Castlemore confounds critics

Copyright: David Lawson 1996

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Developers were left gasping  earlier this year when a former shoe factory site in the Midlands  fetched a staggering £2.7m per acre.   Almost as surprising was the fact that it went to a locally-based company, leaving big names trailing.  One disgruntled underbidder forecast disaster. Despite soaring rents for off-centre retail sites, such a high price would mean cheap buildings, he said. That would have played into the hands of environment secretary John Gummer, who has castigated developers for despoiling the countryside with 'crinkly sheds along every by-pass'.

 Others mumbled that  the deal might not  even get done. It is common for some companies to reach beyond their grasp, and  sites bounce back on the market when funding fails to appear.  But Castlemore Securities confounded them all by winning the fierce battle for the Oliver Group site next to Leicester's Fosse Park. 'It was recognition of our primacy in the field,' said chairman Grahame Whateley.  He not only found £25m from within the firm's own coffers, but plans to continue a policy of  providing high quality designs.

 Anyone in this specialised area would have had no doubts. Castelmore is a private company with a  a low profile, only producing  its first brochure last year after 26 years in the business. But that has not prevented the Stourbridge-based firm  accumulating a series of sharp deals recently.Whateley oversees  a 1m sq ft development program worth around £250m in a half-dozen or so projects. Most have been initially financed internally, although big funds are not slow to grab the investments - often before they are finished.   The Oliver's site, renamed Castle Acres,   could have an end value of around £50m by the time it opens next year.

 Almost two-thirds of the 12,600m2 (136,000 sq ft) is already pre-let to tenants like Currys and PC World. Rents are likely to break £215/m2 (£20/sq ft) as the scheme emulates the charisma of Fosse Park, one of the country's top retail parks. It will also seek to reproduce the quality. 'We always pass the Gummer test,' says director Patrick Power. 'It is only logical that tenants will always choose  better design. It does not cost much more and you always get it back when selling to investors.'  He cites previous developments like St John's retail park, Wolverhampton, pre-sold to National Provident for more than £15.5m and  and now cited for a design award. This was bought with permission for a fast-food outlet, which was quickly ditched in favour of 1,120m2 (104,000 sq ft) of retail units let to tenants such as Homebase and Harveys at rents understood to be more than £107/m2 (£10/sq ft).

 Reshaping a former Cargo Club store in Purley Way, Croydon, was the secret of this scheme's  success, according to Power. He saw the possibility remodelling the poorly designed premises into a 13,000m2 (140,000 sq ft) retail park. Rebuilding costs of more than £6m on top of the £21.5m paid for the site have been more than covered by   pre-letting at rents of  more than £215/m2 (£20/sq ft), giving an investment value of more than £50m.

  This concentration on high street standards of design is not a view all developers share. Some believe that only a few sites justify the extra expense, as these attract top retailers looking to reproduce stores out of town centres. But  more should be taking a leaf out of Castlemore's book if the industry is to see off its critics, according to Steven Yarnold of Harvey Spack Field, which regularly  acts for the firm. With sites going for such high prices, building costs are now a small fraction of overall values. 'There is no excuse for not building well,'  he says.

  Power points out that even  schemes which cater for off-centre tenants can justify an extra few pounds a square foot. 'Purley Way is not a high street,' he says.  Perhaps Castlemore has more freedom to make such choices, however. It is tightly controlled by a handful of directors who can make personal judgements on what and where to build. Whateley has no  pressure to justify share and asset performance to a gaggle of City analysts.  But how can he compete with the big boys and their bottomless pockets? Others have travelled this road, only to float when prices begin to frighten  their bank managers, and site sellers start to demand the covenants of a public company. 'We have been doing this for more than 25 years, so we are no spring chickens,' says Power. 'And we have built an asset base capable of handling funding.'

  Cash is crucial. There are more than 60 companies in the market but few can write a £1m cheque, let alone one for £25m, he adds. 'That separates the men from the boys when it comes to getting sites.'  Speed and skill are the other two legs supporting the company's growing reputation. 'Big concerns are slow and bureaucratic,' he says. There are only six active Castlemore directors, and that means quick decisions. They also each have special skills. For instance, Power is the planner, sniffing out sites and spotting angles like the changes which transformed Purley Way. Peter Barby handles design. 'He's our dream machine; great at coming up with new concepts'

 Others handle special area like building, agency and offices, with Whateley sitting in the middle of the web. It is a structure proving successful beyond off-centre retailing. Castlemore has revealed plans for a £20m leisure scheme on the edge of Newport, south Wales, next to the site touted as a new manufacturing centre for the Korean electronics company Goldstar. Planners have also  just approved a development in Solihull, and several similar schemes mixing health clubs, restaurants and cinemas are also planned.   The two sectors are closely related and rents are moving in parallel, says Power. Leisure is also a safer bet than some observers believe, as brewers are bringing in their hefty covenants.  Expect no leisurely 'crinklies', however. Like off-centre retailing, Castlemore expect to pass the Gummer test with flying colours.


  David Coleman is an unabashed 'crinkly' fan. 'If anything is despoiling the countryside it is the excess of consents rather than what is being put up,' he says, turning criticism back on environment secretary John Gummer. And suggestions that retailers will turn their noses up at anything other than spectacular designs leave the Chartwell Land development director cold.  High streets in the countryside will be the exception rather than the rule, he says, limited to schemes like Fosse Park, Cribb's Causeway and Fort Dunlop. Anywhere else, tenants  nestle together in the big boxes which suite their needs for large open space.

  'Everyone wants to improve designs, but at the end of the day developers build as cheaply as they can get away with and  retailers add their own identity. You would be hard pressed to find one that will turn down a good location for the sake of design.'   He insists that does not mean Chartwell stints on quality. But it provides 'titivated crinklies', he says - standard units with decorative facades. This suites firms like B&Q, World of Leather and Carpet Right, looking for volume sales away from the high street.  Building costs are around £323/m2 (£30 a sq ft) compared with the £485/m2 (£45/sq ft) required for high street standards - but this matches average rents of  £86-£161/m2 (£8-£15/sq ft) on the average development  compared with  more than £215/m2 (£20/sq ft) on the few parks with open A1 consents.