LONDON (Reuters) - The developer of the tallest skyscraper in London’s financial district faces a legal challenge that could force it out of business after a dispute with the tower’s builder, a source close to the process told Reuters.
Contractor Brookfield Multiplex launched a legal claim for about 16 million pounds ($25 million) against the owners of the 63-storey Pinnacle skyscraper this summer for payments relating to a 593 million pound construction contract.
The 1 billion pound scheme on Bishopsgate in the UK capital is stalled as a stump in the ground after the developers failed to agree a major letting that would have freed up bank finance to complete the building. Brookfield downed tools late last year as part of the payment dispute.
The scheme is majority-owned by SEDCO, a Saudi Arabian investment manager, alongside fund manager Pramerica Real Estate Investors, a subsidiary of U.S. insurer Prudential Financial Inc (PRU.N), and is being developed by Arab Investments.
After failing to file a defence, the developers were last month ordered by the judge to pay Brookfield Multiplex the 16 million pound sum, which includes interest and court costs, UK trade magazine Building reported on Thursday.
If Brookfield Multiplex, the construction arm of Canadian-American developer Brookfield (BAMa.TO), receives no payment within the next week or two, it will apply for the developer to be wound up, the source told Reuters on condition of anonymity.
A spokesman for the developers was unavailable for comment.
The legal threat is the latest in a string of setbacks for the Pinnacle. The motionless tower cranes and empty building site have been a stark reminder of the crash in the office market in London’s financial district since work stopped late last year.
German bank HSH Nordbank HSH.UL lent about 140 million pounds to help buy and prepare the site, while the developers have put in several hundred million pounds of equity.
As well as sporadic construction, there has also been a series of talks to agree a fresh 500 million pound debt deal with an HSBC-led (HSBA.L) consortium of banks, which failed to come to fruition because they hinged on a significant pre-let and the investors putting in more equity.
Several developers have circled the project in recent months in preparation for a potential sale by HSH should it run out of patience in trying to kickstart the development.
“It’s an architectural wonder but it’s not a developer’s dream,” said one developer who has worked up an alternative plan for the site. “There are several plans out there to simplify the exterior and cut a third off the height.”
The Pinnacle is one of several London skyscrapers planned to open over the next several years as developers bet on a shortage of high-quality new office space and a wave of leases expiring across the UK capital.
The bet has gone sour for some as the financial crisis means companies, especially in banking and financial services, won’t move to new offices or sign large the pre-let deals that make such speculative schemes viable.
The Shard, the European Union’s tallest skyscraper, has failed to find an office tenant since opening in July and a skyscraper at 100 Bishopsgate is still hunting for its first letting deal to trigger construction. Lettings at other London towers have also been slow.
Editing by David Holmes