£1.5bn plan to redevelop the Elephant & Castle

London property barons team up to bid for contract to replace inner-city eyesore with a 'fashion quarter'. Clayton Hirst reports

Two of the country's best-known commercial property developers will tomorrow submit a joint £1.5bn bid to redevelop the Elephant & Castle, one of London's worst eyesores.

Elliott Bernerd, the former chairman of Chelsfield, and Malory Clifford, who has developed a string of properties around the capital, have produced radical proposals to replace the pink shopping centre, which dates from the 1960s.

Central to their bid - dubbed "Fighting for Southwark", after the London borough where the new development is to be located - are plans to build 5,500 homes that will be rented out on a not-for-profit basis. To do this, the pair have teamed up with Richard Lefrak, a New York property billionaire who is one of the biggest private landlords in the US.

The Lefrak Organization, founded in 1901, started life building tenements for the immigrant population of New York. The company is behind huge residential developments in Brooklyn, Queens, Battery Park and Newport City. Backing the developers at Elephant & Castle is Royal London Asset Management, the mutual institutional investor, and Bank of Scotland.

The most radical element of the consortium's proposals is the residential development. Rent on the houses will be set to cover only the cost of their construction plus interest payments on the debt. This will mean that they will be around 25 per cent below the market rate for rented property in London.

The consortium, known as the Oceancrest Partnership, will pledge to remain as the landlord on the site for at least 15 years. Oceancrest hopes that this will persuade Southwark Council to back its plans.

Mr Clifford, chief executive of Blackfriars Investments, said that rents would start at £1,000 a month on the smallest units. "This will be rental property for people who don't want to end up living above a chip shop, but on the other hand can't afford Mayfair. This will be a sensible location at a sensible rent," he said.

"In London the rental market is not that great at the moment, but we are trying to avoid creating a new ghetto suitable only for people wanting to live in properties worth more than £200,000."

Oceancrest has hired David Marks, one of the architects behind the London Eye, to design some of the buildings on the site. The area, which will also include around 800,000sq ft of shops and leisure facilities, will be themed as London's fashion quarter, with a focus on businesses offering clothing, hairdressing, make-up and jewellery.

Oceancrest's proposals to redevelop the Elephant & Castle site will, however, face tough competition. Southwark Council is expected to receive more than 20 other proposals by tomorrow's noon deadline.

St Modwen, the quoted property company, owns the shopping centre. Its chairman, Anthony Glossop, said: "We are going to put our name in the ring and then see who else pre-qualifies. If a powerful bidder emerges, then we may link up with them."

Multiplex, the Australian property and construction company, which last year jointly led a successful bid to buy Chelsfield, is also expected to submit proposals for the site.

Jon Abbott, Southwark Council's assistant development director, said: "Elephant & Castle is disconnected from the surrounding neighbourhood. Our aim is to establish a new town centre and a balanced community." He said that the council was prepared to use its compulsory purchase powers to ensure the redevelopment went ahead. It hopes to pick a winning bid early next year.

This is Southwark's second stab at redeveloping the Elephant & Castle. In 2002 the council threw out plans by the veteran property developer Godfrey Bradman, who proposed a new shopping centre and car park.