M&G has inked a £203 mln (€233m) deal to acquire the long leasehold interest of a hotel development site in London's Paddington, and finance the development of the 620-bed scheme.
Premier Inn and Staycity are slated to occupy the Paddington hotel and aparthotel complex, which is expected to open by 2021.
'London is one of Europe’s best performing hotel markets and is expected to account for more than a third of the pipeline of new aparthotels in the UK and Ireland market by 2021. The increase of high-profile operators entering the market and the availability of operating data is enabling investors to become more comfortable with investing into the sector,' said Kevin Vickers, investment director, M&G Real Estate.
The construction of the hotel complex will be carried out by development consortium, Concierge 3, a joint venture partnership between The Pickstock Group, Staycity, and BSW Land & Property.
The capital is being provided by the £4.1 bn M&G Secured Property Income Fund, which invests in UK real estate assets let on long-term leases, usually with rents that increase in line with inflation.
Under the terms of the deal, Whitbread plc, the owner of Premier Inn, and Staycity will each take 30-year leases on five yearly inflation-linked rent reviews, operating independently with 60% and 40% of the rooms respectively. The scheme also has provision for a 27,000 ft2 (2,500 m2) education facility, landscaping and open space.
Staycity will provide the aparthotel side of the development under its Wilde Aparthotels brands, while Whitbread will create a 373-bed Premier Inn hotel, its first in Paddington.
'This is a rare opportunity to acquire a large scale, high quality property in central London offering such long-term income. Our institutional investors continue to seek assets with long leases that generate income in order to meet regular pension fund payments, as well as the potential increase in commercial property values when investing over the long-term,' said Ben Jones, manager of the M&G secured property income fund.
The deal represents the fund’s fifth transaction with Whitbread as a tenant, following a recent £100 mln funding deal to develop a 339-room hub by Premier Inn hotel on Tothill Street, Westminster, adding to the existing portfolio of Premier Inn hotels at Gatwick Airport North Terminal, Holborn and Wandsworth.
