The six-storey building on St Nicholas Cliff, the facade of which is currently shrouded in scaffolding as it undergoes maintentance, is being sold with a starting price of £14 million.
The local authority is planning to purchase the property from its current landlord and maintain the existing occupational lease with Travelodge Hotels Limited.
The council says that no public money will be used to make the purchase, adding that the investment would be funded by the Public Works Loan Board.
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The decision, which was only disclosed on Monday, comes from the council’s Commercial Director Richard Bradley who is in charge of making property investments, in accordance with the council’s Commercial Property Investment Strategy, on behalf of the local authority.
In his report, Mr Bradley wrote that the move would “enable the Council to build a stronger commercial property portfolio” whilst “generating income to protect frontline services for the Borough’s residents, businesses and visitors.”
Following the disclosure of the plans, borough councillors John Ritchie, Eric Broadbent, Carl Maw, David Billing and Janet Jefferson called in the decision on the grounds that “an investment of this magnitude and urgency requires detailed scrutiny and awareness and the involvement of all councillors”.
This resulted in a special Overview and Scrutiny Board meeting which took place behind closed doors on Tuesday.
Cllr Jefferson, who attended the meeting, said: “It was a very thorough scrutiny, lots of procedural and financial questions were asked and on the basis of what we heard the committee accepted to go ahead with the plans. The important thing for the public to know is that it’s not coming out of council funds.”
Cllr Liz Colling, Chairman of the Overview and Scrutiny Board, added: “At the end of the meeting councillors were satisfied that significant work has been done on the business case, therefore it’s an investment that we’re looking to implement.
“It’s up to the commercial team now to negotiate a deal.”
According to Mr Bradley’s report, the investment would allow the council to achieve its annual savings targets as it would deliver £328, 000 of the council’s targeted £600,000 annual saving.
External specialist advisors, who have been consulted during the drawing of the plans, have recognised the hotel property market as a growing investment category, therefore assessing the overall market risk as ‘low’.
The purchase of the Travelodge would also be an opportunity for Scarborough Council to diversify its tourism holdings – currently it owns only four small B&Bs – and increase its stake in the tourism economy.
The lease contract would run for 25 years with an option to be extended for a further five years, until 2048. Yearly rent reviews would be upwards-only and all maintenance and repair works on the building would be carried out and paid for by the tenant.
A spokesperson for Travelodge Hotels Limited said: “At Travelodge we lease our properties and the lease investments are traded on a very regular basis, as they provide excellent long-term income.
“Our Scarborough hotel is very popular, scoring an average 3.5 stars on TripAdvisor, with people recognising its great location and sea views."
The Travelodge Hotel has 104 en-suite bedrooms, a restaurant, a cafe/bar on the ground floor and an unused basement area.