Peterborough City Council believes it has found a buyer for the troubled, near complete Hilton Hotel in the city. Cabinet is to be asked to approve the transfer of the hotel at Fletton Quays from the administrators to a bidder who has come forward to take ownership of the hotel.
Councillor Mohammed Jamil, Cabinet member for corporate governance and finance, said: “The council has been very honest from the point the administrators were appointed that it would act in the best interests of taxpayers.
“This is why we have been exploring in tandem both the option to acquire the hotel ourselves, or to sell it to a third party who can see it through to completion
“Selling to a third party will not only allow the hotel to be completed as soon as possible, but also means that we will not have to incur the additional costs to complete the hotel.
“This is really important at a time when we are facing huge financial pressures including an £11m in-year overspend and a budget gap which could be as high as £24m next year.
“It remains our overriding priority to protect the investment made by the council so far and to see the hotel open as quickly as possible.”
The cabinet meeting will take place on Tuesday 15 October at 4pm at the Town Hall, Bridge Street, Peterborough.
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People can attend in person or watch the meeting on the council’s YouTube channel.
At a Cabinet meeting on 30 May, members gave their go-ahead for the council to submit a credit bid for the hotel, which it did on 7 June.
“This bid, made using the council’s outstanding debt, was subsequently accepted by the administrators,” said a council spokesperson.
“In the meantime, the council has been carrying out soft market testing to understand if there is any interest from those who may look to purchase the hotel.
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“There were a number of expressions of interest, and it is now recommended that a subsequent firm offer from one of the interested parties is accepted.”
The spokesperson added: “Due diligence is taking place to confirm the final terms, with the intention that the hotel will transfer directly from the administrators into the ownership of the preferred bidder.”
At the meeting taking place on Tuesday 15 October, Cabinet members will be asked to approve the transfer of the hotel from the administrators to the preferred bidder.
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For commercial reasons, the council says it cannot comment on the size of the bid that has been made or give any further details about the bidder.
The precise recommendation to Cabinet is to
1: Agree that, if the option of selling the asset directly from administration to the preferred third-party bidder is more economically advantageous to the council than purchasing the asset, the council should step aside to allow that sale to occur.
2: Agree that, if a sale directly to the preferred third-party bidder cannot be completed within a timely fashion the council should complete the acquisition of the hotel asset.
3: Delegate authority to the executive director of corporate services, in consultation with the Cabinet member for finance and corporate governance and director of legal and governance, to take necessary actions to achieve the most economically advantageous outcome for the council, in line with the recommendations (if approved) and the Cabinet’s previous decisions in relation to this matter.
BACKGROUND (Report to Cabinet for October 15 to be presented by Cecilie Booth, executive director for corporate services and S151 officer)
In September 2017, the council agreed to provide capital funding for the construction of the 160 room Fletton Quays Hilton Hotel by way of a loan of up to £15m – or 83% of construction costs – to the developer of the hotel.
The hotel site is part of the council’s flagship regeneration project in Fletton Quays, which comprises the council’s headquarters Sand Martin House, 229 apartments, a multi-story car park and Government Hub/Passport Office.
Further development planned for this site includes the new Cygnet Bridge, additional apartments and a food and beverage operator in the Goods Shed.
This is a key regeneration location for the council, and a high-end hotel is a key feature of the overall Fletton Quays development site.
The hotel development was significantly delayed due to a slowdown in the construction industry during and following Covid and Brexit.
Work on site slowed in May 2023 and then stopped and the developer was put into administration on 17 October 2023.
To protect the council’s financial position and to ensure construction of the hotel is completed as quickly as possible, the council submitted a credit bid for the hotel.
A credit bid was submitted on 7 June 2024 for the acquisition of the hotel and that was accepted. No new or additional funding is required for the purpose of the council acquiring the hotel.
The council has been running two streams in tandem to develop the business case to decide next steps for the hotel.
This information is now presented to Cabinet to decide whether to sell the hotel directly to a third-party or to complete the acquisition of the hotel.
The company for the hotel to move into is ready to be established and tax advice has been received to make sure this is done in the most efficient way possible.
The full costs to complete the hotel have been further refined and the business case is included (CONFIDENTIAL).
The procurement exercise for the self-delivery option has gone live, should this route be taken.
In parallel to the development of the acquisition route, the council undertook a soft marketing exercise to assess market interest relating to purchasing the asset.
The council appointed CBRE to undertake the soft marketing exercise. CBRE is an industry leading expert in hotel real estate with substantial experience in the provision of disposal, valuation, advisory and investment advice.
This has resulted in several interested parties.
CBRE developed the soft marketing exercise into a request for firm offers.
The results of the soft marketing exercise were promising, and this has been turned into a potential sale process.
Given the rising costs and the risks around self-developing the hotel it is recommended that the council sells the hotel to a third party.
The administrators have agreed that the hotel can be sold direct to the preferred third-party if the council, as the preferred creditor, wants to do that.
The costs to complete the hotel within the council have increased from the £14.4m forecast and presented to Cabinet on 11 March 2024.
This is because the ongoing due diligence has brought more costs to light. However, work continues to reduce and question this spend.
Further details on the full financial picture for all options are included in Appendix A (CONFIDENTIAL).
Due diligence is ongoing to confirm final terms of the direct sale whilst the acquisition option workstream continues in parallel.
If the direct sale route falls through, it is recommended that the council continues with its plans to acquire the hotel.
The plans for this are developing.
The costs and work plan are coming together and the procurement for a contractor is live.
The warranties and insurance are being organised and tax and legal plans are in place. The company is ready to be set up.
Should the direct sale fall through, the council would acquire the hotel and move it into a holding company.
Then the council will have the flexibility to decide whether to undertake a wider marketing exercise or self- develop the hotel.
