Investors in a failed buyer-funded development in Manchester are pinning their hopes on an online auction to recover some of the £30m they ploughed into the project in the city’s Northern Gateway area.
Administrators for developer Pinnacle (Angelgate) Ltd have instructed Lambert Smith Hampton to market the Angelgate site on Dantzic Street for auction next month, at a guide price of £5m.
It is thought to be the largest property to go under the virtual hammer so far in the UK. The move suggests that administrators are eyeing online auctions to recover creditors’ funds.
The two-acre site has permission for 344 flats and commercial space in two buildings and 274 parking spaces. The development should have completed a year ago, but no work has been undertaken beyond ground works.
Flats sold off-plan
The company 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 Pinnacle (Angelgate) director Carl Mills following the administration.
A notice of administrator’s proposals filed by joint administrators Duncan Swift and Neil Dingley of Moore Stephens in November states that PAL entered into a £22.1m design-and-build contract with a company called PHD1 Construction in January 2015. By October 2015, 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 over 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 in 2015 and 2016 about the company, including the alleged involvement of a man named Tony Freeman as a consultant. Freeman was jailed for 18 months in 2006 for defrauding his own charity fundraising company of £450,000.
Buyers submit reports
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, buyers were unconvinced by the proposals and various groups of investors sought legal and insolvency advice.
Moore Stephens was appointed administrator by the high court last September following an application by one buyer with the support of 117 other buyers. It appointed LSH as adviser and invited interested parties to submit build-out proposals before opting for an auction disposal.
Swift, a partner at Moore Stephens, said the online auction process was chosen to give the site “maximum exposure globally”.
Transparent process
“Given the background, it is also important to the buyers that the sale process is transparent. The online process is the best way to demonstrate that. Everyone has an equal opportunity to bid. There can be no suggestion of favourable treatment to any one party.” All proceeds from the sale are ring-fenced for the benefit of the buyers.
Swift added: “As online auctions become more commonplace, professionals are using them more.”
Oliver Childs, head of auctions at LSH, said its online auction platform would allow it to “reach the global investor and development market” during an enhanced marketing period in order to ensure the highest price is paid in open competition. Interested parties will be required to pre-register to bid by 24 April and bidding will open on 23 April at 9am and close on 26 April at 2pm.
Pinnacle Alliance, the trading name of Pinnacle Angelgate’s parent company MVGHoldings, and Carl Mills did not return EG’s calls. Pinnacle Alliance has said previously in a statement that PHD1 “had significantly under-valued the build and for a year we struggled to find another construction company willing to build the development at the same quoted price.”
To send feedback, e-mail julia.cahill@egi.co.uk or tweet @egjuliac or @estatesgazette
