Estates Gazette: The Man Who Sold Trafford

Estates Gazette

15/11/08

When Iceland sneezes does the UK catch a cold? With a great deal of the UK’s high street owned or part-owned by Icelandic investment company Baugur, David Quinn reports on turbulent times

As a so-called nation of shopkeepers, the extent to which Britain’s high streets are exposed to the economy of another much smaller, more northerly European island state is surprising.

The reverberations from the collapse last month of several Icelandic banks were widespread. As a result of the dominance of one privately owned, highly leveraged Icelandic investment company, Baugur, the outlook for an array of British retail names was suddenly thrown into doubt.

Baugur’s ongoing troubles have been caused by the failure and nationalisation of Icelandic banks Glitnir, Landsbanki and Kaupthing in early October. Its debts tied up in these institutions are estimated to total anywhere between £1bn and £2bn. As the debts are frozen, analysts believe the company needs a huge and immediate cash injection to stay afloat, although Baugur says it is not calling in administrators.

The list of UK retailers owned or part-owned by Baugur makes for dizzying reading (see table, p17 ) and their disappearance from the British high street would lead to hundreds of vacant shop units across the country. Luckily for landlords, Baugur says the turmoil in Iceland will not affect its UK businesses.

The company declined to answer specific questions but claims its “operational assets are strong”.

A company spokeswoman says: “In response to developments in the Icelandic banking sector, we would like to make clear that this will have no impact on Baugur’s operations or its portfolio companies. In the individual cases where Icelandic banks may have to sell shareholdings in our portfolio companies, we would like to emphasise that these are all minority shareholdings.

Baugur maintains there is no threat to its portfolio of retailers in the UK, since pre-emption clauses offer the option for other existing investors to acquire equivalent shareholdings when a stake in a particular retailer is sold.

“Should an Icelandic bank sell all or part of their minority shareholding, there would be no impact on the successful day-to-day operations and performance of these companies. [This] would only change the ownership structure,” says the spokeswoman.

By its own highly acquisitive standards, Baugur has been having an unusual year. Even before the Icelandic banking crisis took hold, the company was looking increasingly bearish.

In September, it off-loaded the345-strong healthfood store chain Julian Graves to competitor Holland & Barrett for an undisclosed amount. It had already sold its entire 31.4% stake in cash-and-carry operator Booker for around £100m in June and, in May, had sold loss-making fashion retailer MK One to restructuring specialist Hilco.

MK One did not fit with Baugur’s strategy of investment in well-known fashion retailers that are ripe for international expansion. This strategy has been pursued with the names under its Mosaic Fashions banner, which include Oasis, Principles and Warehouse. Karen Millen, another Mosaic brand, opened a 10th Russian store in September.

Others among Baugur’s retail portfolio, including toy shop Hamleys, are also being expanded internationally. It has opened stores in India, Dubai and Jordan this year.

But such expansions, as well as recent sales growth at Mosaic, the Aurum jewellery group and House of Fraser, have not been enough to offset the impact on Baugur of the catastrophic failure of Iceland’s banking system.

As a result of that turmoil, predictions about the company’s long-term strategy have become impossible, since the future control of key retailers within its portfolio looks almost certain to change.

Jón Ásgeir Jóhannesson, executive chairman of Baugur, has admitted that “the person that owns the debt controls the company”. With no shortage of bidders for that debt, the ownership of up to 20 UK retail names could be about to change hands.

Arcadia owner Sir Philip Green was considered a frontrunner to sew up a deal, having flown out to Iceland early in October in the hope of pulling off an audacious coup. His main interest lies in assuming control of Mosaic, which competes with his Top Shop, Miss Selfridge, Wallis and Dorothy Perkins brands.

Green is expected to face off with private equity groups Permira, TPG and Alchemy, which are also circling. Any such deal would likely be concluded at fire-sale prices.

Management buyouts at Baugur’s various portfolio retailers are also considered possible by analysts. The Iceland frozen food chain, which has been trading strongly, is a prime contender after CEO Malcolm Walker withdrew his interest in taking over Woolworths.

Nick Bubb, an analyst at stockbroker Pani Capital, describes the situation at Baugur as “amazing” and believes its UK retail portfolio is likely to be broken up.

“Philip Green probably wants the whole of Mosaic to merge with Arcadia, but it’s not clear to me whether Mosaic has ever really achieved any synergies from being such a big fashion grouping,” he says.

“I think it could be broken up, with the best chains, like Karen Millen and Coast, going to private equity.”

The future of House of Fraser, which was taken private through a Baugur-led takeover in 2006, and the listed Debenhams, in which it has a 7% stake, has raised eyebrows.

Analysts speculate HoF could even be merged with Debenhams, which has suffered a profits slump in recent months.

However, the pre-emptive rights clause among shareholders means HoF looks increasingly likely to move into the control of its management. Chairman Don McCarthy owns 20%.

The timing of any such deals remains a moot point. While some analysts have speculated that a fire sale needs to – and will – be sewn up quickly, others point out that the Icelandic banking freeze means a swoop totalling billions of pounds for Baugur’s debt simply cannot be pushed through in any hurry. Some reports have even suggested the Icelandic government could retain the debt indefinitely.

While the company’s UK retail portfolio is not in any immediate danger, its break-up in some form or other seems almost certain, with widespread repercussions that have yet to be fully felt.

Baugur: Company History and Strategy

The roots of Baugur can be traced to 1989 when Jóhannes Jónsson and his son, the current Baugur UK CEO Jón Ásgeir Jóhannesson, formed discount food chain Bónus in Reykjavik.

Bónus merged with the Hagkaup supermarket chain in 1998 to create Baugur and by 2001 had begun its strategy of investment in the UK market.

Baugur was delisted from the Icelandic stock exchange in 2003 and was taken private by Jónsson, Jóhannesson and others. It acquired Hamleys, Julian Graves and a majority stake in Oasis, followed by Big Food Group, owner of the Iceland frozen food chain.

In 2005, Baugur oversaw the flotation of Mosaic Fashions on the Icelandic stock exchange, but delisted it in 2007.

In 2006, it acquired a 35% stake in House of Fraser. It also took on a minority stake in fashion brand All Saints, rapidly expanding the portfolio of stores.

Each deal has been concluded with significant amounts of debt, meaning Baugur is now estimated to owe up to £2bn to Iceland’s banks, several of which were part-nationalised in October in order to avoid collapse.

Meanwhile, Stodir, an investment company controlled by Jóhannesson, owns 32% of banking group Glitnir, which is now 75% owned by the Icelandic government. Stodir announced its intention in July to acquire a 39% stake in Baugur but called the deal off after filing for bankruptcy protection in October.

Baugur declined to answer questions about its UK property holdings but analysts believe they are minimal. In some cases significant freehold assets have been stripped out.

They include House of Fraser’s headquarters at1 Howick Place in London’s Victoria, which was sold for £60m in 2006.

Estates Gazette (subsequently translated into Dutch as “Sprong naar groene winkelcentra” for the magazine Building Innovation)

14/07/2007

Wigan doesn’t have many claims to fame. Apart from its pier and its Premiership football team’s recent narrow escape from relegation, the town has generally done little to stimulate the interest of the news media.

In years to come, Wigan may be remembered for something else. Manchester developer Modus is creating Britain’s – possibly the world’s – first carbon-neutral shopping centre in the Greater Manchester town.

By offsetting the CO² produced during the construction of the Grand Arcade scheme with investment in wind farms in India and Inner Mongolia, the developer is claiming a genuine watershed moment.

Modus – specifically, its subsidiary Modus Urban Regeneration – is working on a host of retail schemes around the UK, and as far afield as Romania.

Its two young directors – Tim Heatley, 27, and Anthony Kilbride, 34 – are among a new breed of developers bringing sustainable initiatives to mainstream retail development projects. As they explain, the idea is not a short-term fad aimed at creating good PR. It can have long-term benefits that add significantly to the company’s bottom line.

“One of the main drivers for us is that green property will become an investment class in its own right,” says Heatley. “In 20 years, we expect that a green development will sell more easily because of its green credentials and may attract a premium.”

MUR’s key aims include minimising the carbon footprint of all its developments, both during construction and through each scheme’s life cycle. It is committed to reducing energy consumption in its developments by 50%, compared with its rivals, and to use renewable energy sources where possible. A BREEAM “very good” rating is considered a minimum standard.

Kilbride admits that the company is still on a “learning curve” in terms of delivering its sustainability objectives. He says that the rationale behind creating sustainable schemes is obvious.

“We think there is an increasing awareness among consumers about personal carbon footprints, and consumers will begin to pick green schemes over others. Our retailer partners have their own green agendas, and landlords need to offer schemes that reflect that,” he says.

“If you deal with them early enough, sustainable measures don’t have to cost the earth,” Kilbride adds, acknowledging the pun.

Modus retains its developments among its growing stockpile of investments, reasoning that it is in its best interests to hold on to new schemes for between two and 20 years before selling them. This enables the company to try different sustainable measures.

“Because we keep hold of our schemes, we can continue to reduce the carbon footprint during the life of the scheme – for example, by creating incentives for retailers to recycle waste,” says Heatley. “We know that retailers have tight margins, so asking them to think about the environment as well can be a lot to ask. By partnering with them, we can take some of the pressure off.”

Heatley admits that the design of Wigan’s Grand Arcade, which predated the creation of MUR, did not tie in with the company’s green objectives.

Without delaying the build programme, the scheme had to be brought “back on track”.

Heatley says: “It’s experimental in many ways – we’re seeing how the green measures function.”

Grand Arcade opened in March this year. Kilbride says that its sustainable features range from photovoltaic tiles and a green roof with “natural habitat vegetation” to more mundane elements, such as energy-efficient light bulbs. Rather than using energy-hungry air-conditioning, the scheme is naturally ventilated – still a relative rarity in modern retail schemes.

Kilbride is adamant that a sustainable path, if followed from the beginning, does not necessarily create excessive trouble or expense for developers.

“There are many things, down to the orientation of the scheme towards the sun, that come for free if you consider them early enough. You need to keep testing yourself all the way through the development process,” he says.

Such an approach will be wheeled out in the company’s many other developments around the UK, including Friars Walk in Newport, Delamere Place in Crewe, and Hounds Hill in Blackpool. MUR aims to apply the same green strictures to its debut European scheme in the Romanian capital of Bucharest.

The 1.9m sq ft development, Bucharest Colosseum Centre, will be bigger than Bluewater in Kent and anchored by Carrefour. It has a £260m build cost. The site is being developed in partnership with Bolton-based private investor Panico Panayi, the owner of Cambos Leisure, which sold its Buckingham Bingo operation to venture capitalist Alchemy Partners for £90m in 2005.

Modus has been working on the concept for the scheme for the past two years and has planning approval. While acknowledging the various hurdles that must still be negotiated as part of the company’s first foreign development, Kilbride is confident that the scheme can be delivered.

“We shouldn’t be scared of the red tape, because it involves exactly the same processes as in the UK,” he says. “We just need to be more careful because the systems perhaps aren’t as refined and things take longer.”

Heatley says that the aim is to capitalise on growing demand from retailers for space in new EU states.

“We’re doing what retailers are doing,” he explains. “There’s more activity over there from retailers such as Debenhams and a few other UK faces.”

Sustainable features will be pursued, where possible, in Romania as in the UK.

“As a principle, it should be applied to Europe as well,” says Kilbride. “Bucharest is part of the EU and we need to future-proof the investment.”

From Wigan to Romania may seem like a long journey, but Modus seems confident it can stamp its sustainable vision on the whole of Europe.

Its approach to green shopping centres could pay dividends. Rival developers and investors will be watching closely to see if it does.

[BOX]
Setting sights on europe

Manchester-based Modus Ventures is a holding company with four branches.

One is Modus Urban Regeneration, set up three years ago, and co-owned by Modus founder Brendan Flood plus Mike Riddell, Tim Heatley and Anthony Kilbride.

It undertakes town-centre developments in UK towns such as Wigan, Crewe and Blackpool, and is expanding into Europe.

Its current development pipeline is valued at £2.2bn and growing.

Other companies under the Modus umbrella include Modus Properties, which focuses on smaller out-of-town schemes anchored by food stores.

Modus also has an investment arm, which retains the company’s developments, as well as a private equity business.

Despite financial pressures, Grosvenor’s massive £1bn redevelopment of Liverpool city centre is beginning to become visible. David Quinn reports

From a nearby roof top, the last few empty buildings on Paradise Street are dwarfed by the white, dusty presence of one of the largest building sites in Europe.

But Grosvenor’s £1bn redevelopment of central Liverpool’s retail core has recently been making headlines, and not because of its physical scale. Instead, all the talk has been about the financial burden it has created for its developer.

It was revealed last month that Grosvenor is to set aside between £50m and £90m in its annual accounts to support the development, which will eat directly into profits. Meanwhile, in Preston, fears are growing that the size of Liverpool One has reduced the company’s capacity to develop its proposed £450m Tithebarn scheme.

Grosvenor says it will absorb the financial hit in Liverpool itself, leaving the consortium of backers which include Hermes and Middle Eastern clients of Arlington Securities unscathed.

But with the scheme so much at the heart of Liverpool’s rejuvenation, and timed to coincide with the city’s coronation as Capital of Culture in 2008, the announcement has raised eyebrows locally.

In the meantime, however, the 42-acre development is moving forward at speed. The development site is scattered with 15 cranes, and the former bustle of Paradise Street has been replaced by a wide, open pathway populated by JCBs.

The core of what will be an Odeon cinema is taking shape. And the structures of John Lewis and Debenhams are in place.

It is certainly a complex project. Rather than slapping a big-box shopping mall on the site, Grosvenor is working with the existing streetscape.

In total, there are 30 new buildings at Liverpool One designed by 20 architects. “The idea from day one has been to create not a shopping mall but a series of buildings with their own character and architecture,” says Rod Holmes, project director at Grosvenor.

While some of the buildings have been completed, details of the majority of the scheme’s retail and leisure elements, and how they fit together, has sometimes been difficult to fathom.

Traditional shopping

Holmes says people in Liverpool have never really had a problem getting to grips with the design and layout, but others have.

“People locally realise that we are rebuilding a chunk of the city centre and that it fits in with the street pattern. It only becomes difficult when we start talking to people in the property industry who are used to dealing with traditional shopping centres,” he says.

The open-air nature of the scheme has had an upside, however. “Certain retailers welcome the fact that this is not ‘another shopping centre’. Some retailers who never take space in traditional shopping centres are interested, because it’s more like a high street,” says Holmes.

In fact, the scheme has five key retail elements (see map, p215) and is broken up into zones, which cater for different tastes and wallets.

John Lewis and Debenhams anchor the two western points of a triangle, which tapers towards the existing Marks & Spencer and the junction of Hanover Street with Church Street. South John Street and Paradise Street form linear retail pitches north to south, while Hanover Street, with more stores, forms the eastern barrier of the project. All this means the retail floorspace of central Liverpool will more than double.

“The different zones are based around real streets in Liverpool and so we have appropriate rents to reflect that,” explains Neil Barber, head of leasing at Grosvenor.

“For example, Hanover Street will be pitched at perhaps a third of the level of South John Street. We realise that different retailers can afford to pay different levels of rent, and we aren’t going to put in a couple of hundred shops at £300 per sq ft zone A. We want a different mix we don’t want a clone town.”

John Lewis, which has had a presence in Liverpool since 1940 and operates from a cramped outlet on Church Street, will be central to Liverpool One’s offer. Ann Humphries, director of retail development, says she is enthusiastic by the trading potential of the new store. “This store will be part of the biggest change to the centre of a city that we have been involved with,” she says.

“We’ve stayed committed to Liverpool. It’s fantastic that we are now getting a new critical mass of retailers as a magnet to bring people back into the city.”

So far, around 60% of the retail element of the scheme is let, with several high street names already confirmed and others rumoured (see box, p215). The next announcement on retailers is programmed for November, and this is likely to include several restaurant names. Holmes anticipates a further flurry of lettings activity next spring, after retailers have evaluated the Christmas 2006 trading figures.

Like the retail areas, the leisure offer will be broken down into zones. The park area will feature what Barber calls “fine dining”, with some of the units appearing to slot into the side of the sloping open parkland, with views of the River Mersey.

More casual dining will also feature here. No deals have yet been signed, but Wagamama, Strada and Gourmet Burger Kitchen are tipped to take space. North West-based ventures are likely to be strongly supported, with Manchester-based Croma and Sam’s Chop House, both favourites among property types, believed to be contenders for units.

Family dining

“These lettings tend to be the stuff you do in the last 12 months so that you can get the right mix and the latest thing, but we are now really beginning to crack into it,” says Barber. “Our advantage is that there aren’t many places in the UK where you can overlook a large park in the centre of a city.”

Other catering offers at the scheme will be family dining, especially close to the cinema, although Barber stresses this will not be a “food court”. The remaining offer will be “dotted around”, with a mix of “coffee stops tailored to particular districts”.

The retail element of the scheme will be completed in the first half of 2008, with some other sections, including 300 flats, being completed at the start of 2009. Holmes says discussions with potential development partners for the flats have been aborted, and Grosvenor will now finance and develop this element on its own.

In less than two years, if all goes to plan, Grosvenor’s complex scheme will push Liverpool firmly into the UK’s top-10 retail destinations. But for now, the clutch of cranes, the diggers and the dust remain.

Liverpool One composition

Paradise Street

Described as a “slick European boulevard”, the 82ft-wide street will be uncovered and have a similar volume and size to Church Street. It will feature a mix of trendy, urban fashion retailers. John Lewis anchors the street at the southern end.

Typical target retailers: Urban Outfitters, USC

Architects: BDP (London), Allies & Morrison, John McAslan, Glenn Howells, Haworth Tompkins

South John Street

The street linking Debenhams and John Lewis will be partly covered by a glass canopy and feature family-oriented multiples. The top level of the street will back on to the open park on the western side.

Typical target retailers: Borders

Architects: Groupe Six, BDP (Liverpool)

Peters Lane

Arguably the most architecturally surprising element of the scheme, Peters Lane will punch through from Church Street via a new entrance created by opening up the existing HMV store. The scheme’s only fully covered section, it will offer aspirational branded fashion and upmarket names.

Typical target retailers: Jigsaw, Space NK

Architects: Dixon Jones, Grieg & Stephenson, Stephenson Bell

Hanover Street

This zone at the eastern edge of the development features a number of larger shops aimed at homeware brands, partly to capitalise on the boom in residential development at nearby Ropewalks. Rents will be lower than those in the prime South John Street pitch. Hanover Street also houses the new BBC studios and landmark “Bling” building.

Typical target retailers: Habitat, Heal’s

Architects: CZWF, Page & Park, Brock Carmichael, Austin:Smith Lord, Owen Ellis

The Park

The hub of the development’s restaurant and catering offer, the 5-acre park will feature a series of terraces overlooking the River Mersey, with 2,000 car-parking spaces concealed beneath. The southern edge is flanked by the Cesar Pelli-designed flats and hotel blocks.

Typical target occupiers: Gourmet Burger Company, Strada, Wagamama

Architects: Cesar Pelli, BDP (Liverpool)

Regeneration projects could make Birmingham’s specialist shopping centre more accessible. But its proprietor says he has a “fatalistic” outlook. David Quinn dips into the Custard Factory

A stark naked man, apparently dead in a tank and covered in ants, may not be everyone’s cup of tea. In fact, there are probably few Birmingham shoppers who would find such a sight appealing.

Nonetheless, visitors to the Custard Factory, a mixed-use retail scheme based around the former Bird’s custard factory in Digbeth, were greeted by this bizarre vision as part of an art exhibition in early June.

The Custard Factory is Birmingham’s only centre for specialist retailing. So shoppers looking for something a little different in the city would have to have confronted the man in the tank.

The scheme, which was redeveloped a decade ago by entrepreneur Bennie Gray, features more than a dozen retailers catering for hi-fi enthusiasts, mountain bikers, collectors of retro furniture and other niche markets.

Some agents believe that the scheme, which is billed as an “alternative shopping destination for people who have grown weary of the same old high-street chains”, could become increasingly popular thanks to its relative proximity to several regeneration projects.

“The Custard Factory has become successful already,” says Andrew Benson, retail director at DTZ. “The advent of the Bullring, as well as Eastside, can only benefit and increase its profile.”

However, the brutal nature of the art installation in the doorway acts as a forewarning to Gray’s “couldn’t care less” attitude towards this sort of claim.

“I don’t see any continuity in terms of links between the city centre and this end of Digbeth,” he says.

In fact, says Gray, the redevelopment of the Bullring could have a negative impact on the Custard Factory.

“Digbeth High Street – which links the Custard Factory to central Birmingham – used to be one of the city’s main radial roads. Now it looks as though it terminates in Selfridges’ car park,” he says.

Gray claims to have a “fatalistic” outlook towards the future of the Custard Factory and claims the only reason it attracts retailers is “because it’s cheap” – typically £100 per unit per week.

He does not believe Birmingham lacks a specialist retail offer generally because, he says, the Custard Factory has trouble filling its shops. It has three vacant units out of a total of 20.

Others, however, disagree and express surprise that a city such as Birmingham does not possess a Covent Garden-style area filled with quirky, one-off retailers.

“There isn’t a specialist retail quarter as you might expect in a city of this size,” observes Richard Bidwell, associate retail director at Colliers CRE.

However, there are signs that this could be changing, with the continued opening up of Birmingham’s central core.

Schemes opening in former fringe locations, such as the Mailbox and the Bullring, have helped this process, as well as the demolition of the inner ring road, or “concrete collar”.

“The concrete collar has traditionally limited the city centre, and there are now areas where smaller, specialist retailers may expand,” says Bidwell.

DTZ’s Benson cites Livery Street and Church Street in the city’s business quarter as having the best potential for specialist retailing. But although acknowledging the Custard Factory’s specialist credentials, some agents believe that the scheme needs more promotion before it is widely accepted.

Gray is not aggrieved. “We’re reconciled to being far-flung,” he shrugs. And he looks as if he likes it that way.

David Quinn takes a detailed look at how the Bullring was put together from drawing board to the largest development in Europe – and looks ahead to its opening next year

With a little under a year to go until the opening of the 1.2m sq ft Bullring, the sense of anticipation among retailers, agents and shoppers is palpable.

Birmingham Alliance, which is developing the Bullring, is composed of Hammerson, Henderson Global Investors and Land Securities. They came together even though Hammerson had earlier obtained planning permission to develop the Bullring and a separate Henderson-LandSec joint venture had gained permission to go ahead with the mixed-use Martineau Galleries.

“There was an eagerness on the part of the council for things to happen,” says John Emery, projects director for the Alliance.

“The council had these big developers coming along and, obviously, it welcomed the opportunity for more investment.”

Birmingham Alliance was formed after all three parties realised that competition between two schemes could damage the value of their investments. Also, retailers were holding back from committing to either scheme because they were not sure which would be most successful.

“It was primarily the commercial market that drove Hammerson to get together with LandSec and Henderson,” explains Emery.

“Retailers were holding back and some were deciding that they couldn’t wait – the most notable being John Lewis, which went to Solihull.”

According to Emery, it took a while for the parties concerned to realise how damaging this was, for both themselves and the city of Birmingham. Eventually, sense prevailed.

“The key people in the negotiations were obviously Ian Henderson of LandSec, John Richards of Hammerson and Neil Varnham of Henderson,” says Emery.

“But council leader Sir Albert Bore also had a role to play in nurturing that relationship. The council was an important part of the consortium that delivered the partnership,” he adds.

The market traders who occupied the old Bull Ring were understandably concerned about the impact the development would have on their livelihoods and the Alliance became involved in consultation with them.

It agreed to construct a new market hall adjacent to the new Bullring, which Emery believes will “give a variety of choice and price point” once the centre opens.

Another condition for the development was to preserve Moor Street station in what Emery calls “a museum state”. “Our concern with that was that there was potential for the building to deteriorate if it wasn’t further maintained,” he says. “So we opened discussions with Chiltern Trains to look at how we might bring it back to life.”

Moor Street on track

The train operator came on board and Moor Street will now be brought back into full working order.

“We’re pleased with it because it’s good for our retail proposition – it fulfils a lot of agendas,” explains Emery.

St Martin’s Church was another part of the jigsaw. The planning authorities always felt that the church needed to form a central part of the scheme and Emery is pleased with the way it is being “brought back to prominence”.

“It feels right,” he says. “St Martin’s has the common touch about it and it will be interesting to see the contrast between it and the modernity of the Selfridges building.”

Perhaps the most famous building in Birmingham is the Rotunda, which stands at the entrance to the Bullring on New Street. Critics have bemoaned the fact that the Rotunda is listed, but Emery is not one of them. “I feel it’s a part of Birmingham and see it as an opportunity,” he says.

The most likely use for the building is residential, admits Emery. “Our studies have led us to believe that’s the best option.”

Should planning permission for this use be granted, the Alliance hopes to find a development partner for a scheme in the early part of next year.

The design of the centre has always been seen as extremely important. Emery says there has been a particular emphasis on creating a “quality feel”.

“The main event is obviously the shops, but if you can enhance the value of being somewhere, so that people just like to be there, then that adds to the value,” he says.

Undoubtedly the most eye-catching aspect of the centre is the new Selfridges, which will be housed in a remarkable blue structure opposite Moor Street station.

The building has been designed by architect Future Systems, which created the NatWest Media Centre at Lord’s cricket ground. Emery believes it will be “a new icon for Birmingham and for this country”. External cladding is expected to begin next month.

Emery jokes that when planners saw the futuristic design they had to “pick their jaws up off the floor. But they’ve embraced it and have been very supportive,” he says.

The Alliance has worked with local artists and design consultancy Checkland Kindleysides to deliver other eye-catching aspects to the centre.

The Bullring is scheduled to open in September 2003, most likely the week of the 15th. After that, the focus will move on to the development of Martineau Galleries.

Urban renaissance

Architects RTKL have been appointed as masterplanners to review the scheme for which Birmingham Alliance has consent. According to Emery, it is likely there will be some changes.

“The whole urban renaissance movement, in terms of design, urban living and so on, has come a long way since those plans were originally submitted,” he says.

“RTKL will review the scheme to see if it is still appropriate.”

Changes are likely to focus on the residential quotient and whether or not to increase it. Emery says reaction to the Bullring will also play an important part.

By the end of 2002, Emery expects the Alliance “will have started to understand how Martineau Galleries may develop”.

“By the end of 2003, we should have firmed up our plans,” he reveals.

Hammerson, Henderson and LandSec plan to remain part of Birmingham Alliance once the Bullring is completed.

“Things may change but at the moment there is a strong desire for all three to retain the investment,” says Emery.

Meanwhile, the physical form of the Bullring has begun to loom large over the junction of High Street and New Street, a glitzy glass facade, ready to welcome an influx of visitors.

With some seriously big-name retailers looking at space-strapped Liverpool, whoever wins the right to develop at Chavasse Park should cash in. But first, planners must sort out the mess. David Quinn reports

Liverpool’s agents are fed up. The cause of their woe is planning battles that are delaying retail development in the city.

The city council’s ongoing tussle with Bill Davies’ Walton Group over its proposed 1.1m sq ft (102,200m2) shopping mall at Chavasse Park is increasingly seen as an embarrassing mess that is sapping the vitality of the city’s retail core.

Luckily for agents, the end of the affair may be in sight. Last month, planning inspector Richard Mordey appeared to give his blessing to Grosvenor and Henderson Global Investments’ rival city-centre retail development plan for Bluecoat Triangle, in roughly the same location.

Mordey’s report, in relation to the alteration of Liverpool’s unitary development plan, said that bringing “vacant sites and buildings back into use is infinitely preferable to a self-contained, mall-based design either in the Paradise Street/Bluecoat Triangle or at Chavasse Park”.

This statement has been interpreted by the council as an independent vote of confidence in the £800m Grosvenor-Henderson scheme, on which work could begin before the end of the year. A spokesman for Grosvenor describes the report as “very good news”.

Doubt cast on the park

The report is likely to cast further doubt on the viability of Walton Group’s proposals for Chavasse Park, although a separate judgment on this issue is not expected until later this year (see panel).

Walton Group remains bullish and is committed to going ahead with the development, despite Mordey’s comments. A spokesman for the developer says: “There’s everything to play for.”

He adds: “This has been going on for several years. The council has described each hurdle that has been thrown at us as ‘insurmountable’, but we have proved otherwise.

“This is only the report on the UDP. A separate judgment on our plans is still to come and we’re still 100% committed to the scheme.”

Whatever the eventual outcome, the ongoing delay to improvements to Liverpool’s retail core is creating intense frustration among agents. With several major retailers seeking to obtain a presence in the city centre, the slow progress in furthering retail development – caused by what agents see as pointless political wrangling – is causing headaches.

“People working in retail would like to see something happen – there’s enormous pent-up demand – but retailers don’t want to commit while we are in a state of flux,” says Peter Burke of Mason Owen.

Selfridges and Harvey Nichols are both rumoured to be considering a move into Liverpool, as are House of Fraser, Allders and Debenhams. Meanwhile, John Lewis’s George Henry Lee operation is believed to want to expand from its somewhat cramped accommodation.

“The way the city centre is laid out at the moment, there are no big box facilities, so there are some pretty big requirements that can’t be satisfied,” says Daniel Oliver of Hitchcock Wright & Partners.

Jonathan Owen of Irving Rice adds: “With the lack of certain occupiers we have, you have to wonder whether customers have no choice but to spend their money elsewhere.”

Because of these problems in Liverpool’s retail market, one contingent of the city’s agents believes that speed is of the essence. They do not care which of the two rival schemes gets the go-ahead – so long as one of them does soon. Rumours that the entire local property industry is in cahoots with the council and Grosvenor-Henderson are exaggerated.

Says Oliver: “Either of these schemes will be fantastic, and retailers won’t care who the developer is.”

Nonetheless, some local agents are nervous about what could happen if Walton Group gets control of Chavasse Park.

These agents welcome Mordey’s report and its implied backing for Grosvenor-Henderson’s scheme. This is because they privately believe that the fate of another Liverpool site owned by Walton Group provides an indication of what might happen should Chavasse Park fall into its hands.

In 1996, Walton Group launched plans for a shopping centre at the former post office site on Whitechapel. The following year, Walton’s Davies told EG that the site would become a 300,000 sq ft (27,870m2) retail and leisure scheme anchored by two department stores and renamed Stanley Street Store. He claimed that a multiplex cinema operator had been signed up.

Today, the site – now known as Met Quarter – remains an eyesore, steel framework having been erected but with no visible construction work having taken place for some time.

This track record is the main reason why sections of the property fraternity are worried about Walton Group’s Chavasse Park proposals, despite the company’s recruitment in 2000 of Capital Shopping Centres as development consultant. Concerned agents feel that a development on this site could be easily let and are puzzled by the slow progress.

A Walton Group spokesman says that development of the Met Quarter became possible only in the past two years, after the company secured the frontage onto Whitechapel. He adds that the Met Quarter is being redesigned to make it more attractive to occupiers and that interest has been expressed in more than 25% of the scheme.

Agents remain unconvinced. One asks: “If Davies gets hold of Chavasse Park, will he actually develop it?”

Nigel Bennett, who runs Liverpool-based retail consulting firm Bennett, puts it more diplomatically. He says: “Walton Group has the intention, ability and resources to develop Chavasse Park, subject to statutory consents.

“However, at some point in the short- to medium-term, there may possibly be some commercial advantage to Walton Group in reaching a mutually acceptable agreement with either Liverpool city council or Grosvenor-Henderson to mothball its plans for the development.”

Walton Group rejects this suggestion, saying emphatically that it will develop. “Delivery is not a problem,” says the company spokesman. “We have Capital Shopping Centres on board and they make things happen.”

Davies does battle

Many in Liverpool do not begrudge Davies his right to persist in battling with the council over Chavasse Park. After all, he secured the option to develop there fair and square. “He’s a good businessman,” says one agent. “If you had the council by the balls, you’d do the same.”

Nevertheless, most agents in the city are in favour of the rival Grosvenor-Henderson scheme. James Kersh of Kersh Commercial, for example, says: “Grosvenor-Henderson have an international track record. They would move in with confidence and would attract strong tenants.”

Mason Owen’s Burke agrees. “I prefer Grosvenor-Henderson’s scheme because it is more concentrated around the existing retail pitch. It bolts on, rather than creating something elsewhere,” he says.

Retailers also favour Grosvenor-Henderson. David Wade-Smith, whose family owns the Wade Smith clothing empire, says: “Grosvenor’s track record at building things is considerably better than Walton Group’s.”

As well as the announcement by the planning inspector last month, other factors appear to be stacking up against Walton Group.

The developer could be cast against the rocks of the planning system – particularly PPG 6 – or may be caught out by one of the rules of the option agreement originally agreed with the council. One of these specifies that Walton Group must have tenant support for two-thirds of the retail element by this summer, and no retailers have yet been confirmed.

Even so, Walton Group has the option of judicial review should the next round of the planning battle go against it – which means that the city’s retail future is still, for the moment, unclear.

Chavasse Park
Walton Group still in control

In 1996, Walton Group purchased an option to develop on the 6-acre (2.4ha) Chavasse Park site.

Three years later, a change of council administration from Labour to Liberal Democrat resulted in the council attempting to buy Walton out of its option. It succeeded in the High Court but then suffered defeat on appeal.

In 2000, urban regeneration company Liverpool Vision backed Grosvenor-Henderson’s rival Bluecoat Triangle retail scheme on a site surrounding Chavasse Park. Undeterred, Walton Group submitted a planning application for a 1.1m sq ft (102,200m2) glass-covered mall, designed by 94-year-old US architect Philip Johnson.

The council went back to the High Court to ask it to interpret the development option in its favour. Again, it failed.

Meanwhile, Capital Shopping Centres – now owned by Liberty – became Walton Group’s development consultant on Chavasse Park.

In July 2001, the High Court told Liverpool city council that it could not stop Walton Group purchasing the Chavasse Park site for £15m and, by September, the council was forced to accept a £750,000 deposit from the developer.

The planning inquiry into Walton Group’s scheme – and into Liverpool city council’s proposals to change the city’s unitary development plan to accommodate Grosvenor-Henderson – began in November. In May this year, judgment on the UDP appeared to back Grosvenor-Henderson, throwing doubt on the future of Walton Group’s proposals.