Once complete, the 180-room city hotel would have overlooked the Melbourne Assessment Prison.
The hotel project, now unlikely to go ahead, was viewed by city and government authorities as an “adaptive” and “highly responsive” use of the West Melbourne heritage listed site.
Instead, Avari will undertake an extensive refurbishment of the building, including a speculative fit-out, service upgrades, and adding end-of-trip facilities along with a bar and cafe in the building’s central courtyard, chief investment officer Alan Liao said.
“355 Spencer Street represents a structurally sound, superbly designed and aesthetically pleasing building. To knock it down and redevelop would not achieve its best and highest use,” he said.
“We believe this unique proposition will attract strong leasing interest and will ultimately improve the value of a magnificent building,’’ he said.
Last week, Mr Kheir and his development partners sold the warehouse with a hipped roof and double gabled facade at 102-108 Jeffcott Street to an unknown developer for $9.5 million.
They had jointly owned both buildings for about four years, paying $27.2 million for the Sands and McDougall factory. When the trio originally purchased the site with three properties, they paid $38.8 million.
The remaining property, also part of the original development, at 371 Spencer Street is for sale with an asking price of $10 million.
CBRE’s Mark Wizel, Josh Rutman, Scott Orchard and Scott Hawthorne have handled the sale of all the properties.
“In the context of the current market risk factors and forecasts for where the office market may be headed, the pricing is very strong,” Mr Wizel said.
Mr Kheir owns developer Resimax Property Group. His passion for racehorses connects him with Mr Mehrten, also a racehorse owner who dabbles in property development, while Mr Palazzo owns a large stake in home builder Symonds Group.
Two years ago, Avari paid a record $50 million for landmark office building in Wollongong at 90 Crown Street that transacted on a yield of 7.75 per cent and a weighted average lease expiry of 3.5 years.