Under-use of modular factory caused collapse of Urban Splash House

Urban Splash’s modular housing joint venture collapsed because of the under-use of its factory, which led to losses piling up with the problems compounded by design issues which resulted in defects in the homes it produced.

A report by the administrators of the Urban Splash House group of companies, which went into administration in May with debts of more than £20m, said the problems meant key customers lost confidence in the firm, leaving it unable to secure new work.

The report, by Adrian Berry at administrator Teneo Financial Advisory, said the modular housing group, which was set up initially in 2018 and then expanded as a joint venture between Urban Splash, Japanese modular giant Sekisui House and Homes England, identified a funding shortfall early this year but was unable to persuade Sekisui to bail it out.

The statement of proposals by the administrators also made clear that Teneo plans to attempt to trade its way out of a number of the firm’s unfinished developments – including high profile schemes such as New Islington, Northstowe and Wirral Waters.

Teneo’s update said many of the group’s creditors – including Sekisui, former employees, HMRC and trade creditors – will likely not receive everything they are owed, with some receiving nothing at all.

The report said: “The primary driver behind the Group’s funding shortfall was the under-performance of its modular factory facility, which had been loss-making for a prolonged period.”

The report attributed these losses to “under utilisation (and inability to absorb overhead costs); and design issues resulting in production defects and re-working the modular units”.

These losses, it said, “eroded confidence with the Group’s key stakeholders”, which “restricted the Group’s ability to secure future development and provide the utilisation volumes required in the factory”.

Urban Splash House was set up in 2018 with the purchase of a former SIG offsite housing factory in Alfreton as an offshoot of the renowned Manchester-based regeneration developer Urban Splash, founded by Tom Bloxham. In 2019 the business signed a £90m deal with Sekisui House and Homes England that turned the business into a joint venture 48% owned by Sekisui, 4% by Homes England, and 48% by individual shareholders including a number of Urban Splash directors.

The group quickly secured a number of contracts, in part through Urban Splash’s pipeline of developments but also directly, winning work tendered by Homes England at its Northstowe scheme outside Cambridge, where it was originally earmarked to build 406 homes, and going in to joint venture with Peel Holdings on the giant Wirral Waters scheme.

In total, seven companies within the group went into administration, of which the principle ones were the holding company, Urban Splash House Holdings Ltd, the main development business Urban Splash House Ltd, the modular manufacturing business Urban Splash Modular Ltd, and a development vehicle for the Port Loop development, Port Loop (Subco 1) Ltd.

The statement of proposals said the administrators had concluded it was in the interests of creditors to “continue to trade the USHL (Urban Splash House Ltd) business in a reduced capacity in order to convert certain work in progress at live development sites” and thereby sell on completed houses.

It said Urban Splash House Ltd had 23 incomplete homes across two developments – Northstowe and New Islington, which it was in discussions about building out. In addition, it said it was exploring funding options to enable it to build out its as yet unstarted 30-home joint venture with Peel on Wirral Waters, in order that it might enable the return £3.5m loaned by the business to the project.

The statement did not say how these homes will completed, given that the factory in Alfreton has been closed and 149 staff made redundant. It said no buyers were found for the factory as a whole and Teneo has now instructed an independent agent, Gordon Brothers to “realise the assets” held by the factory. It said just £400,000 has been realised so far from this process, from a book value of stock and assets of £3.6m

The statement also said that none of the homes on the 98-home Port Loop site in Birmingham, which the Port Loop (Subco 1) Ltd business owns the freehold for, had been completed, with 15 houses currently part-built. Teneo has asked Avison Young to market the site for sale.

The document appears to show that Sekisui House, one of the world’s biggest and most experienced modular housebuilders, is in line to receive a payout of £4m from the administration process, having first call on the proceeds from the sale of the Port Loop sites. However, this is only just over half of the amount the firm is owed, according to documents released by the administrator in June.

The statement of proposals said that creditors of the holding company, Urban Splash House Holdings Ltd, and the principle development business, Urban Splash House Ltd, will receive payouts, with employees and the HMRC getting paid in full and trade creditors getting a dividend.

But creditors of the modular business, Urban Splash Modular Ltd, and other group companies, will fare less well, with employees only getting a proportion of what they are owed and trade creditors getting nothing.