Firm's collapse leaves gaping hole in the heart of Edinburgh

Mountgrange Capital, which has spent more than four years pursuing the 300 million Caltongate project, blamed a withdrawal of support from Bank of Scotland and the slump in the property market for the move. It has cast a huge doubt over the future of the site in Edinburgh's Old Town and the firm's other major development in Scotland, at Linwood, Renfrewshire.

More than 2,000 jobs had been due to be created by the Caltongate development, which would have seen a five-star hotel and conference centre, 200 new homes, office blocks, cafs and bars, and a new public square being built off the Royal Mile, close to Waverley Station.

The news will trigger fears that Edinburgh will be left with another gap site for years.

New housing, offices and industrial complexes were envisaged for the Phoenix Park development at Linwood, near Glasgow Airport, on a site that had lain empty for a decade.

Mountgrange Capital was forced to call in the administrator, Deloitte, just weeks after it emerged the company owed 51 million to creditors.

The firm made a 24 million loss last year and had put various parts of the Caltongate scheme on hold while it tried to raise the necessary finance to keep it afloat. Its directors, Martin Myers and Manish Chande, last night insisted the scheme was not dead and said they would be trying to pursue Caltongate through their own investment fund.

Despite being strongly backed by Edinburgh city council and business leaders, Caltongate was one of the most controversial proposed developments in living memory in Edinburgh city centre. It triggered a vocal community campaign and was opposed by numerous bodies, including Edinburgh World Heri-tage and the Cockburn Association. Most concerns surrounded plans to demolish two listed buildings to make way for the hotel and conference centre.

The development was widely blamed for triggering a Unesco investigation into Edinburgh's world heritage status.

However, it was backed by Historic Scotland, and the Scottish Government approved it without ordering a public inquiry.

The project is the latest in a string of major developments in Edinburgh to run into trouble in the face of the slump in the property market.

A number of projects in the Fountainbridge area of the city are on hold, the planned expansion of Edinburgh Airport has been delayed indefinitely, and developers at the city's waterfront have warned of dramatic slumps in the value of property over the past few months.

Developments worth some 2.5 billion had already been delayed across Scotland before Mountgrange Capital went into administration.

The biggest was Macdonald Estates' 500 million Falkirk Gateway regeneration, while the others included a 150 million extension for the Buchanan Galleries shopping centre in Glasgow and a 300 million regeneration of the old Polkemmet Colliery site in West Lothian.

In a statement, Mountgrange Capital said: "The problems surrounding the UK property industry in the current financial environment have been well documented. Mountgrange Capital has not been exempt from these pressures.

"The industry's current problems have been further exacerbated by the scale of banks' exposure to commercial property lending. And UK banks now seem to be significantly scaling back their involvement in the sector."

Of the two schemes in Scotland, the two businessmen said: "We believe that these schemes continue to have commercial merit. Despite our best efforts, continued funding from existing banking channels is no longer a feasible option. We are, therefore, examining other alternatives, including making an offer to buy the assets out of administration and are uniquely placed to do so."

Mr Chande told The Scotsman: "The core problem has been the onset of recession, and this has been further exacerbated by the scaling back of property lending by banks in the UK."

John Reid, joint administrator at Deloitte, said: "The company is a victim of the current turbulent property market.

"However, Mountgrange Capital's assets still represent major development opportunities and we will be working with our advisers to maximise the return for creditors."

Tom Buchanan, Edinburgh city council's economic development leader, said: "We're all aware of the challenges that the development industry currently faces, particularly as a result of the pressures imposed by the banking sector. However, Edinburgh remains an inspiring business location and continues to attract worldwide interest.

"We have been kept informed about Mountgrange's negotiations with their funding partners. Our priority remains to see this long-neglected part of our city centre revitalised and become a place that Edinburgh residents and tourists can enjoy."

Mike Ross, chairman of the Scottish Property Federation (SPF), said: "This is extremely unfortunate.

"It highlights the absolute necessity for our planning system to be speeded up. The problem is that it takes far too much time.

"It highlights the necessity for us to improve, and if the government is serious about promoting sustainable economic growth, it seems crazy that we have had global intervention, European intervention, UK and Scottish-level intervention but at local level there is still little to no change. All we seem to be worried about is process and procedure. We have got to get our priorities right."

Dan Macdonald, the head of Macdonald Estates and a former SPF chairman, said: "The events over Caltongate are shocking.

"There is an acute lack of liquidity in the market I am very worried indeed about the state of the commercial property market. The UK must now look like a real bargain-basement shop, but there is still no investment trading.

"We have never been through anything as severe as this before. Business is moving very slowly, if at all, because of the capital shortage and we need further stimulus. I fear for commercial property development."

Campaigners had failed to persuade the Scottish Government to call in the Caltongate scheme and admitted defeat in their efforts last year.

Sally Richardson, a spokeswoman for the Save Our Old Town campaign, which was set up to fight the development, said last night: "With Mountgrange Capital now in administration, we are full of hope at last for the future of the capital's historic core. The buildings that have been emptied and are at risk from demolition should be brought back to life and serve the community and the city's needs once again."

A spokesman for Bank of Scotland said it would not be commenting on the situation with Mountgrange Capital.

A 250 million hotel development earmarked for a gap site in the Haymarket area of Edinburgh is on hold while a public inquiry into the scheme is held.

Firm's crash dashes hope of economic lifeline at second site

THE news that Mountgrange Capital has gone into administration deals a fatal blow to the company's other main scheme in Scotland.

The firm was behind plans to transform a vast area of brownfield land in the town of Linwood, Renfrewshire.

While lower-profile than Caltongate, the proposals stood to bolster a local economy that had fallen on hard times.

Once home to the Rootes company – the first car factory to be opened in Scotland after the Second World War – and later the Chrysler factory, the town has been blighted in recent years by unemployment and poverty.

The Mountgrange proposals promised a welcome reversal of fortune. Spanning 160 acres, the Phoenix Park development was to include a mix of housing, offices and industrial complexes – 43 acres devoted to manufacturing space.

Mountgrange, which bought the site in 2004, informed Renfrewshire Council it was committed to the long-term future of the site, which is located next to a retail park near Glasgow Airport and had remained undeveloped for more than a decade.

It is understood the company spent a significant sum preparing the site before construction could commence.

The plans offered an economic lifeline, and the local authority granted outline planning permission last year.

Now community leaders in Linwood hope someone will step in to rescue the project.

"It's very disappointing to hear that Mountgrange has gone into administration," the secretary of Linwood Community Council, Iain Wilson, said last night.

"The development is something we and the people of Linwood have supported. It would have brought jobs; that is important in a place like this, especially the fact the jobs were going to be in production. That's something we really appreciated.

"We have to hope now that, once the worst effects of the recession are over, someone else will rekindle the plans.

"Many people in Linwood are unemployed or are in low-paid jobs. This would have made a big difference to the town."

Four years of protests at 'hideous' proposal

IT IS more than four years since Mountgrange unveiled its plans.

Although there was a cautious welcome to begin with, discontent quickly grew.

At first, many of the objections came from a small band of campaigners who lived near the development site. But eventually, the tide of protest grew, drawing in conservationists, architectural historians, Unesco and even Sir Sean Connery.

The Save Our Old Town campaign was involved in some of the most noisy and imaginative protests against the development, which was branded "hideous" by some.

The main objections centred on the demolition of two listed buildings to make way for a five-star hotel and conference centre. There were also concerns about the height of the proposed buildings, the planned removal of a block of tenements in the Royal Mile and the quality of the scheme's architecture.

Two years ago, the Edinburgh World Heritage Trust intervened, saying that the project failed to respect the "special character and sense of place" of the Old Town.

However, Historic Scotland described the plan as "generally acceptable".

Bill Jamieson: Bad news for city as it tries to keep up with Europe

CRASH – there goes another one. The fall of the Caltongate development in the heart of Edinburgh's Old Town to deepening recession and a pull-out by HBOS will come as no surprise to what's left of the capital's commercial property market. And few tears will be shed by environmentalists and community groups opposed to this project from the start.

But it is bad news for a city that needs new development to keep its central facilities up with the best in Europe. And it is deeply worrying news for a city council critically dependent on revenue from big developments of this type.

When I spoke to Manish Chande, the property entrepreneur behind the scheme last night, he was chirpily hopeful of reviving the scheme by purchasing the assets off the administrator, Deloitte.

But he would still need to find a joint venture institution or pension fund to finance the development – and with the commercial property market on its knees, such backing will not come soon.

This is yet another major development in the city that has fallen victim to the slump. As if the near collapse of the banks was not enough, the seizure in the property market portends lost employment and a long period of stagnation.

Sensitive sites in and around the city centre now face the prospect of being trapped in the deep shadow of planning blight – buildings falling into dilapidation and disrepair pending a return of confidence to a property sector suffering its worst downturn in decades.

Dan Macdonald, of Macdonald Estates, tells me it's the worst he has experienced. And that view is echoed right across the sector.

Caltongate, which would have burst into the lower half of the Royal Mile with a "mixed use" development of shops, offices and a top-class hotel, took some four years to grind through the planning system – a delay that put its promoters a critical two years behind schedule. By the time it was able to put one brick upon another, property prices were tumbling, would-be tenants were pulling back – and banks had crashed.

As a resident in a lane close by this project, my views on Caltongate have always been mixed. I did not care much for its height or the concrete cube style of some of the proposed buildings – design I thought we had buried with no tears in the 1960s and 1970s.

But it was a project whose scale and ambition offered a desperately needed change in the dreary, rundown lower part of the Royal Mile – a commercial graveyard. It was said the Scottish Parliament would bring significant new footfall, smart new shops, aspirational retailers and cafe bars. Dream on. That badly needed uplift now looks as far away as ever.

THE site of the Caltongate development was home to the capital's first gasworks in the 19th century.

Built in the early 1800s, the gasworks began production in 1817, providing fuel for the street lamps in Princes Street and the city's factories during the industrial revolution. It was founded when the fuel was a new discovery and, at its height, employed about 200 people.

The gasworks had moved to Granton by the early 20th century, and by 1930 the Caltongate site had become home to a huge bus depot.

It survived until the early 1990s when it was put up for sale by the Scottish Transport Group. The building was partly taken over by the arts group Out of the Blue, which ran the popular Bongo Club nightspot there for years.

Various proposals have come and gone. Two years before Mountgrange unveiled its plans, a scheme given approval by the city council was shelved.

Mountgrange snapped up the site from Dutch group Sofam, which had joined forces with the Cuckfield Group and secured planning permission for offices, flats, an arts complex, cafes, bars and restaurants. The developer was controversially given permission to knock down the bus depot building before plans for its development were approved.

The move meant Out of the Blue was forced to find a new home, in a former drill hall in Leith, while the Bongo Club relocated to Holyrood Road.

Demolition work on the site began in September 2006.