Caltongate leaves a big gap to fill
By Ian Fraser
Published: The Sunday Times
Date: March 29th, 2009
The collapse of Mountgrange Capital, the controversial developer behind the Caltongate project in Edinburgh’s old town, is expected to leave a gaping hole in Edinburgh’s city centre. It also raises questions about the attitude of banks towards corporate lending and about the future for Scotland’s economy.
Mountgrange, which fought a four-year battle with heritage groups before it secured planning permission for the Caltongate site last October, went into administration last Monday. The company, based in London, is in the hands of administrator John Reid of Deloitte.
The £300m Caltongate scheme would have put a five-star hotel, 200 homes, 250,000 sq ft of offices, shops and a public square on the former bus garage site between Waverley station and the Royal Mile.
Mountgrange Capital, which is led by Martin Myers and former Land Securities and Trillium boss Manish Chande, also planned to develop the 160-acre Phoenix Park, on the site of the former Chrysler car plant at Linwood; a mixed-use site in Maidstone, Kent, and properties under the Jeeves Portfolio banner. These projects have also come to a halt.
Mountgrange Capital’s collapse may be a harbinger of things to come for the Scottish business sector. Lloyds appears to be taking a harder-nosed view than HBOS of the chance of corporate loans being repaid.
Local entrepreneurs whose success partially depended on HBOS’s largesse — including Kenmore’s John Kennedy, Rangers’ David Murray, Tulloch Homes’s David Sutherland and West Coast Capital’s Sir Tom Hunter — will find expansion harder to achieve.
Sources have said that Lloyds’s so-called Detox Team has been scrutinising loans sanctioned by Peter Cummings. Dubbed “the man who broke HBOS”, Cummings formerly led HBOS’s Bank of Scotland corporate arm and has been blamed for the £7 billion of bad corporate loans unveiled by HBOS last month.
Loans that are deemed to be toxic or unlikely to be repaid will be written off. Lloyds is also known to take a dimmer view of impaired assets than HBOS, which had a policy of recycling bad debts by handing them to friendly corporate customers, including Iain Wotherspoon, the executive chairman of Kilmartin Property Group and Kevin McCabe, the chairman of Scarborough Group.
“The policy was very much of saying here’s an impaired asset, if you take it on and work it out we’ll lend you whatever you need and you’ll get a profit share at the end,” said a senior property source.
But Mountgrange’s collapse could reflect a wider malaise in the UK banking sector. Proponents of this view say Lloyds’ decision to put Mountgrange into administration is by no means a one-off. Buredi, a property developer, recently had to put an RBS-backed subsidiary responsible for the redevelopment of part of the former Fountain Brewery into administration. Plans for a £500m new town at Shawfair on the edge of Edinburgh, were thrown into chaos after lead developer Miller Group pulled out. There is also uncertainty over other projects in Edinburgh city centre, including Henderson Global Investors’ plans to redevelop the St James Centre and Tiger Developments’ plans for a high-rise hotel at Haymarket.
Malcolm Fraser, principal of Malcolm Fraser Architects, which was to design part of the Caltongate scheme, said: “We are in a deep recession which has been made all the more perilous by the dysfunctional nature of our banks which don’t know whether they are coming or going.”
But Lloyds’s decision to cut its losses with Mountgrange might have been due entirely to the poor prospects for the group’s portfolio of developments and its inability to secure pre-lets for Caltongate. This view is reinforced by the company’s accounts for the year to March 31 2008, which show that it made a loss of £22.2m and had £62.6m of bank loans and overdrafts, secured by cross-corporate guarantees, about a quarter of which were due within one year.
In the accounts, Brett Adams, Mountgrange’s auditor, said that the group’s dependency on securing new bank facilities meant there was “a material uncertainty that casts doubt upon the group’s ability to continue as a going concern”.
Caltongate sparked a furious campaign from heritage bodies who said it was unsympathetic to its historic surroundings.
Chande and Myers remain unbowed. Using a new £200m fund that they are raising, they want to acquire the assets that are in administration.
Reid said: “Mountgrange Capital’s assets still represent major development opportunities and we will be working with our advisers to maximise the return for creditors.”
He said that he was confident the Caltongate site would be sold, but for considerably less than the £20m Mountgrange paid for it in 2004.
However, a property source said: “There may well be people trying to pick up the site on the cheap but I suspect it will be a while before it sells and that the site will now remain undeveloped for several years.”
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