Administrator seeks £2m for stalled NQ site

A buyer is sought for the Union Square Manchester development in the Northern Quarter, a project that stalled despite 37 of its 38 flats being sold off-plan.

Opposite the Abel Heywood pub on Red Lion Street, the build only reached basement level before stalling. Landwood Group is now marketing the site for sale, having been instructed by administrator Mazars.

The accountancy business was appointed as administrator for Union Square Manchester Ltd in June, and with so much work still to do to complete the apartments, has concluded it unfeasible to build the project out under its administration.

Mazars has therefore instructed Landwood to try and find a buyer in order to realise a return for creditors, a list that is headed by Ching Wai, holder of a fixed charge over the property.

It is understood that Ching Wai is entitled to a fixed interest repayment of £500,000, which will take priority over the scheme’s investors. The estimated final outcome for the fixed charge holder is a return close to £1.9m.

The 37 purchasers are mostly expected to have quasi-security interests over the property in the form of a purchaser’s lien. Unsecured creditors are estimated to be owed £762,542, across 14 claims.

As things stand, neither the apartment purchasers nor unsecured creditors are expected to receive anything.

The partnership forms

Union Square Manchester Ltd was set up as a special purpose vehicle for the scheme, essentially being a joint venture between London-based Deals Investment and Manchester developer Taylor Rhodes Group, which early in 2019 had completed a project in Manchester’s New Cross, and announced plans for a scheme in Liverpool’s Tithebarn Street.

In December 2016 planning consent was granted for the Union Square site, at 31-33 Church Street and 2 Union Street in the Northern Quarter, to create 12 one-bedroom flats, 25 two-bedroom flats and one three-bedroom flat.

The scheme was also to include 2,000 sq ft of ground floor retail in three units, and the retention of a historic pub facade on part of the site.

Initial funding of £3m was provided by Ching Wai, via Deals, to buy the site from Beech Holdings.

In January 2019, TRG announced that all homes had been sold off-plan. Based on information provided, joint administrators Guy Hollander and Adam Harris estimate that deposits totalling £2.16m had been collected. Place understands that deposits of 25% of apartment value were taken.

Gemdale was then appointed as main contractor in July. But behind the scenes, things were unravelling.

According to Mazars’ report, TRG informed Deals on 2 August that the development vehicle was facing severe financial difficulty, largely due to unexpected issues with the property. Mazars records that “we understand there was no reference to material difficulties approximately six months earlier, when all units had been sold off-plan”.

The partnership ends

In late September, a meeting was held between TRG, Deals and Gemdale, at which it was agreed that Deals would assume full control of USM, leading the remaining TRG-linked parties Alex Taylor and Allan Stables to depart the USM directorship soon after. TRG was dissolved in February 2020.

From that point, the company’s sole shareholder has been Deals Investment, of which former USM directors Jenny Dong and Li Na are described as shareholders by Mazars. Dong was listed as having significant control over Deals until April 2021.

Following TRG’s departure, Deals then brought in Derek McLaughlin as construction director for the project. McLaughlin is now the only director of USM named at Companies House. Mazars said that discussions this June had made it apparent McLaughlin was not given access to the company’s financial records prior to his involvement.

By the end of 2019, a review of Union Square Manchester’s finances by law firm Lyndales, now taken over by Buckles, showed that the vehicle had funds of £680,000. It was estimated that factoring in all deposits, reservation fees and VAT recovered, the company should have brought in £2.8m. The cost of works to that point was estimated at £800,000.

On the construction side, issues had by now arisen with builder Gemdale and its sub-contractors, and Lyndales terminated its contract in January 2020 – Gemdale would later win a pay-out of £227,000 at formal adjudication. Mast Construction, brought in by McLaughlin, then took over the groundworks, completing early this year.

While works were ongoing, the company was trying and failing to find a lender to support the full construction job. Unable to do so, it explored a CVA earlier this year to no avail, leading it to an administration application. All company funds have now been exhausted.

Where do we go from here?

Landwood started marketing the site on 22 July, and expects to run a four-to-six week process. Place North West was told by a spokesperson that there has been early interest in the site, “although it’s early days at this point”.

Mazars’ investigations are ongoing. The joint administrators have been speaking with McLaughlin, the Deals directors and the company’s former accountant as they seek to piece together the full story of USM’s trading history.

Further work still to be undertaken includes review and analysis of the company’s books and records, along with a review of director questionnaires and investigation into any matters arising.

Should investigations identify any additional assets, or lead to action against any particular parties, there may be “additional realisations” from the administration. As things stand though, the apartment purchasers stand to lose out, along with unsecured creditors.