A game of two halves
Brendan Flood is picking up the pieces of his Modus development business at the same time as celebrating his efforts at Burnley FC paying off with promotion to the Premier League. EN speaks to him about a funny old game- and a bit about football too.
When EN last interviewed Brendan Flood, almost two years ago to the day, the founder of the Modus property empire was sitting on assets worth £1.5bn with another estimated £3.5bn under development. Less than a year earlier, meanwhile, he had joined the board at Burnley Football Club – a move for which we couldn’t resist giving him a good ribbing.
How times change. For those who don’t know the story, Modus Ventures, Flood’s development company, has been in administration – with debts of £250 million – since 29 May this year; less than a week after Burnley achieved promotion to the Premier League.
The rise and fall of Modus exemplifies the last two decades of the provincial property market. Founded in 1991 the business at first focused on developments with forward commitments from purchasers and 12-18 month build periods. From 2002, however, the schemes became more ambitious.
Flood says, “Wherever we went, because of our technical skills and our innovation, we were welcomed
by local authorities because we could bring the occupiers, we could do the right schemes and we could bring the banks so we could fund it.”
Those schemes were predominantly regional shopping centres – big regeneration projects of the sort that get local councillors moist about the gusset. These included Wigan’s Grand Arcade, Crewe’s Delamere Place and Blackpool’s Hounds Hill Centre.
And a new flagship scheme, Trinity Walk, was underway in Wakefield when in March 2009, two years into a three-year build, Flood’s bankers Anglo Irish pulled the plug.
The contractor engaged to build the scheme, Shepherd Construction, facing a loss on Wakefield, then
petitioned to put the Grand Arcade in Wigan (which it had also built for Modus) into administration –
standard practice for construction.
“And the rest is history really,” Flood says. “It’s your typical domino collapse, but I think driven by the decision of Anglo Irish not to fund out Wakefield.”
Flood – a man with a winning manner and little of the cockiness of many in his trade – is clearly bitter about this, pointing out that a significant portion of the Wakefield scheme was pre-let to clients including Debenhams and Sainsbury’s. And his relationship with Anglo Irish is ending, as so often throughout the property sector, in the courts.
The asset finance division of Anglo Irish is pursuing a High Court claim against Flood and his co director at Modus Ventures, Mike Riddell, relating to personal guarantees thought to total £35 million made against its £63 million loan to fund the Trinity Walk scheme. The claim was filed a day before our interview, and Flood says he is now planning a counter-suit against Anglo Irish (which declined to comment, citing the court case), for £100 million – the amount he claims its alleged failure to continue funding the scheme cost his company in value.
It seemed that hardly a week went by during the spring without hearing of another slew of Modus
schemes falling into the hands of the receivers. And then the big one hit. In May HBOS – by now owned by Lloyds TSB and thus, indirectly, the government – put Flood’s development business, Modus Ventures, into administration.
HBOS had major exposures to the property sector. Flood – whose property businesses were financed by a number of different banks – says, “Probably every single property company that HBOS had got was under the cosh, and because I was more of a developer I think the dagger from Anglo Irish probably started to create doubts over my ability to deliver anything else within my pipeline and the
distrust of other banks began. So HBOS started to distrust all the banks who were in my group and they thought, ‘What if another bank does this? How does that affect Modus?’
“My weakness was that I was multi-banked and two of my largest bank suppliers were distressed
banks – Anglo-Irish and HBOS.” EN put this point to HBOS but, at the time of writing, had yet to receive a response.
Flood’s current position is that he no longer has an interest in any of the shopping centres his business developed over the years but, through his investment and management businesses, retains control of assets – mainly food stores – that he says are valued at around £1bn.
When asked what his most valuable asset is, however, he says, “me”, conceding that, “Who knows what anything’s worth at the moment?”
Flood is currently negotiating a buyback of around 13 sites from the administrators of Modus Ventures,
with the backing of Sheffield United chairman Kevin McCabe – who sold his business, Teesland, in 2006 and currently runs Scarborough Property Group.
These sites, he says, “are all what we’d call defensive positions, where they’re all buildable within 12 months and we can secure a food store or a public sector tenant – that’s the sort of risk that I’m
prepared to take”.
McCabe’s backing is clearly a vote of confidence – Flood says he wants to finance a new development business focusing on “defensive and distressed” schemes – and he also says that the remaining banks with which he deals have been very supportive.
“There are only two banks I’ve had difficulty with – Anglo Irish and HBOS, and their stories are well-told.
So was it a Brendan Flood problem? I don’t know. I’m probably not the best person to judge.
“Every other bank I deal with still wants to deal with me. People like Bank of Ireland, Investec, Nationwide, Norwich Union, Alliance & Leicester and RBS have been brilliant.
“They’ve all, where required, looked at sensible restructures, they’ve looked at the options available going forward and they’ve tried to find a solution, either within the Ventures group through the administration buy-back or in the investment group.”
So, other than choosing different banks, was there anything Flood would do differently? He admits to having – despite several years as a bank manager with Barclays – not understood the interdependent nature of bank funding, and also to having been “too brave” with developments.
“I had hoped to build a development business that was a corporate earnings vehicle,” he says. “I thought that with a spread of schemes – and we probably Had 30 active schemes at any one time – that the cycle of exits and acquisitions would always give us a flow to make a corporate earnings
business out of the development sector.
“What I now know is that’s impossible. You don’t really see any pure development businesses that are listed, because the development cycles never continue uninterrupted.”
Flood – who says he would have been tempted just to “disappear” from the business scene had he not seen that many of his peer companies were also in trouble – is resolved to be much “more boring” in terms of the schemes that any revived business might develop. And he believes this raises serious issues for town centre regeneration.
He points to the fate of competitors including Wilson Bowden, now subsumed within Barratt, and Grahame Whateley’s Castlemore, another private developer now in administration. He explains, “The real story to take from this is what will happen to large-scale regeneration? There aren’t any guys left. There’s nobody like me left now at that level.
“So I think large-scale regeneration and all the jobs it creates, and all the spin-off benefits to a community confidence-wise, will be impossible in the next five years.”
As if to prove his point, soon after our interview Grosvenor, the property developer owned by the Duke of Westminster which developed the massive Liverpool One shopping complex, announced it would be pulling out of Preston’s long-postponed Tithebarn retail and leisure scheme.
For himself, Flood says he plans to return to his roots, only taking on schemes that won’t take more
than 18 months to build. He says, “Previously we used to have up to 30 active projects at any one time and they might have an average value of £50-million-plus. “Now I’d probably look at a maximum of 15, with an average value of probably £20 million.”
At present, though, he’s waiting to complete his buyback before starting to rebuild the development business – the staffing levels of which he has had to reduce from more than 50 to eight. And, of course, concentrating on the football.
This year Flood wrote an autobiography, Big Club, Small Town and Me (available, if you’re interested, from Amazon, local bookshops and supermarkets, and the Burnley club shop), focusing on his relationship with Burnley FC. Though relatively light on details of his business troubles, it explains that, with a string of family bereavements in quick succession, the last couple of years have been exceptionally difficult on more than one front.
“It’s from the heart, I guess,” he says. “I wrote it as a cathartic thing, really, because I was that mixed up with everything. I was numb.
“I found it very hard to accept that I could have had so much adversity and then perversely the success of Burnley in the midst of it all – I just thought you couldn’t make it up. So I just thought I might as well tell the story and then I might feel better, which I do, and now I’m looking forward rather than backwards.”
So, looking forward, is Burnley, flush with Premiership cash and– having paid off a £3.7 million loan to the administrators of Modus upon promotion as planned – now self-funding? Or are there ongoing calls on Flood and his fellow directors?
“Er, no. There are no calls on me,” he laughs. “It’s self-funding, it all ticks over. I’d expect it to remain self-funding for a few years now, but that means we can plan, we can get into a three or four-year plan rather than a 12-month plan.”
And, the age-old question with businessmen and their football teams, will he ever see a financial return on his 24.4 per cent stake in the club?
“At the moment the Premier League is a billionaire’s playground,” he says. “And if a billionaire takes a fancy to Burnley we’d put the red carpet out. But we would want to harness the right attitude: we’d want it to be locally-managed if that came along because I think the character of the club is more important to the fans than the number of noughts on the bank account.
“If we can stay in the Premier League then that approach might come because we’re attractive, we don’t have any debt, we are wellmanaged and it’s, in football terms, a good platform to start with.” We’re tempted to say something sceptical but have learned our lesson where Brendan Flood and football are concerned. As for his plans to return to property development – only time, and the banks, will tell.
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