Government-supported hotel redevelopment will not deliver affordable housing
An £8.6m government grant given to kickstart the redevelopment of Preston’s former Park Hotel will still not enable the project to deliver any affordable homes
An £8.6m government grant given to kickstart the redevelopment of Preston’s former Park Hotel will still not enable the project to deliver any affordable homes, the Local Democracy Reporting Service (LDRS) can reveal.
When the scheme was approved by Preston City Council more than two years ago, the developer behind it successfully argued that it was not financially viable to provide a proportion of the properties at a discounted rate.
As well as the refurbishment of the landmark building – which overlooks Miller Park – to create a new 92-room ‘apart-hotel’, the development will also see the construction of 239 apartments across two tower blocks in the grounds of the site. It has since been announced that all of those dwellings will be for rent.
Under city council planning policy, 30 percent of the flats would ordinarily have had to be categorised as ‘affordable’ – meaning they would be offered at a fifth below local market prices, whether for rent or sale.
However, when councillors on the authority’s planning committee first considered what was then a slightly different scheme – featuring more apartments – in February 2024, they heard that the case made by developer The Heaton Group for not providing any affordable housing had been accepted by town hall planning officials after an independent assessment.
That is not an uncommon scenario on city centre apartment developments, particularly those that require investment in the restoration of existing buildings rather than the creation of new ones.
Last week, however, it was announced that the £70m Park Hotel revamp had secured £8.6m from Homes England’s Building Infrastructure and Land Fund (BILF), which is designed to “unlock” strategic housing sites that are challenging to develop.
Asked by the LDRS whether the viability calculation for affordable housing had changed now that the scheme had received such significant public sector support, the project team said that the finance would be used to bridge a funding gap that “existed regardless” of any requirement to deliver discounted dwellings on the site. They added that, without the government cash, it would have been impossible to bring the project to fruition.
Even after the usual affordable housing requirement had been waived when planning permission was granted, the developer also later requested – and was allowed – the removal of a backstop that had been put in place in case the project proved more profitable than had been predicted.
The so-called ‘review mechanism’ would have required a cash payment towards the creation of affordable housing elsewhere in the city had the Park Hotel scheme made more money than envisaged when the viability calculation was carried out.
It is a commonly used measure when an applicant has been exempted from contributions that would otherwise have been demanded as part of the planning process. The review occurs at a fixed point before the completion of a development.
However, in October 2024, the planning committee was told that the vision for the ex-hotel site was at risk of being derailed by the requirement, because of what The Heaton Group said was the “uncertainty” it would cause for the lenders needed to fund the work and the “delays in the sale of apartments”.
“For a scheme…where there are already significant risks associated with the sensitive conversion of existing buildings, combining this with money being tied up for a longer period of time makes this a risky investment for a funder,” Tom Flanagan, the agent for the application, said.
Viability reviews are undertaken during a window dictated by the percentage of properties that have been sold. If the review is not completed by the time the upper threshold within that window is reached, no further dwellings can be offered for sale until the process is completed.
The arrangement can cause cashflow issues for apartment developments, because – unlike housing estates, which are completed in phases – blocks of flats are necessarily built in their entirety before residents start moving in. That removes the option of basing the review window on the percentage of properties occupied, which would be less problematic, as it allows sales to continue regardless of when the assessment concludes.
City council planning officers had recommended that the committee agree to ditch the review – and so sacrifice any potential future affordable housing windfall – amid concerns about the deteriorating condition of the hotel. It was last in use as offices for Lancashire County Council in 2011 and had since become a target for vandals and, it was feared, could be at risk of an arson attack.
Members unanimously approved the request – after hearing from town hall planners that any review would be unlikely to find an increase in the future profitability of the scheme, because the cost of restoring the hotel was only likely to increase with the passage of time. However, some of the committee had required a degree of persuasion during the debate on the issue.
Now, two councillors who were part of that vote have told the LDRS they would like to see the review mechanism reinstated in the wake of the successful bid for BILF cash, a process that was aided by the city council. That would require a fresh agreement between the authority and the developer, which would be the only route by which to change what is an extant and legitimate committee decision.
Cllr Harry Landless said he was no longer “entirely happy” that the review would not be taking place, given the government grant funding that had now been awarded.
He added: “The goal posts seem to be constantly changing, as with other schemes in the city. All we can hope is that this one commences very soon.”
Scaffolding has been erected at the building in recent weeks and work is now thought to be under way.
Meanwhile, Cllr Carol Henshaw – who is no longer a planning committee member, but represents the City Centre ward in which the Park Hotel stands – said that while she recognised the problems posed by review mechanisms for apartment projects, she could not see why a “different kind” of process could not be followed to deal with them.
“Certainly, finish building it – and then do a review. Why is that not possible?
“It’s not fair when developers have councils over a barrel – and I kind of feel that there’s an element of that.
“The plans are wonderful…but it’s just sad that it’ll only be people that have money that will be able to afford to live there,” Cllr Henshaw said.
Hotel development ‘needed government grant to get off the ground’
Addressing the issue of affordable housing viability, a spokesperson for the Park Hotel project told the LDRS: “The planning decisions relating to affordable housing were made on the basis of the scheme’s viability position, which was independently assessed at each stage.
“The Brownfield Infrastructure and Land grant funding application was pursued to bridge a significant viability gap which existed regardless of the affordable housing position.
“Without this funding, the Park Hotel would have remained vacant and the regeneration opportunity simply would not have been realised.”
Meanwhile, Preston City Council’s Director of Development and Housing, Chris Hayward, stressed that the BILF was “not an affordable housing fund”.
He added: “The planning decisions relating to the Park Hotel were made in accordance with the city council’s planning policies and on the basis of viability evidence submitted by the applicant, which was independently assessed at each stage.
“The Brownfield Infrastructure and Land grant funding application was a separate process, led by the developer and supported by the city council, its advisor Hive Land and Planning and Homes England.
“The £8.6m award will bridge a viability gap that existed regardless of the affordable housing position and will unlock the delivery of a landmark regeneration scheme that has been a long-standing priority for the city.
“BIL grant funding is a £1bn UK Government initiative managed by Homes England. It is specifically designed to unlock unviable strategic housing sites by funding land acquisition, decontamination and enabling infrastructure to support long-term housing supply and economic growth.”
Government guidance on viability suggests that between 15 and 20 percent of “gross development value” may be considered “a suitable return” for developers to be able to expect on housing schemes.
Long-awaited movement on the Park Hotel project was confirmed in February when it was announced that property lender ‘Together’ had provided what it described as ”a six-figure bridging loan” to The Heaton Group to finance the purchase of the building from The Local Pensions Partnership.
The hotel – often likened to a Disney-esque castle – became the most prestigious place to stay in Preston after it opened in 1883. The venue closed in 1950 when the county council took it over as office accommodation. The building is not listed, but is considered a local heritage asset.
John Heaton, The Heaton Group’s managing director, said after the BILF cash was announced last week: “The Park Hotel is a cornerstone of Preston’s heritage. We’re proud to be delivering a scheme that combines regeneration, hospitality and housing.”
The new apart-hotel will also feature a gym, spa and a restaurant that will be open to the public.
The two apartment blocks had originally been intended to contain a total of 321 residences, but that number was slashed by a quarter last year in order to reduce the height of the buildings from nine storeys to six. The taller structures would have had to comply with new regulations introduced in the wake of the Grenfell Tower fire, which could have delayed their construction by up to a year.
The planning committee approved the resized blueprint last October. The creation of six supported living apartments within a Grade II-listed building at number 8 East Cliff – which is part of the same planning permission – was unaffected.