Consensus Capital Property, the private equity-backed property fund, and Premier Inn, the hotel chain owned by FTSE 100 company Whitbread PLC, have agreed a deal to transform a well-known Edinburgh office block into a hotel.
The £17 million deal will turn the existing office space, formerly used by HM Revenue & Customs (HMRC), into a 127 bedroom hotel development with a 30 year lease.
Located on York Place, the hotel will be at the heart of Scotland’s capital city and less than 100 metres from one of the main stops on Edinburgh’s new tram network.
The deal is one of the largest in the city this year, and marks the firm’s move into the hotel sector after building a successful presence in the social and residential property market across the UK. Consensus Capital Group’s London office, based in Mayfair, opened last year and is working on several developments in the south east of England.
Since launching two years ago, Consensus Capital Property has funded and exited development projects worth more than £50 million.
Andrew Montague, chief executive of Consensus Capital Property, said the deal demonstrated the firm could deliver structured funding for large commercial projects, which would also deliver jobs and economic benefits.
Andrew Montague said:
“This deal and redevelopment represents a significant milestone for us as a company, and we hope it will be the first of many projects with Premier Inn. This is our biggest deal to date and brings us out of our traditional heartland of social housing and into larger commercial developments with blue chip companies. We’re looking to do more structured funding deals of this stature in the near future.
“The redevelopment of the building is good news for Edinburgh as a whole. Increased footfall in the area will create a stimulus for the city and boost the already strong tourist market.”
International real estate specialist Savills was also involved in securing funding for the deal, while planning permission was secured quickly in early 2014. The redevelopment work is expected to take between 12 and 15 months.
Investors can expect an initial yield of 5.14% on the project, rising to 5.79% in year five and 6.52% in year 10. Edinburgh’s strong tourist and business traveller market are anticipated to bring a return of £6,750 per bed in year one.
Kevin Murray, Senior Acquisitions Manager for Whitbread Hotels and Restaurants, said:
“With a number of exciting new Edinburgh Premier Inn projects already in our development pipeline, we are delighted to announce a new 127-bedroom hotel in York Place. Our latest deal with Consensus Capital Property will drive investment and regeneration in the centre of Edinburgh and will help to push us closer to our target of achieving 75,000 rooms by 2018.
“Once complete, the development will create 40 new jobs in the local area, around half of which will be offered to the long term unemployed.
“The new site represents another excellent location for Premier Inn, offering high quality and affordable accommodation in the heart of a world-class city. We look forward to opening our doors to customers as soon as possible.”