TWO York companies have pioneered a new way to fund a £20 million luxury hotel development in Whitby, bypassing traditional bank funding.

As a direct result of the economic downturn, Grosvenor Financial Consultants has set up a method of syndication to act as a “bank” for the commercial loan, attracting private individuals into commercial lending. Mark Pepper, director of Grosvenor Financial Consultants, said: “Our clients were looking for a better return of interest than was being offered by bank deposit rates, but at the same time not putting their money at risk. “While analysing this, it became clear that clients with commercial schemes required to borrow money.”

What also became clear was that there were many schemes that traditional lending was not readily available for “so we pursued the concept of setting up a syndicate to become a commercial lender, through money in pension funds”. He estimated that would bring a return on the scheme of more than nine per cent.

The notion became a reality when York-based leisure developer, The Skelwith Group, was looking for funding for its five-star Raithwaite Hall Country Retreat hotel development in Whitby.

The development will include a 44-bedroom hotel featuring a state-of-the-art spa and be a sister hotel to the group’s planned £100 million Flaxby Country Club, between York and Harrogate. Set in more than 80 landscaped acres, the site features fishing lakes, waterfalls and botanical gardens. There are already 11 holiday cottages on the site. A restaurant and luxury bar will also be included, as well as a conference and function area to seat up to 180 people. The 6,000 sq ft spa will feature the latest treatments and technology. Paul Ellis, managing director of the Skelwith Group, said: “In these unprecedented times we have had to think more creatively and be more innovative in our funding exercises on developments.”

Law firm Dickinson Dees acted for the investors, undertaking the due diligence and the funding side of the agreement. The fund has a “first charge” on the land, with money from both traditional cash deposits and pension funds.

Work is due to start in the coming weeks with completion expected in mid-2011.