Maldron Hotel

Birmingham, UK

Gallan Group and Cornerstone Property are joint developers of a 0.85-acre site bordering Dean Street, Upper Dean Street and Pershore Street, City Centre, Birmingham. The entire mixed-use development will comprise of:

• A 285 bedroom 3-star-plus hotel, pre-let to Maldron Hotels
• A 210-bedroom budget hotel, pre-let to Travelodge
• 1,649m2 of retail space
• 852m2 of office space

The site is of strategic importance to the City, adjacent to the Indoor Markets, the Bullring, the Arcadian, the redevelopment of New Street Station and the future redevelopment of the wholesale markets site.

Cornerstone Property and Gallan Group are offering the Maldron Hotel Birmingham element of the site, on a pre-funding transaction, at a total Gross Development Value (GDV) of £33.99 million.

This would require investors to raise total equity capital of £11.65 million, leaving a bank debt requirement of £23.95 million. The capital yield on the property is 6.75% and a two-year build programme will operate.

The structure of the pre-funding transaction, offers investor(s) a rental guarantee from day 1 of the investment which amounts to £1,995,500 per annum and will run for the entirety of the build programme, plus the first 5 years of operation. At year 5 an upward-only rent review will occur.

Dalata Limited, who will trade under the new brand Maldron Hotels, have signed Heads of Terms with Gallan and Cornerstone for a 35-year FRI lease with 5 year rent reviews normalised at £6,500 per room rent for the first rent review in year 5 of operation.

The investment structure allows for effective tax structuring of the purchase, spread over 7 years, allowing a cash benefit that is split between the investors and developers of £8.57 million. A total cash return as a percentage of initial equity of 15.85% and a cash return of £4.155 million over 8 years prior to the sale of the asset are shown assuming the tax benefit structure is adopted. Assuming capitalisation at a 6% yield in year 8, the asset value of Maldron Hotel Birmingham will reach £38.55 million in future values.

To maximize the benefit of the tax structure, the target investment term is 8 years.

Both Gallan and Cornerstone have a proven track record in property development with particular emphasis on the Birmingham market amassing a development portfolio in excess of £300 million. Gallan and Cornerstone have committed substantial initial equity for the development of the Upper Dean Street site and will continue to invest throughout the development of the site. They also carry the development risk on the entire site.

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