HOTELIERS have called it Bournemouth council’s £70 million “declaration of war” on their sector and claim it will drive some private hotels out of business.

Town Hall officers themselves admit it is a high risk project. Some observers call it a questionable use of borrowed public money, all of which must be paid back, with interest.

And industry experts are questioning whether the numbers add up and why the council is gambling on getting itself into the hotel game.

In March, Bournemouth councillors agreed to fund the construction of a hotel complex on the site of the former Winterbourne Hotel in Priory Road and adjacent Beacon Road car park. The council owns the site, next to the BIC.

Construction will be funded via a low interest loan of as much as £70m from the Public Works Loan Board.

The complex would be ‘dual-branded’ and run by Crowne Plaza and Holiday Inn Express as a high budget/low budget combo, the same business model as the nearby Hilton and Hampton by Hilton hotels.

For several years there has been a plan to build a ‘hotel training school’ on the site, operated in conjunction with Bournemouth University.

The council initially put the current project out to tender in 2016, but decided all tenders were either operationally unacceptable or not financially viable.

It then decided, in a move designated ‘high risk’ by officers, to fund the scheme itself, and has named Mill Lane Estates from Manchester and Marick Real Estates of Woking as its preferred development partners.

In a legal VEAT (voluntary ex ante transparency) notice issued on April 6, the council said the total value of the contract was £64m.

However industry insiders say professional fees, a rental insurance policy and finance costs could take the total closer to £70m. They claim the council is taking “a huge risk”.

Concerns are that the scheme is “highly speculative” and could be an unlawful or at least questionable use of public money. The Echo understands the council is expecting a projected profit of £5m-a-year (after year three) from room rates, parking charges and health club fees , and insiders claim this does not stand up to scrutiny.

Of this £5m, despite the council funding the whole £70m development, it would receive only £3.5m annual rent under a 35 year lease, and the developer/operator would keep any surplus.

Insiders claim the projected profit is well in excess of that made by any other hotels in the town, and that any shortfall could see the council’s chosen operator struggle financially.

One national hotel industry source said: “Not enough questions have been asked by councillors and others about how the figures put forward by the council can be justified and the reliance on them. These are vast sums of money.

“The council admits in its own reports that if it goes wrong, there could be a big impact on council tax and frontline services but claim they can sell the hotel if necessary.

“But that isn’t an answer because they will merely crystallise a huge loss.”

It is unclear if the figures in the council’s documents were provided by consultancy firm Savills, which the borough appointed to advise on property valuation, or by officers.

The Echo asked Savills to confirm this but our questions were forwarded to the council’s press office. At the full council meeting on March 6 where the scheme was approved, members agreed not to proceed without a 10 year rental insurance policy in place, which is predicted to cost £2-3m.

“As officers have made clear, the project will not progress unless they are satisfied with this rental insurance offer, which of course includes making sure that the underwriter conforms to the council’s high standards of security – including a strong financial rating,” said Councillor Philip Broadhead, cabinet member for economic growth.

Industry insiders have valued the council’s interest in the scheme at some £40-45m, and a confidential industry report claims the borough expects its insurance policy to increase the value above the £70m cost, making it commercially justifiable.

They question whether such insurance is available and, if it were, whether paying a premium of £2-3m would increase the end value of the project by as much as £30m, “otherwise all hotel developers would take out such insurance”.

The report claims the site is “very difficult to develop” which could increase construction costs, and it claims the failure of the overall scheme is “disturbingly likely”.

Andy Woodland, the deputy chairman of industry body BAHA, said many hoteliers were alarmed at the council’s plans. Speaking in a personal capacity he said: “This looks like a declaration of war on the hotel sector. Why is the council trying to get itself into this?”

He said the council was exploiting an unfair advantage with its plans.

“The scheme is flawed in as much as its funding mechanism is advantageous to the council.

“Our members could not borrow at that interest rate. And we can’t see how it would make the return that they’re wanting to achieve.

“If I went to the bank I couldn’t borrow below about five per cent, which would make the whole scheme uneconomic.”

He said the council’s plan to take out a 10-year rental insurance policy would be prohibitively expensive for the private sector.

“I’ve always said I welcome an increasing standard of bed stock within the town, as long as it’s replacing the old bed stock which is not fit for purpose,” he said.

He was concerned that the hotel would compete unfairly with hotels nearby.

'Cast-iron' guarantee is a must, says scrutiny chairman

THE inclusion of a rental insurance policy as a safeguard in the event of the hotel project’s failure was pushed by a borough committee.

The council’s corporate services scrutiny panel called for a 10 year policy which the authority would be able to “call on at any time to make up the full agreed rent payment shortfall, in any of the first 10 years of the hotel operation, in any circumstances whatsoever”.

The panel also called for a review of the hotel’s proposed operating model to be carried out by “a wholly-independent financial business plan consultant”.

Part of the meeting was held in private session.

Chairman Councillor Donald McQueen said he thought it would be “months” before such a scheme is in place.

“I would love to see a hotel on that site, but I think the figures quoted are very optimistic,” he said.

“This is public money and my support is conditional on there being a 10 year cast-iron rent guarantee in case at any stage an operator is unable to pay.

“There is no insurance scheme in place at the moment and I think it will be months before those conditions are met.”

Party whipped to back scheme

THERE is opposition to the plan within Bournemouth council, despite an alleged attempt to quash it.

Conservative group sources told the Echo the leadership imposed the whip to ensure the scheme would be approved, saying that anyone who voted against it would be chucked out of the party. Sources claim some members absented themselves to avoid backing the scheme. On the day, 11 of the Tory group’s 51 members were absent – Sue Anderson, Amedeo Angiolini, Beverley Dunlop, Jackie Edwards, Gina Mackin, Donald McQueen, Susan Phillips, Nick Rose, Gill Seymour, David Smith and Rae Stollard.

Cllr Nick Rose said he would have voted against the plans had he not been abroad. “I am not against the idea of a hotel on the site, in fact I think a quality three star hotel there would be a great addition to the town,” he said.

“But under John Beesley’s leadership I believe we are straying too far away from our core responsibilities and the council should have nothing to do with it.

“We risk burdening Bournemouth tax payers with up to £70m debt for decades to come. We already have experienced hotel developers and operators working in Bournemouth’s vibrant hotel market, so we should simply leave it to the experts.”