Property’s wannabees confronted by harsh economic realities

In Blog by Ian Fraser0 Comments

14 June 2009

Kilmartin's hotel development at Melbourne Place, Edinburgh, on the site of the former Lothian Regional Council HQ; image courtesy of Picturerama.blogspot

This is an unedited version of an article published in The Sunday Times on 14 June 2009. Image courtesy of Picturerama – A visual blog

LLOYDS BANKING GROUP is seeking a radical restructuring of one of Scotland’s largest property developers, Kilmartin Holdings amid fears the group may plunge into administration. Bank of Scotland has lent a total of some £250m to Edinburgh-based Kilmartin, founded by Iain Wotherspoon in 1996.

Results published on May 29 revealed that Kilmartin made a pre-tax loss of £46.7m in the year to 30 April 2008, and had £288.7m of liabilities due to be paid off within one year and an overdraft that is up for renewal in mid-2009.

Since late 2008, Bank of Scotland Corporate and subsequently Lloyds have been in crisis talks with the developer, with a view to a restructuring it and staving off its collapse

With backing from 50%-owner Bank of Scotland Corporate, Kilmartin chose to accelerate its £1.3 billion development programme in 2007 as other property developers recognised a slowdown was underway and started to rein in their plans.

The most likely option for Kilmartin, according to property sources, is that Lloyds will parachute Kevin McCabe, founder of developers Scarborough, in to take control of the beleaguered group. McCabe would then be tasked with a “work out”, meaning that he would be expected to salvage as much as possible from Kilmartin’s bombed-out asset base.

Another option being considered is that the bank will oblige Wotherspoon to inject some of the properties he owns independently through private vehicle Annfield into the Kilmartin group as a condition of continued support. Other options are thought to include parking some or all of Kilmartin’s “toxic” loans with the government’s asset protection scheme. The final option is administration.

Wotherspoon would not comment on which option is most likely to be pursued by the bank. A Bank of Scotland Corporate spokesman declined to comment.

Bank of Scotland took a 50% stake in Kilmartin Holdings just as the UK’s property market was headed for meltdown in May 2007 and its integrated finance unit has two directors on the developers’ board.

Kilmartin had a net deficit of £16.4m at 30 April 2008, meaning it owed £16.4m more than it owned. In the 2008 annual results auditor Chiene & Tait said it could not comment on whether Kilmartin Group could continue as a going concern.

Chiene & Tait said: “While the directors consider that bank facilities will be available and sufficient to enable the company to meet its obligations as they fall due for payment, the company has not yet agreed its funding facility with its bankers for a period of at least 12 months from the date of approval of these financial statements.”

Wotherspoon said: “We are still in negotiations with the bank. We are assessing our portfolio, work-out strategy and funding facility. We are where we are. And we are working with the bank to resolve this.” He claimed that Kilmartin was making progress by letting vacant space and that some £40m of its assets were under offer for sale. He also said the group has cut costs and closed offices.

Kilmartin’s projects include the redevelopment of the former Lothian regional council building on Edinburgh’s George IV Bridge. The project comprises a jumbo bank branch and a 130-room boutique hotel, the Missoni. Kilmartin’s most prominent Scottish development is Quartermile on the site of the former Edinburgh Royal Infirmary at Lauriston Place, subsequently sold to Gladedale.

Kilmartin initially thrived as “a work-out vehicle” for impaired property assets of the Bank of Scotland in the early 1990s. It then branched out into speculative office developments across the UK and opened its own offices in Sheffield and London. Other work-out vehicles of the bank’s included Tulloch (for distressed housebuilding assets) and Scarborough (for distressed commercial property assets).

An edited version of this article was published in The Sunday Times on June 14th, 2009

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