Our Client, in its property assets portfolio, owns a building situated in a prime location in the city of Madrid. This building has been wholly renovated in order to be converted into a luxury hotel, even though the agreement that it previously had with one of the most important hotel chains in the country had been terminated.
In accordance with the above, the Building still retained the approvals in matters of authorisations and administrative licences related to the process of renovations that was undertaken for the purpose of its luxury hotel objective, but it no longer had an operator for its exploitation.
Our Office advised the Client in the negotiations and reaching agreement with respect to the lease contract with a hotel chain dedicated exclusively to developing luxury hotels and that was searching for a reference building in the city of Madrid and that, in conforming with its business plan, it was one of the hotel chain's chosen locations to set up its activity or business and continue its expansion in Spain.
The Client has achieved improving the value of the building – above that which it had committed a large investment in its renovations – through the formalisation of a lease contract of the Building in order for it to become a luxury hotel (5 stars), with a lease term of twenty (20) years and which further includes an agreed income: (i) in the first year, 1,300,000€ (fixed income) and equal participation at 18% of Gross Operating Margin (variable income); (ii) in the second year, fixed income of 1,350,000€ (fixed income) and an equal participation at 18% of Gross Operating Margin (variable income); (iii) from the third to fifth year, the fixed income is updated in accordance with the CPI; (iv) from the sixth year of the contract being in force, the income is equal to 65% of the Gross Operating Margin with a minimum of 1,450,000€/year.