Business recovery and rescue specialist Duncan Swift is among the many professionals tasked with unravelling the scandal surrounding a series of abandoned development sites in Northern Powerhouse cities, which have left investors sorely out of pocket.
The Moore Stephens partner is administrator to the company behind one such project: the failed buyer-funded Angelgate scheme in Manchester.
Developer Pinnacle (Angelgate) Ltd attracted £30m of investment from mainly overseas private investors and should have delivered 344 new homes in a mixed-use development completing last year. Yet no work was undertaken beyond groundworks.
The site was sold through Lambert Smith Hampton’s online auction platform in April to claw back some capital for the jilted investors. It fetched £5.2m.
“There are three other groups with developments in similar straits in the North West and the Midlands,” says Swift.
It’s all in a day’s work for Swift, whose team tends to deal with large, complex cases, which often include extended trading situations for businesses such as care homes and hotels.
Over the past two years, they have also been unpicking 10 “hole in the ground” situations involving incomplete developments.
So far only three of those – including Angelgate – have progressed to sales. But, Swift says, the remaining seven are all likely to come to market – and probably by auction.
“There’s no better way to demonstrate that the best price has been achieved than by public auction,” he adds.
The three recent sales also include an unfinished residential scheme in Feltwell, Norfolk. The directors of Country Living Homes had walked away from the partially completed development of around 40 homes, including conversions of farm buildings.
As administrator, Swift worked closely with the appointed LPA receiver – in this case, LSH – which immediately secured the site and installed cameras.
“A huge part of my role is investigating where the money has been spent. That includes tracking down who has the books and getting hold of them. It’s all fun and games,” says Swift.
Ultimately, the site went to auction through regional firm Cheffins. “The rural nature of the location drove our decision to use a local auction room,” says Swift.
“The development has to be in a sympathetic style to the centre of Feltwell. The buyer and all of the under bidders were regional construction and development companies, with the local talent and resources to complete it.”
Although an in-room auction was the right approach for Feltwell, Swift is a growing fan of online auctions.
“In a ballroom auction, there could be politicking by the owners of neighbouring sites or developments or by nimbys, for example,” says Swift, who has even seen different parties squaring up to each other. “That type of noise does nothing to improve value.”
He adds: “It is the office-holder’s duty to seek to get best price. There’s no better way of avoiding possible interference than by using an online auction.”
For opportunities likely to attract overseas interest, the online model offers further advantages.
In the case of Angelgate, for example, only one of the five interested parties was UK based. The successful bidder was Hong Kong-listed developer Far East Consortium, which owns the neighbouring £200m Meadowside development of 756 flats and town houses around Angel Meadow in the Noma neighbourhood.
These are busy times for Swift and his team. Does he foresee a rise in similar disposals, given the current climate? Perhaps a domino effect following the collapse of construction giant Carillion?
“It feels as if we are getting a gradual increase in the fail rate of construction companies, leading to the sales of incomplete developments. There has been an uptick in cases since Carillion.”
As the saying goes, one man’s crisis is another’s opportunity.
History of Manchester’s failed Angelgate development and its bid for recovery
Manchester City Council granted consent for a 344-home scheme on the Angelgate site in the city’s Northern gateway area in 2013. It should have completed a year ago, but no work beyond groundworks was undertaken.
Pinnacle (Angelgate) (PAL) sold the flats off-plan to individual investors based mainly overseas in late 2014 and early 2015. Buyers paid sums ranging from £30,000 to £250,000, according to a statement of affairs prepared by PAL director Carl Mills following the administration.
A notice of administrator’s proposals filed by joint administrators Swift and Neil Dingley of Moore Stephens in November states that PAL entered into a £22.1m design-and-build contract with PHD1 Construction in January 2015. By October, PAL had paid out £13.2m to its sales and marketing agent Pinnacle MC Global Network.
“It is not clear how on any basis PAL could justify spending more than 40% of the funds received from buyers on sales and marketing commissions, particularly as this meant the company was around £10m short of the PHD contracted design and build contract,” the report says.
By January 2016, only £2.4m of the money raised remained. The contractor, PHD1, went into administration in April that year, having increased its build cost estimate to £43m.
Buyers raised concerns about the company, including the alleged involvement of Tony Freeman as a consultant. He was jailed for 18 months in 2006 for defrauding his own charity company of £450,000.
According to the administrator’s report, “more than 70 buyers have submitted reports on their concerns regarding PAL’s affairs to the UK Action Fraud Agency; and Greater Manchester Police and HMRC have launched investigations”.
PAL asked buyers for further funding of £3.2m to £5.2m to allow it to deliver the scheme with a new contractor. However, they were unconvinced by the proposals and sought legal and insolvency advice.
Moore Stephens was appointed administrator by the High Court in September 2017 following an application by one buyer with the support of 117 others.
It appointed LSH as adviser and invited interested parties to submit build-out proposals before opting for an auction disposal. LSH invited bids of more than £5m. Hong Kong-listed Far East Consortium secured the site with a £5.2m bid.
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