A much needed new luxury hotel will open on Westgate Street in the centre of Cardiff later this year.
Nothing unusual in that, apart from the fact that the hotel is a joint venture with a majority 75% stake for the Welsh Rugby Union (WRU).
With the pandemic putting a huge strain on the finances of the game of rugby at all levels, I have seen quite a few comments asking why the WRU is investing “millions” into a hotel project at such a challenging juncture?
While that would be a subject of debate if true, the reality is the four star Parkgate Hotel, next to the Principality Stadium, is a smart bit of business which has not required a single penny of investment from the WRU and promises to provide a future annual income stream - and yes there remains uncertainties for the hospitality sector with the pandemic - north of £1m. This will be reinvested by the WRU back into the game at all levels.
The WRU’s minority partner (25%) in the Parkgate Hotel Cardiff Ltd joint venture is Cardiff-based property development firm Rightacres, whose projects include the one million sq ft Central Square office led scheme in the centre of the capital.
The new hotel, which has provided more than 200 jobs in its construction phase with Rightacres utilising it network of mainly Welsh-based supply firms, is transforming the former Post Office and adjoining County Court buildings - while maintaining and enhancing their listed facades and historic interior features.
The previously empty County Court building was already in WRU ownership. As part of the deal, Rightacres acquired the building providing a cash boost for the WRU. This has more than offset the legal and other fees incurred by the WRU in delivering the joint venture with Rightacres.
So, how has the hotel’s funding been structured?
Most Read
The acquisition of the Post Office building and the hotel’s construction has been funded by financial services giant Legal & General with £45m of long-term repayable capital.
Using its pension funds L&G is no stranger to funding property and infrastructure projects in Wales.
It has already providing £750m of forward funding for schemes that not only include Central Square, but Aston Martin’s car factory in the Vale of Glamorgan and a new 135,000 sq ft building for the Department of Work and Pensions in Nantgarw.
The deal has been structured so that the joint venture has to repay the capital and interest over a 40-year plus term.
One of the Europe’s leading hotel operators, the Celtic Collection and whose interests include the Celtic Manor Resort in Newport, will operate the hotel on behalf of the joint venture.
Repayment of the finance has been scheduled so that it only kicks in once the hotel is completed. With the Celtic Collection’s track record it is envisaged that the hotel, which will create hundreds of new and indirect jobs in its supply chain, will move towards full occupancy over two years of operation.
While the terms of the deal have not be disclosed, the joint venture is confident it will comfortably be able to finance the L&G lending, pay the agreed hotel running fee to Celtic Collection, while leaving a margin of north of £1m for the WRU to reinvest into the game each year. This will only rise with hotel room inflation and as the capital is reduced.
Don’t miss
For L&G, as well as a secure income - and it has the freehold interest in the building with the joint venture having entered into a long-term lease - it is another example of how it is deploying capital for job creating regeneration projects.
After all pension funds managed and invested by financial institutions like L&G is ‘our money’ and the more that is invested in Wales the better.
From a Wales plc perspective it is also good to see that the WRU and Rightacres choosing an indigenous and highly successful hotel operator in the Celtic Collection to run the Parkgate Hotel, which will open in October.
Chief executive of the WRU Steve Phillips deserves credit for steering the deal, first revealed in 2018 when he was finance director of the union, and leveraging the expertise of Rightacres and its existing funding relationship with L&G for a project that will not only provide it with a much needed new income, but will create a wider boost for the regional economy.