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Glasgow's £2 million question … and several others

HOW could the agency in charge of regenerating the east end of Glasgow have spent more than £2 million of public money by paying three times the going rate in a property deal in the middle of the worst economic slump in living memory?

The waste ground between Shawfield Stadium and the River Clyde, which is contaminated with the waste by-product hexavalent chromiumBottom photograph: Lenny Warren
The waste ground between Shawfield Stadium and the River Clyde, which is contaminated with the waste by-product hexavalent chromiumBottom photograph: Lenny Warren

That's the question facing Clyde Gateway this weekend. The details are such that it has already become the subject of a police investigation. The agency might be best known for its key role in preparing the area for next summer's Commonwealth Games, but its more pressing race at present is to explain how on earth it landed in the middle of this one.

Fittingly enough, this story has toxic waste at its heart. The action takes place in Shawfield, close to the famous greyhound racing stadium, near where the J&J White's Chemical Works was situated.

Operating under several ­different names between the 1820 and the late 1960s, the plant was for many years the UK's biggest producer of chromates, which are used in everything from paint pigments to chrome plating.

Unfortunately, the work came with a waste by-product called hexavalent chromium, which anyone who has seen the film Erin Brockovich will tell you does very nasty things to anyone who comes into contact with it.

It had been left in the ground around Shawfield for a generation, and Clyde Gateway began a major £19 million project several years ago to dispose of the material and redevelop the area for commercial and industrial uses.

To that end it has bought up large tracts of land in the area, which are currently being prepared for remediation. One such site was 278 Glasgow Road, nearly three acres opposite the stadium that included offices, an industrial unit, a garage, works yard and snack van.

It was sold by a company called Strathcroft Limited in November 2010 at a total cost to Clyde Gateway of £2.8m, which included the £2.1m purchase price, nearly £500,000 in taxes and more than £200,000 to cover the cost of moving the various tenants.

To the casual observer this might have seemed no different to all the other property deals done by the agency in the area but a Court of Session judgment last week showed otherwise.

The case was an action brought by the administrators of a business, Oceancrown, after it had gone bust. The action was to recover properties from other companies owned by Glasgow businessman Norman Pelosi.

It lifted the lid on a series of moves lying behind this deal that raises serious questions about how the regeneration agency operates. The case was largely concerned with Pelosi, who controlled ­Strathcroft, and who has interests in property and car hire.

Strathcroft was one of a number of companies that he owned or controlled, with others including Ambercrest, Loanwell, Questway, Stonegale and Oceancrown. ­Collectively, these businesses owed the now-defunct Anglo Irish Bank £17.3m.

With the assets against which these debts were borrowed having presumably fallen in value during the collapse, Pelosi was one of many operators who came under pressure to sell assets to bring in whatever could be raised. That summer he informed the bank through his solicitors, Miller Beckett & Jackson, that he was in the process of selling five sites: 110, 210, 260 and 278 Glasgow Road plus 64 Roslea Drive in Dennistoun to the north.

The bank was told the sites were collectively valued by surveyor DM Hall at £2.4m, and later discharged the mortgages on each in exchange for the proceeds from these sales.

This is not quite how it happened. The only sale that took place was the one to Clyde Gateway. The rest were transferred to other companies under Pelosi's control, ensuring he retained control of sites worth £1.65m.

As Lord Malcolm concluded in court: "Strathcroft, on the direction of Mr Pelosi senior, paid the bank monies which were designed to, and did persuade the bank to discharge the [mortgages] over the five properties, all in order to facilitate the subsequent gratuitous sales.

"Neither that payment, nor any consequential reduction in indebtedness, was in consideration for the subsequent transactions. It was a mechanism for allowing the inter-company transfers which it was hoped would achieve the retention of the 'profit' on 278 within the group."

The judge ordered that the sites at 110, 210 and 260 Glasgow Road be transferred to the administrators of Oceancrown Limited, since it was this company that held them within the group before the transactions took place (the other property at 64 Roslea Drive had been sold on, so Pelosi's company was ordered to pay the sale proceeds to the administrators instead). So why did Clyde Gateway pay £2.8m for a site that had been valued by DM Hall at £762,000?

According to the agency, it was persuaded of the £2.1m valuation because it was given evidence from Strathcroft that the site was receiving rent from tenants amounting to £207,000.

In commercial property, existing rents often have a bearing on the price. Like all Clyde Gateway property deals, the price was double-checked and approved by one of its independent valuers, in this case Ryden. According to Clyde Gateway's board meeting paper from July 2010: "The independent valuers have commented that the existing rents paid by tenants of this property are high for the premises let reflecting the types of use and location and the lack of supply elsewhere in the local area."

Two property specialists with knowledge of the area said the price was beyond what could realistically be paid for the site, particularly in view of the fact that, according to the same board minutes, "there may be an issue with contamination at this location". According to one of the experts, the rents seemed excessive for that area of Glasgow. The source said: "£2.1m is a crazy price to pay ... Based on the sizes stated, this is approximately £10 per sqft as a combined office and industrial rent. Also the yield is 8.75% - similarly crazy."

According to the other: "Industrial land in that part of town would be worth about £150,000 an acre. There's no way you could get anywhere near £2m."

Clyde Gateway says it became suspicious about the information it had received from the seller only when it received a visit from tenants of the site after the deal had completed. When they claimed to be paying rent that was well below the level the agency had been led to believe, it contacted the police.

It said: "Clyde Gateway paid a price for 278 Glasgow Road that was based on an independently obtained valuation and which was subject of approval by our development board in July 2010.

"It was at a later point in time in early 2011 as we looked to take possession of what should have been a cleared site for redevelopment purposes that we first became aware of issues around leases that were inconsistent with previous information given to us when we had agreed a purchase price with Strathcroft Ltd, and this led us to report the matter to the police.

"It is our understanding that their investigation is still ongoing and as such, we are unable to comment on any actions we may take in the future in connection with what was a important and strategic land acquisition."

Ryden did not return calls ahead of publication, and neither did Pelosi nor his solicitor.

Police officers have paid numerous visits to Clyde Gateway to interview the managers involved.

A spokesperson for Police ­Scotland said: "We can confirm that Police Scotland has received a complaint relative to the purchase of land in South Lanarkshire [under which the address falls].

"As it is an ongoing investigation, we are not in a position to comment further."

Graeme Hendry, the SNP leader at Glasgow City Council, said the case raised serious questions about Clyde Gateway's activities in the city. He said: "I am glad that Clyde Gateway's first reaction would appear to have been to go to the police once they became aware of this.

"I hope they have also immediately instigated a review of their due diligence procedures to check it's not happened with any other deals and that it doesn't happen again.

"I would hope that they are checking whether there's liability with any party."

He added that, if the agency did discover any other irregularities during this audit of its activities, it should be subjected to a full, independent, external investigation.

Whether it will come to that, it is obviously too early to say. Either way, Clyde Gateway is likely to face some uncomfortable days ahead.

In his summary of events in this case, Lord Malcolm reached to the very heart of the matter: "Either the valuation was unduly low, or, for whatever reason, Clyde ­Gateway Development Limited, which is a publicly funded organisation involved in the regeneration of the east end of Glasgow in connection with the Commonwealth Games, paid well over the market price."

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