Bernard Ginns: One company’s distress can prove to be another’s success

As the credit crunch rumbles on, anyone with access to cash can snap up some bargains.

And there are plenty to be had, particularly when the seller is distressed.

On Friday, Monaco resident Mark Harrison, 45, bought the Crossgates Shopping Centre in suburban Leeds for £30m through his real estate investment company Praxis.

The Isle of Man-registered company acquired the 175,800 sq ft centre from the Northern Irish investor Donegall Place Investments in an off-market deal.

In a short statement, Chris Beckerman, head of retail at Praxis, said: “We are very pleased to have finally completed on what proved to be a very difficult acquisition for reasons that were outside of our control.

“We remain highly acquisitive with substantial cash reserves available and will continue to build our shopping centre portfolio.”

According to its most recent accounts, Donegall Place Investments made a pre-tax loss of £26m in the year ending September 2010.

The accounts, published this May, show the Belfast company’s total losses for the year amounted to £123m after it wrote down the value of investments by £97m to £304m.

The auditors said the valuation was based on marketing material from external agents and on assessments by the directors. No formal valuations have been carried out, they said.

The auditors said: “There still remains some uncertainty as to the exact valuation of the company’s investment property portfolio.”

The accounts also show bank loans and overdrafts of £296.9m. The company’s banks are Bank of Ireland, First Trust Bank and Ulster Bank, owned by RBS. Donegall Place Investments is believed to have bought the Crossgates centre in 2005 when the commercial property market was near its peak.

There was a running joke during the boom years that investors would buy a shopping centre, add 20p to the hourly car parking charges, wait for the impact and then sell it on for a profit.

But Donegall Place Investments did spend money on the centre, which has a large catchment area.

It moved Boots, extended Wilkinsons and brought in Bon Marche and Peacocks. A source said the centre is trading “very well”.

I suspect that Mr Harrison’s investment will look like a very astute piece of business in several years’ time.

Yesterday, Islamic investment bank Gatehouse revealed that it is the new owner of the iconic Debenhams building in the heart of Leeds city centre.

The bank’s main shareholder is the Kuwait Investment Authority, which has more than $200bn worth of assets under management.

Gatehouse bought the department store from accountancy firm KPMG, the receiver to Wildrose Properties Ltd, a company ultimately owned by Barney Eastwood.

He is a wealthy Northern Irish businessman and former boxing promoter whose stars included Barry McGuigan.

Wildrose, incorporated in 2002, is a property holding company, wholly owned by the Eastwood Discretionary Trust.

The High Court ordered the appointment of administrators this March. KPMG said the company had “significant secured creditor liabilities” and so could not be rescued as a going concern.

A report from the administrator said Wildrose had debts of more than £80m.

The sale of Debenhams raised £33.4m for charge holders.

I suspect that it also represents a very good deal for a prime slice of Leeds real estate.

Gatehouse sees the city as one of the UK’s key shopping destinations, with a catchment population of more than 3.2 million people and total goods spend of £1,487m per annum.

It calculates that the shopping population of the retail centre is to increase by 11 per cent by 2018.

“This represents a major opportunity for investors looking to capitalise on the strength of the regional market,” said the bank.

Adam Cavanagh, head of real estate at Gatehouse, was upbeat on the city’s prospects when I spoke to him yesterday.

He said: “We came to Leeds in 2010 when we bought the British Telecom building.

“Our investors understand Leeds. They get it as a city. They know how it works.

“Part of the story had already been told.”

Another chapter in that story is unfolding as the assets of failed UK property companies are sold on to overseas investors for a song.

And the banks that lent the money to do the deals, now owned by you and I, are unlikely to recover anything more than a few pennies in the pound.