Harper Macleod Corporate Solutions (HMCS), the Glasgow-based legal operation and corporate finance advisory business which brokered the investment, said funding for the new hotel took about three weeks to arrange, in spite of the downturn in the commercial property market and ongoing credit crisis.
It also said that it had taken advantage of a little-known tax allowance, which added extra appeal to the investment opportunity.
Nonetheless, the project will transform a former Victorian office building that in the 1890s had housed Glasgow’s first power station at 75 Waterloo Street into an upmarket boutique hotel with 96 bedrooms, a restaurant and bar.
It will operate under the Indigo brand, part of the global InterContinental Hotel Group.
However, the franchise will be run by Chardon Management, the Glasgow-based hotel management company that currently operates 15 other hotels across the UK under various brands, including the Holiday Inn and Holiday Inn Express in Glasgow’s Theatreland.
Ramsay Duff, a partner at HMCS and the lead broker on the deal, first identified the old property and said planning consent has already been given by Glasgow District Council.
“The idea of taking this slightly sad, old building and making it an upmarket, funky boutique hotel in the middle of the financial district was very appealing,” he said.
“There is something about this property that looks like it should be a hotel.”
The hotel is expected to open for business in early 2011. The derelict Victorian block, which was originally owned by Glasgow Corporation Electricity Company and is listed for the building’s historical significance, once sprouted a giant chimney as part of the power station operation, but most recently it served as a headquarters for Scottish telecoms group Thus, which was last year acquired by Cable & Wireless.
The purchase of the old office block from ScottishPower was completed two weeks ago for £3.5m.
The full project involves a £6.9m loan from Manchester-based Co-operative Bank and a further £4.6m through equity stakes from “a number of high net worth investors”.
Duff said: “Of course we approached all the mainstream high street banks first, and all of them turned us down.
“Two things they weren’t interested in were developments and hotels, which is hardly surprising given the way so many banks have been stung in the commercial property slump
“One of the banks -- I don’t want to name it, but I’ll say it’s not a British bank -- did show a lot of interest, but in the end they couldn’t provide enough funding. But I have to say, the Co-op Bank were absolutely fantastic to deal with.
“They couldn’t have been more helpful -- no egos, no bull, just very nice people. They were absolutely delighted to go forward, and I believe that’s testament to both the project and the people undertaking it.
“There was certainly a willingness to do this kind of deal.”
Duff said about half of the equity cash was raised through two Scottish IFAs in Aberdeen and Glasgow, and the other half was raised via two wealth management firms in London.
However, Duff said the equity stakes were an easier sell than the bank loan because he had “become aware of a special tax allowance” called the Business Premises Renovation Allowance, or BPRA, which was brought in to incentivise individuals and companies to bring worthwhile properties back into use.
Duff said: “BPRA provides a 100% initial capital allowance for qualifying costs on renovation of unused commercial property in designated areas.
“If you’re tarting up an old property that’s already being used, you wouldn’t get it. Refurbishment of unused property is where the tax break is and the investors basically get half their investment back in their tax return.
“Selling the idea was a no-brainer -- although this is a good deal with or without the tax break.”
As for the market, Duff said he has been advised by Glasgow City Marketing Bureau that there is currently an “under-provision of quality hotel rooms in central Glasgow” -- a situation that will likely be exacerbated by the Ryder Cup and Commonwealth Games in 2014.
Duff added: “Finally, there will be somewhere decent to eat in the financial district.”
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