels Fund, said yesterday he and Anglo “collectively” decided in 2006 to buy the hotels “with our eyes wide open”, knew there were risks involved, decided to take those risks and to “jump off the cliff together”.

Under cross-examination by Eoin McCullough SC, for Anglo, in a test case by investor Gerard McCaughey over the hotels deal, Mr Haskin said he believed original renovation cost projections of $31m for both hotels were reasonable and adequate and he had not expected them to increase significantly beyond that figure.

Those costs later increased to $103m, beyond the capacity of the investment fund, and neither of the hotels — the Beekman Tower Hotel and the Eastman Tower Hotel in Manhattan — have been renovated, the court has heard.

Mr Haskin agreed Anglo was “furious” about the increase in the renovation budget but disagreed Anglo had regarded as final the $31m figure provided at the outset of the deal by Mr Haskin or his agents. He agreed those figures were provided to an Anglo committee, whose task was to consider whether to approve the deal, and he had recommended the deal to that committee.

He said Anglo was “a sophisticated lender” involved in projects in New York and Boston, knew the figures were preliminary, had discussed the matter and had agreed the figures were reasonable.

He and Anglo were partners and the bank knew “exactly what I knew”. He said Anglo knew how the original renovation figures came about and what work was done in relation to the budget for the hotels before the partnership was signed in July 2006.

He agreed there was no letter from him to Anglo asking it not to proceed with the project until the budget was finalised.

Mr McCullough said Anglo was not a hotel owner but provided loans to buy hotels. He said the Anglo personnel involved in the deal did not have the expertise of Mr Haskin, a former managing director of the Tishman Hotel Corporation, and another US businessman, John Livingston, in relation to hotels, and had relied on them. Mr Livingston pulled out of the deal in June 2006, the court has heard.

Mr Haskin said he had never worked with a capital partner providing the bulk of capital who was not involved in the numbers. He agreed one of his primary responsibilities related to costs.

When counsel said the worth of the deal was dependent on renovation costs, Mr Haskin said there were also other issues, including about the hotels securing the desired certificates of occupancy.

When Mr McCullough said that an Anglo official, Paul Brophy, would say he was certain Mr Haskin had not told him that the certificates of occupancy were a serious issue, Mr Haskin said that was a “total lie”.

Mr Haskin also denied counsel’s suggestion there was no agreement between him and Anglo to seek a $8m price reduction from the seller of the hotels at a meeting in April 2006.

Mr McCullough said an Anglo official who was at that meeting would say he reached the “bare bones” of a deal with the seller at a side meeting involving just him and the seller.

When counsel suggested Mr Haskin was not upset by that official’s action, Mr Haskin said, “I was so upset, I can’t tell you” but that he wanted to do the deal and continued on with it.

Mr Haskin also said the New York hotel market was “on fire” and “giddy” in 2006 and it was important the deal be concluded quickly. He believed these hotels were great assets, well located and a way to make money.

Asked by Mr Justice George Birmingham if this was how hotels were normally bought in New York, Mr Haskin said that it was a “very rising” market and they had to move quickly and there wasn’t time to do due diligence.

Yesterday was the fourth day of the action by Mr McCaughey, with addresses at Sandymount, Dublin and Manhattan Beach, California, over the hotels fund, a private equity investment in which 50 people invested an average $1m each in 2006.

The action, against Anglo and the Anglo-owned Delaware-based Mainland Ventures Corporation, is a test case for 23 other investors in the fund.

Anglo has denied claims of fraudulent and/or reckless concealment and/or misrepresentation concerning the fund. It has also denied failure to disclose issues relating to zoning of the hotels and renovation costs.

The case resumes on Tuesday.