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'We've bought this building. Excite me,' was the brief given to Stephenson Bell Architects by developer Urban Splash. The building in question was in fact a collection of nine different buildings acquired by Affleck and Brown, the 'Harrods of the North' which once dominated Manchester's northern quarter. British Home Stores took over the premises in the 1960s. By the mid-1970s the area was in decline, as the Arndale Centre established itself as the main shopping district. bhs vacated the premises, and the building stood vacant until the mid-1980s. The Northern Quarter is now being regenerated by the city council and is enjoying something of a revival, with speciality shops moving into ground-floor premises, and artists' studios and small businesses filling the rooms above.

Urban Splash obtained an English Partnerships Grant to revitalise the Smithfield buildings, on the premise that as the mix of activities in the area became more interesting, more people would want to live there. 'All they knew,' recalls Jeff Bell of Stephenson Bell, 'was that they wanted a mixture of retail and residential. We must have done about ten schemes.' The challenge was to combine the ill-assorted bunch of buildings - with different styles, structures and floor-to-ceiling heights - into a coherent whole without losing the richness which attracted the developer in the first place. On a practical level, there was the difficulty of introducing light and airy living quarters into deep-plan space.

As the many layers of ad-hoc additions and alterations were stripped back, the architect discovered the remnants of a lightwell in the centre of the block. 'That gave us the diagram,' says Bell. The ground floor is entirely given over to retail units which use the space in the centre of the block for storage purposes. At first-floor level and above, the former lightwell has become a glass-roofed atrium, linking through to a second, smaller atrium which had never been filled in. This central void allows for dual-aspect apartments around the perimeter, with windows looking inwards to the 'winter garden' and outwards to the street.

Having decided on the basic diagram, Stephenson Bell set about shoe-horning the various spaces into the plan, establishing a structural strategy, and devising an aesthetic language for the new development. Roger Stephenson describes the approach to space planning as 'keyhole surgery' - every bit of space has been used. Most of the basement is taken up with a gym which reveals its presence with a clerestory window at pavement level. Any odd corners have been turned into storage space. The ground floor is given over to shops, including new outlets which have been fitted out as basic shells as well as existing tenants such as a Butlin's booking agency and the intriguingly named Herman's Head Shop.

To give the development coherence at street level, the 1960s infill on Oldham Street and Church Street has been replaced with a facade made up of plywood panels fronted with zinc. Stephenson points out that the zinc panels are easy to maintain: 'If people do damage them, you just pop out a panel and replace it. It's easy to do.' Existing and new units have been provided with security gates, and a standard fascia with the shop name spelt out in standard projecting lettering.

Residential accommodation is accessed from Tib Street, the quietest of the four elevations, in a position which Stephenson describes as 'the place you'd least expect to find the entrance'. But, he says, the building 'created its own solutions' - an existing cast-iron-frame glass screen spanned the height of the building, suggesting the ideal point for the triple-height entrance space. This Tib Street elevation now has an entirely different feel from the rest of the development. Bell explains that the 'meanness' of the pavement (it was only about a metre wide) prompted the architects to make something more of it. Existing arched openings have been taken down to street level, and the pavement extends for two metres into the former footprint of the building. The result is a generous colonnaded space which Bell describes as 'a bit like you get in Chester and to some extent in York', which provides access to new retail units at ground and lower-ground level.

The main steel and timber staircase and the lift are contained in the 10m-high entrance space resplendent with scarlet walls and limestone floors. The staircase leads to the first-floor atrium, which in turn provides access to all of the 81 loft apartments. Bell describes the lift as 'wide enough to get a coffin in'. It is also semi-glazed: 'it had to be cheap, so we bought a standard lift, but just asked them if they could put a glass slot in it'. An existing closed metal bridge, which fits in surprisingly well with the 'grooviness' of the new development, provides access from an adjacent multi-storey car park where residents are allocated space.

Landscaping in the atria combines an oriental feel with a robustness that befits the inner city. Great timber troughs planted with black bamboo are strategically positioned on the concrete structure. 'We wanted the bamboo because it stresses the verticality of the space,' explains Bell. 'And we wanted to make sure we'd have green all year round.' Part of an existing Victorian wall has been retained and divides the atrium in two, with original window openings serving as doorways. Now painted a deep red on one side, and white on the other, the wall reads as a punchy intervention rather than a nod to nostalgia.

Access to the flats is via purpose-built walkways which run round the perimeter of the atrium and carry all main services to the apartments. Walkways are cantilevered on existing cast-iron columns with ornate decorative heads. Bell is particularly pleased with the chunky timber walkway balustrades: 'The obvious solution would have been metal grillage, but that had a penitentiary feel. I looked at the Globe Theatre, and I was impressed by the way the guards are part of the construction. The gap between the timbers gives it a horizontal emphasis and stops it from feeling too heavy.'

The idiosyncrasies of the existing buildings mean that apartments vary greatly - a fact which Urban Splash turns to its advantage, declaring in its promotional brochure that 'this represents a unique opportunity for purchasers to choose an apartment which suits their individual needs'. Some have private external balconies and terraces, one has a small roof garden, and top-floor flats benefit from opening rooflights - roof trusses and beams have been sand-blasted, sealed and left exposed. Where possible, existing brick walls have been blast-cleaned and sealed, while new plasterboard ceilings and steel-stud-partition or block walls provide fire and sound insulation between apartments.

A three-storey penthouse occupies the corner of Oldham Street and Church Street, and duplexes with balconies are housed behind the blue blockwork infill overlooking Hilton Street which replaces the 'pure tat' that was there before. 'When we realised what the expense of alterations would be, we thought,'let's just get it down',' says Bell. Two penthouses have been created in a glazed cube which has been built on top of the Oldham Street/Hilton Street corner, bringing this corner block up to the height of the Oldham Street facade.

The basic approach has been to go for flexible space as opposed to maximum rooms - many of the plans include an optional bed deck in lieu of an extra room. The most common apartment type is split-level, with one or two bedrooms and with entry at the higher level. Services brought into individual apartments via the walkways are then concealed within this raised floor. 'One of the really exciting things,' says Bell, 'was being able to incorporate all the prosaic aspects, while making the layout more exciting.' Bedrooms overlook the atrium, while steps lead down to lofty living areas with windows on to the street. Bathrooms and fitted kitchens make up a central core with the kitchen overlooking the living room, 'so there is something to look at when you're doing the washing up'.

The Victorian facade on the upper floors has been restored, with galvanised double-glazed steel windows replacing the old ones. First-floor flats on Tib Street have balconies, and Stephenson describes the new elevational treatment as 'a modern interpretation of what was there'. The steel structure echoes the proportions and rhythm of the Victorian facade, while the window- walls behind are virtually invisible from the street: 'We wanted it to be a void, a visual gap between the shops at ground floor, and the residential above.'

Realising that its stock of Victorian buildings is one of Manchester's greatest assets, a generation of local architects has perfected grafting a modern architectural layer on to what was there before. This painstaking process demands the imagination to create something bold and beautiful out of what were often fairly humdrum buildings in their day. Another essential skill is the flexibility to respond to possibilities as they arise. 'Nothing was fixed, ever,' Bell recalls. 'To their credit the planners accepted that it was being done on the hoof.' Thanks to this happy mix of understanding authorities, and visionary architects and clients, Manchester has an exemplary track record of regeneration and an unusually rich urban fabric.

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