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The four-star Market Street Hotel was built on a vacant site next to the City Art Centre opposite Waverley Station.
But the project by arms-length council company EDI Group, through a subsidiary established specifically to take it forward, ended with an £825,000 cost overrun.
The 98-room hotel with a rooftop lounge and a panoramic view of Edinburgh’s skyline won architectural plaudits and emerged from two years behind scaffolding to open its doors in 2019.
But it was a tricky site for the builders, a small piece of land surrounded by historic buildings on three sides and by Market Street and Waverley Station directly in front.
A report to the council’s housing and fair work committee said: “The Market Street hotel achieved practical completion in November 2018, nine months behind the originally envisaged completion date. Council officers acting on behalf of EDI have now settled financial claims with the purchaser and the contractor.”
Asked about the loss, commercial development manager David Cooper told the committee: "The EDI were the developer so they were carrying developer risk. They took forward the project and took on board the contractor and they were then going to sell the completed hotel to the hotel operator. Essentially you’re caught between two agreements in that situation and the lesson would be you back to back agreements so what’s true with your contractor should also be true with your purchaser, but that’s not always possible.
"That site had been undeveloped for maybe 20 years, it was incredibly constrained. And when you looked at the engineering work, to achieve that build they had reinforcements going in to hold up the retaining wall while the development was going on and they were then putting in place the steel superstructure literally millimetres away from that reinforcing structure, so it was a very very difficult build.
"I think EDI ultimately had to take that risk to get the site moved forward. It did incur losses, however a capital receipt was still paid to the council for the land so all in all there was probably a small profit across the piece and we got the site developed.”
Labour councillor Mandy Watt said she understood the project had involved quite a complicated sewerage system and asked whether that would have been necessary if it had been housing on the site rather than a hotel.
Mr Cooper said the hotel would probably create a slightly higher demand on the sewage and water system. A contribution was required towards an upgrade of the system near Meadowbank. The project had checked with Scottish Water, but the situation changed because of other developments so it was an unforeseen issue.
After the meeting, Conservative economy spokesman John McLellan said: "It is a very difficult site and was an eyesore for many years, and while there are clearly some lessons about risk management to take away, at least a significant location has been put to good use and we have been assured there was no overall cost to the tax-payer."