The latest addition to the grey streets of west London is CZWG's crazily (and controversially) coloured Fulham Island. Even on a snowy winter morning, this mixed-use development-cum-fairground attraction conjures up sunshine and California beaches.
It is Piers Gough on the phone. The architect has just arrived back from Los Angeles, where he has been "chilling with Frank Gehry" (the two are collaborating on a couple of potential projects). "I was sunbathing on Santa Monica beach," he says.

All right, Piers, don't rub it in. I'm still frozen to the bone after scootering through the snow to Fulham, west London, to have a nose round the latest scheme by Gough's practice, CZWG.

Gough was definitely California dreamin' when he designed this. Called Fulham Island, the £9.4m mixed-use scheme is more West Coast than west London: acid-trip colours, palm-planted court and a roofline like a skate park. "It's very Beach Boys," says the irrepressible Gough, breaking into a truly awful rendition of Good Vibrations. "You almost expect to see surfboards leaning against it."

Snowboards, more like, in this weather. But the sunshine-state vocabulary is a typical Gough joke: this is the first west London scheme by developer Harry Handelsman's Manhattan Loft Corporation, best known for introducing minimalist New York-style lofts to easterly districts such as Clerkenwell and Borough. "The catchphrase was always 'Manhattan Loft goes west'," says Gough. "We wanted to do more laid-back buildings."

Set just off the gasoline shopping drag of Fulham Broadway, the site is an "island" of retail, office and residential buildings – some of them grade II-listed – surrounded by four slim streets. Handelsman and joint venture partner the Osborne Group acquired the semi-derelict plot, which had defeated a number of previous regeneration proposals, at auction in 1997.

"It was a shanty town," recalls Ian Saunders, commercial director at contractor HG Construction. "The area in the middle was a rat-infested mish-mash." HG had a lot to prove on the job: just three months before winning the tender in June 2001, Saunders and his business partner Chris Benham had acquired the £25m-turnover firm in a management buyout. This would be its first large contract.

At the time, Saunders felt he had perhaps bitten off more than he could chew. The complex design-and-build job involved substantial demolition, and the listed buildings had to be underpinned and painstakingly restored to satisfy English Heritage. Tottering chimney stacks had to be made good – while retaining their "characterful" skews.

One unremarkable walk-up block housed two old ladies who had lived there all their lives and refused to move; their homes were the first to be refurbished and all subsequent work on the development had to be undertaken with maximum consideration for the octogenarians.

But it was Gough's eccentric design that worried Saunders most. "We had some concerns over how it was going to sit in terms of its colour scheme and shape," he admits. One particularly exuberant roof detail gave the contractor kittens: a curving wall scrolls skyward to form a spiral finial, intersecting two barrel-vaulted roofs on the way. "It's like a helter-skelter with a curly-wurly on top," says project manager John Bayliss, grappling for a description. "We were in awe of it, design-wise – but how the hell do you waterproof it?"

However, Manhattan Loft's Handelsman is one of those rare developers who picks sites and designers intuitively but also knows how to build. "Manhattan Loft knew all about fast track," says Saunders. "It wasn't a partnering contract, but it's been done totally under that guise. There have been no contractual disputes."

This was fortunate, as some of the minor celebrities who bought the luxury residential units off-plan insisted on awkward changes to the specification. One television chef, for example, insisted they raise his ceiling by 225 mm so he could get his antique furniture in. "We said OK, no problem, we'll do it. We took a guess on the price."

Saunders is happy to admit that he was wrong about Gough's design, too. "Piers did a wonderful job in getting planning consent and achieving the density. He had a lot more vision than we did."

Now almost complete, the scheme puts a smile of the face of a shabby part of Fulham. It is really four colour-coded projects rather than one: the blue one (an l-shaped commercial building); the green one (a reconditioned residential block); the spotty one (a five-storey apartment development clad in beige brick with multicoloured insets) and the brick one (the refurbished parade of shops with flats above). All are ranged round a courtyard dotted with palms and fountains, which sits on an underground car park.

The spotty one in particular has achieved the crucial distinction of a successful landmark building: an affectionate nickname.

The contractors refer to it as the "Smarties box", whereas Gough initially preferred to call it the polka-dot block.

This led to a trivial but amusing spat some time ago after this magazine quoted Gough's description in a caption. Mira Bar-Hillel, the fearsome property correspondent on London's Evening Standard newspaper, was miffed enough to write to Building's letters page (29 June 2001, page 35): "Here was I thinking that polka dots were, er, round and then comes your picture and enlightens me: it seems that polka dots are actually rectangular." "Pixellated polka dots" is Gough's modified description.

There's no doubt that Handelsman's punt on this unpromising chunk of land has paid off. Fulham has always been a somewhat poor relation of west London's more desirable boroughs. Yet Fulham Island now home to one of Terence Conran posh eaterie and a health spa occupies another unit. The two old ladies probably won't make much use of either, but that's progress for you. Mind you, a Marks & Spencer is about to open in the blue building …