Mike Wade The Times

Caltongate in doubt as HBOS cuts support for Mountgrange Capital

The future of one of the most controversial building developments in Edinburgh has been thrown into doubt, after the company behind the project in the city's historic Old Town went into administration.

Mountgrange Capital yesterday succumbed to the meltdown in the UK financial and property markets, as HBOS withdrew its support for the contentious Caltongate scheme, just months after the £300 million scheme received final planning approval.

It emerged last night, however, that Manish Chande and Martin Myers, the founders of the development company, had established a new fund that they hope will enable them to buy back their former assets.

“We believe that these schemes continue to have commercial merit. We are examining other alternatives including making an offer to buy the assets out of administration and are uniquely placed to do so,” the two men said in a joint statement.

Caltongate, close to the Royal Mile, is one of three substantial development projects backed by Mountgrange Capital, who had sites in Maidstone in Kent, and on land formerly occupied by Chrysler, at Linwood near Paisley. Last month it was revealed that the company's Edinburgh operation had made a loss of £24.3 million, and its auditors reported that there was a “material uncertainty” over the company's ability to continue.

Despite this apparent fragility, Councillor Tom Buchanan, head of economic development at Edinburgh City Council, said that Mountgrange Capital, though affected by problems in the property market, had not been helped by the attitude of it bankers.

“Mountgrange is the victim of the ongoing difficulties with land values and they had a problem with the approach the government has taken to 'toxic debt'. The bank has been encouraged to write off toxic debt rather than work through the problem,” said Mr Buchanan, who met earlier this month in Edinburgh with Mr Chande.

“Whether it is Mountgrange or another company, there is planning consent for a gap site in the city centre. I'd like to see that come to fruition,” he added.

Edinburgh Chamber of Commerce added its weight to attempts to revitalise the scheme. “Caltongate is needed more than ever at this time of economic uncertainty. We will back any efforts to resurrect the project,” said Ron Hewitt, its chief executive.

There was, however, undisguised glee from heritage and community campaigners who have opposed the scheme. Over a four-year campaign they have repeatedly attacked proposals to demolish listed buildings, and they maintain that Caltongate is unsympathetic in scale and design to the historic buildings, streets and wynds that surround it.

“The buildings that have been emptied and at risk from demolition should be bought back to life and serve the community and city's needs once again. We said from day one that speculative-led development is not the way to develop our cities sustainably for the community or environment involved,” said Sally Richardson of Save Our Old Town.

Inspectors from Unesco (United Nations Educational, Scientific, and Cultural Organisation) were critical of the decision to demolish listed buildings to make way for Caltongate. The Unesco inspectors’ final report on “the state of conservation” of Edinburgh is awaiting comment from the Department of Culture Media and Sport at Westminster, before it is presented publicly at a conference in Seville in June. Its verdict on Caltongate is expected to be damning.

Mountgrange Capital's assets will be administered by Deloitte. Mr Chande and Mr Myers emphasised that events surrounding their development company would not affect Mountgrange Investment Management. The company is reported to be fully funded with no external debt.

Despite the bold talk of resurrecting their property assets in Scotland, their efforts to salvage Caltongate are by no means certain to succeed.

One source close to the project said: “They continue to believe in the commercial merits of the project, but what has changed are the market conditions. It's not for them to decide what will happen, it will be up to Deloitte's – they have the responsibility to creditors.”