IN FOCUS | Liverpool urged to tighten up on problem schemes

Calls are growing for Liverpool City Council to take action following the collapse of property companies such as developer Signature Living Hotel and a string of ‘problem’ schemes but it will not be easy, warned professionals in the city.

A debate on the merits of a dedicated taskforce to explore development issues in Liverpool was ignited this week after Cllr Richard Kemp, a city councillor for more than 30 years and the leader of the Liberal Democrat opposition, wrote an open letter to Mayor Joe Anderson calling for action.

Cllr Kemp said that while recent problems were not caused by the city council, “it is our responsibility to put them right because there is no other organisation that can do this”.

He urged Liverpool to set up a taskforce of “experienced institutional investors that can evaluate schemes commercially, and bring their expertise into play”. He cited developers such as Bruntwood and Grosvenor as possible members of such a group, and suggested bringing together the administrators of various stalled projects with the aim of “not selling the city short”.

Said Kemp: “There is a clear fear that assets held by administrators will be passed on at the cheapest possible price to bargain hunters looking to make a killing from the Liverpool property scene.” Or, as one Liverpool developer put it, “to [former company directors] coming back to an administrator wearing a different hat and taking over a project they’ve already started, but now debt-free.”

The Spine 3

Kemp said the Knowledge Quarter, should be the blueprint in terms of how development is conducted

A fractional headache

Speaking to Place North West this week, Kemp said he felt encouraged by dialogue with the council, but that much more needs to be done following a spate of apartment schemes funded by fractional sales that went south, with investors counting the cost.

Fractional ownership involves multiple unrelated parties investing in, and sharing the risk of, ownership of a tangible asset such as real estate. One driver for this type of investment is that it enables buy-to-let owners to share the costs of maintaining property that they will not occupy themselves.

The problem is that while the benefits of the investment are shared, so too are the liabilities, meaning if schemes stall or go into administration, a large number of investors have money under threat.

Kemp said: “Liverpool became the epicentre of fractional sales and there has to be a reason for that. The law is the same in other cities, so why did it happen here? Fractional sales have [all but] disappeared now, but there are other ways for unscrupulous developers to gull the unwary out of their money.”

“The council must be bolder,” he added. “I know a lot is going on behind the scenes, but you don’t reassure the market with that. There is good work being done in the Knowledge Quarter, and that has to be the blueprint.”

Place North West understands that the council will present a report on the fractional sales market to its regeneration select committee in August. Liverpool City Council had yet to respond to requests further information and comment at the time of publication.

With a high international profile and low prices, particularly in the context of markets such as Hong Kong, Liverpool has been a particularly attractive market for developers to exploit the fractional sales model. Between 2017 and 2018, a string of fractional apartment projects went awry, including Elavace’s Herculaneum Quay, Great George Street Developments’ New Chinatown, and Pinnacle’s Victoria Street, among others. Not all have been rescued.

Chequered schemes 

With Covid-19 impacting businesses everywhere, 2020 has seen further problems. Developer Elliot Group placed two Liverpool schemes into administration in March due to funding issues amid a police investigation into its founder Elliot Lawless. The schemes in question were the  £250m Infinity residential scheme in Liverpool city centre, and the £100m Aura student scheme in the Knowledge Quarter.

A police search of Lawless’s home in December has since been ruled unlawful, and the developer in June reached an agreement with administrators to transfer ownership of Aura to investors that otherwise stood to lose money as a result of the administration. Elliot Group is currently in talks to broker a similar deal for investors in Infinity.

Signature Living Group’s hotel vehicle was next to appoint administrators in April, with administrator Duff & Phelps revealing in June that the Signature Living parent company owed £113m at the time of its collapse. Duff & Phelps said it is still trying to untangle a complicated network of companies within the group.

Aura Hotel Elliot Group

The ownership of Elliot Group’s Aura hotel was transferred to investors

One of the assets in its portfolio, the 63-bedroom 30 James Street, has been saved out of administration by Legacy Hotels, which now plans to reopen the property this month.

Although the city’s fractional sales ‘heyday’ is arguably over, several industry figures agreed with Kemp that something needs to be done for the sake of the city’s reputation.

John Morley, founder of Legacie Developments, said he would like a taskforce to look at new projects. “We’ve said before that a panel should be created to consider major developments in the city and it should be led by people who have successfully delivered these sorts of projects before.”

He added: “Developers should work with planning officials and we would be happy to assist where we can. There has been a lot of concern and negativity around developments failing but there are also so many success stories which should be recognised.

“We live in a great city and we have a great future, but we are keen that any major construction projects are regulated. Developers should welcome regulation.”

Practical issues hinder success 

Others, however, are more sceptical. Alan Bevan, managing director of property management firm City Residential, said: “I applaud the sentiments, and am fully supportive of the efforts of any proposed taskforce.

“[However,] while we’re all embarrassed when there are failed schemes in Liverpool, I do struggle to see how a taskforce would work practically. The primary duty of administrators is to get the best value for creditors, and I can’t see how that would align with taking guidance from a taskforce.”

He added: “There are names of trusted professionals we could all put forward, but anybody with the knowledge and experience required is likely to be conflicted at some level, because we’re all in the same market.

Victoria House Liverpool

Pinnacle’s Victoria Street – a fractional sales development – collapsed in 2018

“As much as we all want to see those solid developers with good track records working in the city, it’s an open-market process and it’s hard to control.”

Steve Parry, managing director of Ion Developments, agreed, and said broader real estate legislation at national level does not fully protect investors. “The wider issue here is, what’s to stop this sort of thing happening again? The fundamental point here is misrepresentation, although the language around it changes.

“There is no real legislation to cover people in a property deal. There’s only so much a council can do.”

Parry suggested that one possibility would be for the council to act directly by taking on stalled sites, certainly on a holding basis. However, he added that he is fully aware that with council funding slashed even pre-Covid-19, that feels unlikely.

“Could the city be the party that acquires these schemes, and then it can go forward and work with a developer to finish them off – in some cases, would they be suitable for the city’s own housing company? There are obviously massive economic constraints, though,” he said.

A potential stumbling block in that instance might be the quality of the work done, as one observer who wished to remain anonymous said.

“If you’ve got a scheme that’s part-built by a contractor that nobody had previously heard of, do you really want to take it on? Quite a few have looked at these sites and decided against it.”

 

 

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