Legal wrangle puts plans for city's biggest eyesore at risk

IT is arguably Edinburgh's ugliest building which, for years, has survived repeated demands to be torn down.

Now a new development which could breathe fresh life into St James House - the controversial former Scottish Office building - faces being tangled up in a complex web of legal disputes.

The scale of the confusion has prompted the city council to invite the three parties at the centre of the wrangle to talks.

The new owners of the St James Centre, which lies under the run-down building, deny claims they are poised to press ahead with a major revamp which would see the office block flattened.

Instead, another firm, Morgan Stanley Real Estate Investors, is believed to be planning its own development after agreeing to snap up a long lease that the Royal Bank of Scotland holds for St James House.

But it faces a number of stumbling blocks, including the fact that RBS has a duty to fully restore the derelict office building before its lease can be sold on.

It is also understood that trying to build a new office or retail development on top of the existing shopping centre would be difficult without a major overhaul of the latter.

Some sources in the Edinburgh property world believe the new owners of the shopping centre want to buy out the long lease on St James House with a view to drawing up plans for their own development.

But others insist that the Belfast-based property giants, Donegal Place Investments, the buyers of the portfolio, have simply bought it as an investment.

Council chiefs, who see the five-acre site as one of the most important areas for city centre redevelopment, today pledged to try to get all three parties around the table in a bid to reach some form of agreement on the future of St James House. It is hoped a summit can be set up soon in a bid to break the deadlock.

At the time of the shopping centre's sell-off in January, it was said that Donegal Place made it clear that the site had "massive development potential" because of the eyesore office block that was lying empty, and that a new redevelopment would be pursued as "aggressively" as possible.

However, council leaders are concerned that the new owners are now reported to be not as keen on a major scheme as was thought and fear the eyesore could be left lying empty for years.

It is thought some form of joint venture involving Morgan Stanley and Donegal Place is the only viable way forward in terms of a major redevelopment on the site.

Morgan Stanley bought the long lease on St James House in December. Neither RBS nor Morgan Stanley would comment on the fate of St James House, while agents acting on behalf of Donegal today said they were waiting for Morgan Stanley to outline its plans for St James House.

They said they priority for the new owners was a £5m investment in the St James Centre over the next few months, which would include a rebranding of the complex, new lighting, an overhaul for the food court and a planned extension at the front of the centre. Michael Hopkins, of McKibbin Commercial, agents for Donegal Place, said

today: "We simply cannot redevelop the site at St James House because there is a long lease on the building and we have absolutely no idea what the new lease-holders want to do.

"Morgan Stanley have just bought the lease over from RBS and there is the issue of the dilapidation agreement to be resolved first. That could take a considerable time.

"Our priority is to get the shopping centre fully let and generating more income, and we're already making very good progress on that front."

One city property expert said: "No-one seems to know what either side is planning. The key is what Morgan Stanley want to do over the long lease on the building and whether they can settle the issue of the dilapidation clause with RBS. "

City council leader Donald Anderson said: "If there is a willingness from all the parties involved, then we would be very happy to set up a meeting.

"We know it is going to be very difficult to redevelop on the site of St James House because of its location above the shopping centre, and it's going to be more expensive than with a conventional development.

"We need to find out what everyone's plans are. That is the next step forward."

THE FACTS

The property portfolio which included St James House was sold in January for £170 million by the British Coal Pension Properties Limited.

The new owners also bought the shopping centre, which boasts more than 50 units, the John Lewis department store, a 550-space multi-storey car park and the Thistle Hotel.

The former owners did, however, retain the Harvey Nichols department store on St Andrew Square and Multrees Walk, the adjacent thoroughfare which boasts a string of upmarket boutiques.

Although St James House was part of the sell-off deal, Royal Bank of Scotland has a long lease on the building, which it is in the process of selling to Morgan Stanley.

Donegal Place was set up by two entrepreneurs, Michael Herbert and Pat McCormack, who also recently snapped up the Cross Gates shopping centre in Leeds.