A New Investor Looms But Can Gary Neville's £200M St Michael's Scheme Hit The Cycle?
Gary Neville’s £200M St Michael’s consortium is about to get a new member.
A new, as yet unamed investor has been lined up and is ready to join the consortium fronted by the Class of 92 football hero. It will be keen to grab a share of the Manchester skyscraper scheme which, contrary to the publicity, is much less about 189 luxury apartments, and much more about providing the five-star, 216-bed hotel and 148K SF high-spec offices that Manchester needs.
The move comes as the consortium prepares to lose two other members and as Manchester’s residential (and office and hotel) sectors face unprecedented changes. Developers are asking themselves, how do you adapt in a tighter funding market, with complex construction issues, rising costs and all amidst growing warnings of a recession? Many are asking themselves, are we going to miss this economic cycle?
Something like this dilemma confronts the St Michael's scheme, one of the most conspicuous, but also most fraught, the city has seen for a decade.
The planning process was a long and well documented crucifixion for the development consortium, ending after several years in a helpful decision by the Secretary of State not to call the application in for determination. The green light came in June 2018 after a rethink by the consortium on massing, the future of a local pub and the mix of uses. Hodder+Partners completed the rethink.
That was just the start of another adventure. The original consortium has fractured under the pressure to make the sums add up on the revised planning consent. Contractor and partner Beijing Construction and Engineering Group International no longer lists St Michael's under its website list of UK projects. Place North West has reported BCEGI as stepping back but approached by Bisnow, BCEGI declined to comment. Existing partners are Manchester City Council and Singapore-based backer Rowsley.
Meanwhile the long-term role of one of the scheme's early pioneers, Brendan Flood, has been questioned thanks to a dispute with some Class of 92 investors at another scheme.
It all adds up to a lot of uncertainty, even before questions are asked about how overseas residential sales will react to turbulence in China and Hong Kong, or what is over or under-supplied in Manchester’s booming residential scene.
Could they miss this cycle? Will they be ready for the next, or will another rethink have begun with a new partner on board? Bisnow asked the St Michael’s consortium when work on-site was likely to begin, and who is, or is no longer, one of the partners. It declined to comment.
The residential element of St Michael’s has been sprinkled with Class of 92 stardust, but it confronts perhaps the most complicated market in the city.
“But we’ve seen the market plateau on values and we do need to take a step back because some are thinking it begins to look a bit more expensive, and investors are now looking at Liverpool and Leeds and other cities where they see value,” Knight Frank Residential Valuation Partner Dan Searle said.
Sales values are clustering between £350 and £470/SF, quite enough to generate some big valuations from schemes with a large number of apartments, but some way below the £600/SF aspiration of the most luxurious.
But even at fairly generous valuations the maths are tricky, especially on tower developments.
“I can think of a couple of examples where the contractors have got squeezed," Searle said. "Just look what happened to Pochin recently. You’ve labour and materials, and probably the [developers] who know what they are doing have an idea of those costs, and others who don’t necessarily know may have more trouble."
Meantime the market has begun to pivot away from residential and back to offices, because that is where there is more demand. Recent resi-to-office switches at Great Northern, Allied London’s St John’s and U+I's Mayfield add to the sense of shifting sands.
Searle said the pre-sales needed to make towers like St Michael’s fly might also be tricky.
“You can go abroad and sell the dream, but buyers will be wary. They will remember the Angelgate scheme [which ended with a fraud investigation] and the change of plan at St John’s [where Allied London pulled plans for a 54-storey residential tower]. Nationally and internationally people are very conscious of those scheme’s outcomes and will be once bitten, twice shy,” he said.
Manchester City Council is a partner in the St Michael’s scheme and will certainly want it delivered. They have long wanted a beefed-up five-star hotel offer and St Michael’s is designed to deliver it.
“A big no show does no one in the city any favours,” Searle said. The trouble is slow-moving schemes do not generate confidence. “If you can get on and get going, then a scheme works, and if they don’t there is probably a reason for it,” he said.
A key element in the St Michael's residential scheme is its unashamed luxury. This could push values well north of the current city apartment ceiling of around £500/SF. It will also be for sale, with owner-occupiers to the fore, slotting it into a different market.
Savills Northern Head of Residential Jamie Adam is bullish about the prospects for high-end residential, and disappointed so little has been delivered in this cycle.
“Every city has an opportunity in each cycle for one scheme to stand out from the crowd and push the boundary on specification, design, the lot. The last cycle delivered the Beetham Tower and No 1 Deansgate, but this time you look at what’s been brought forward in the heart of the city and it's very little, although there are a few like that which are real opportunities and not focused on just investors,” Adam said.
Adam downplays the market pivot from residential to office: It is a symptom of a city firing on all cylinders and one, moreover, adapting rapidly in a way other cities find hard. If it means a little more office and a little less resi, then so be it.
So how is St Michael’s, the city's flagship mixed scheme, coping?
Laing O'Rouke and Skidmore, Owings & Merrill are now involved, busy turning the planning drawings into a costed schedule of works as part of a pre-construction service agreement.
Skidmore, Owings & Merrill may be the third architect to become involved in the St Michael's project over its decade-long journey, but it is a name to inspire confidence in the world of skyscrapers. Its work includes the shimmering Burj Khalifa in Dubai and New York’s One World Trade Center. There is talk of bringing their expertise in off-site construction to the scheme, which would both speed up construction and potentially cut costs.
But with BCEGI gone, there is a vacancy for a big-time partner. And the bigger the partner the more likely it will want to tinker with the scheme to match its idea of what works best in terms of mix and design.
This late in the day, and with the bruises of the planning process still tender, the scope for tinkering is limited. Internal configurations may be altered, but the essential elements are now fixed.
“What cycle are you aiming for? The UK economy, or Manchester’s residential market, and there is so much going on economically and politically, so much mist and murk and a lot of headwinds, it’s hard for all developers,” Adam said.
His calculation is that the developers with the right products will still hit their landing spot, which is good news for schemes like St Michael's aiming for a mid-2020 start on-site.
But until a new big name partner is in place, the divorce with BCEGI finalised, and the relationship with Brendan Flood resolved, it will be difficult to let a contract, and without a contract work on-site cannot start. With talk of a recession in the air, even boomtown Manchester must expect to feel a slightly deflating chill breeze, and a luxury scheme creating a skyscraper on a confined city centre site will do well to avoid it.