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Council snubs Hilton Peterborough £12m offer for high risk go it alone plan

The facts are clear, this is a huge and unnecessary risk

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The new Labour administration at Peterborough City Council has allegedly been discouraged  from exploring details of an offer to buy the Hilton Hotel site and avoid a potential £9m loss to council taxpayers. This buyer, organised by Propiteer, the hotel’s previous owners, is part of a large real estate asset manager and fund with extensive experience in hotel developments.

Sources at Propiteer had questioned if the offer has been shared to councillors, and the Cabinet but I can confirm Cabinet members and group leaders have been fully briefed on the offer which will form part of an exempt report being considered tonight.

Propiteer also question whether all councillors are aware of the potential for significantly larger losses if it pursues a credit bid but I am assured all options – including those – have been properly considered.

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The council rejects an assertion that the alternative proposed by the new bidders is for the return of £12m (80% of the council’s investment) with “the opportunity to recover the rest of its investment over time”.

A  concern of Propiteer and the new funder is the council statement that “no new money would be needed to be spent to take ownership of the freehold of the hotel site and to protect the council’s investment.”

Propiteer believes that this is misleading because it does not reflect the fact that the hotel is unfinished and requires significant further investment to complete.

The council disagrees and again remains categoric in their assertion that Cabinet has every last detail to hand ahead of any decision being made.

Propiteer sources point to the professional surveyors and valuers employed by the receivers -Teneo – that advise the hotel still requires a further £14.4m to be spent to complete it and to get it open.

Without this additional £14.4m (taxpayer’s money?) being spent the council’s investment is not protected.

Also, of course, is the fear that a development of this scale and a hotel of this standard is a complex operation, and it remains questionable if the council has the ‘in house’ capability to oversee a project of this scale.

This is especially as it remains a fact that the £14.4m being touted as the cost of completion is not a fixed price and could substantially increase.

Press release from Peterborough City Council: “The end of April 2022 marked an important construction milestone at our Hilton Garden Inn Peterborough City Centre. A topping-out ceremony was enjoyed by our team and leaders of the Peterborough City Council to celebrate the completion of the roof, glazing and flooring installation in the Sky Bar, and signage now being visible from the exterior of the building.”

Press release from Peterborough City Council: “The end of April 2022 marked an important construction milestone at our Hilton Garden Inn Peterborough City Centre. A topping-out ceremony was enjoyed by our team and leaders of the Peterborough City Council to celebrate the completion of the roof, glazing and flooring installation in the Sky Bar, and signage now being visible from the exterior of the building.”

The brightest scenario explained to the previous administration under Peterborough First was that Peterborough City Council – like a handful of other councils across the country – will end up owning a major hotel.

What appears to be excluded is that this is at an actual cost of £31m.

The council loan was originally £14.8m lent plus £1.9m interest earnt, giving a total of £16.7m; when this is added to the £14.4m required to complete the hotel the total expenditure is £31.1m.

This is the amount that needs to be returned if the council proceeds with a credit bid, a cost which is substantially more than the hotel’s completed value of £22m.

This downside remains unlikely to change since “harder trading times for hotels” are forecast by the council’s own consultants which suggest that even after 3 years of trading, again according to the council’s own consultants when the “optimal value of a hotel is reached”, the Peterborough Hilton would still only be worth £22m.

Whichever way you look at it, the city council is in a quandary and partly of its own making, of course, for agreeing to the loan in the first place.

But that argument has come and gone – although the conversations in more recent times may offer a clue as to whether the council has adopted an inflexible approach to finish the hotel themselves.

The facts are clear, this is a huge and unnecessary risk.

So, what is known of the pre-May election talks with the alternative funder?

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The new offer from the previous developer and their funder was made, I am told, “as a starter for 10; we said we were prepared to enter negotiations and waited to hear”.

After being told to hang on until after the local elections, it seems the doors had already closed on them and even the latest offer was answered by a council official only to say that the offer is not even being presented to the Cabinet.

This was despite the offer potentially recovering both the loan and interest earnt as well as guaranteeing the hotel would also be completed to the high specification intended with the Hilton design.

As a consequence, according to my source, any recent improvements to new funder’s opening bid are not being entertained, even though they believe it could end up with a cost-neutral outcome for the city council.

It is not true, as the council says, that “no new money would need to be spent to take ownership of the freehold of the hotel site and to protect the council’s investment.”

Based on the administrator’s reports, it has already provided an extra £300,000 for security at the site and to fund insolvency, legal and professional costs, so already are incurring additional costs not in the forecast £14.4m

Seeing the hotel through to completion simply does not ensure the benefit of the return of the loan to the city council as claimed.

And if, as seems likely, they bring in yet more professional advisers this could add further to the eye watering sums needed to be found by the city council.

Peterborough City Council says ‘a surprising number of council operate hotels, including Hilton hotels’. It says it is seeking professional advice from those with direct experience to help support them as they attempt a rescue bid for the unfished Hilton (above) in Peterborough. PHOTO: Terry Harris

Peterborough City Council says ‘a surprising number of council operate hotels, including Hilton hotels’. It says it is seeking professional advice from those with direct experience to help support them as they attempt a rescue bid for the unfished Hilton (above) in Peterborough. PHOTO: Terry Harris

Propiteer believe the council could avoid a small loss today (which may eventually be zero) at the risk of a much larger loss of £9m in the future.

My Propiteer source says their new funder would achieve 4 things:

  1. Release £12m back to the council initially and provide the opportunity to recover the rest of its investment over time.
  2. Avoid the need by the city council to spend a further £14.4m to fund the remaining construction costs to complete the hotel.
  3. Substantially derisk Peterborough Council from construction risk of additional project costs as the professional valuer’s forecast is not a fixed price contract.
  4. Prevent an unnecessary loss of at least £9m as the council and Teneo’s professional advisors assessments indicate.

Ultimately of course if the offer involving Propiteer but principally their new funder complete the hotel and returns the council’s money, the question remains of what benefit, if any, there is from continuing a risky property development and tying up over £30m of valuable taxpayer funds for years?

As the hotel will still be delivered with the funder’s offer, should the returned money not be deployed somewhere it is needed instead, and in doing so deliver for Peterborough much greater benefits?

 A spokesperson for Peterborough City Council said: “This situation – having an empty hotel – is one which we wish could have been avoided and it is most likely the hotel would now be open if it had not been for the Covid pandemic.

“Owning the hotel will allow us to see the development through to completion and benefit from the return of our loan and a fantastic new hotel facility for Peterborough. The alternative is that we walk away and lose most of, if not all of our investment.

“Having a Hilton hotel in the city would be a huge asset and therefore I am pleased that Hilton remains committed to the development and to Peterborough. We are working closely with Hilton and other partners as we plan the next stages.”

FACT FILE

In September 2017, the city council approve “a facility” of £15m for 24 months to provide funding for the construction of a Hotel on the Fletton Quays site by Norlin Hotels Holdings Limited and its subsidiary Fletton Quays Hotel Limited.

The council heard that the Hilton project was for the development of a 160-bedroom hotel by Norlin Hotels Holdings Limited and will be run under a franchise agreement with a well-known national, prestigious hotel chain.

Works were expected to commence in February 2018 and the hotel to be operational by the beginning of July 2019.

Editor’s footnote: The article has been amended and updated from an earlier version. 

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