The United States has agreed to sell its embassy building in Grosvenor Square, Mayfair, to a Qatari sovereign wealth-backed developer for an undisclosed sum.

The US State Department said yesterday that it would sell the Chancery building, home to the US Embassy in Britain for almost half a century, to Qatari Diar, a real estate investment company owned by the Qatar Investment Authority (QIA).

The Qatari investment group has not yet given full details of its plans for the site, but it is thought to be planning a luxury hotel and residential apartments. Chelsfield Partners, run by Sir Stuart Lipton and Elliott Bernerd and 20 per cent-owned by QIA, will be development partners on the project.

The building was worth an estimated £500 million at the peak of the market in July 2007, when Qatari Diar was first linked with a possible purchase. It is thought to be worth much less now after a 45 per cent decline in commercial property values.

The development value of the site also suffered a setback last month when English Heritage granted Grade II-listed status to the building, designed by Eero Saarinen, the American architect, for being a “really important piece of Modernist architecture”. The listing means that the new owners will not be allowed to change the façade, which includes the famous 35ft gilded aluminium eagle that hovers above the main entrance.

The prime location of the building, which has 600 rooms on nine floors, was said to be the principal appeal of the site for Qatari Diar. The developer is responsible for buying national and international property assets with the proceeds from the sale of the Gulf state’s vast natural resources.

Ghanim bin Saad al-Saad, the chief executive of Qatari Diar, which plans to invest £5 billion in Britain, said: “The purchase of such a prestigious London property underscores the continuing importance of the UK market for Qatari Diar.”

Qatari Diar is the subject of legal claims for unpaid fees from Candy & Candy, the developers, and Lord Rogers of Riverside, the architect, both of whom were employed to work on plans for the Chelsea Barracks site in London, which Qatari Diar bought for £1 billion in 2007. The investment group was recently forced to scrap and redraw a blueprint for the scheme after the Prince of Wales objected to the previous design.

The sale of the embassy building could still fall through. Qatari Diar’s purchase does not become unconditional until 2012. Before then, it rem-ains subject to any delays in the construction of the new £500 million US Embassy in Wandsworth, South London, due for completion in 2017, which could be hampered by planning permission. The US Embassy will remain in the Chancery until its new building is completed.

Wandsworth Council has granted “outline consent” for the new scheme, on a five-acre site in the Nine Elms regeneration area that also includes Battersea Power Station. The United States, which is being advised by Cushman & Wakefield, the property consultancy, will apply for detailed consent this time next year, after the appointment of architects in January next year and wider consultation.

The US will choose between Morphosis, Kieran Timberlake, Richard Meier & Partners and Pei Cobb Freed & Partners, all American-based architects. It wants the building to be “open, inviting and inclusive”, according to Cushman & Wakefield. The Chancery building has been criticised for being too intimidating.

Listed building in right place to make the grade

Dominic Walsh: Analysis

The location of the US Embassy in London makes it a natural candidate for conversion to a luxury hotel. It is just a short hop from Park Lane, home to names such as Hilton, Four Seasons, InterContinental, the Grosvenor House and The Dorchester, while Grosvenor Square itself already has a Millennium and a Marriott.

For good measure, Claridge’s is just around the corner in Brook Street. The list goes on.

But that does not mean that the West End could not cope with another five-star hotel. Trading may not be great at the moment, but for decades London has been one of the top cities for deluxe hotels. In spite of the plethora of international names already there, several are keen to expand their presence, including Hyatt, InterContinental, Taj of India and Jumeirah of Dubai.

The unusual design of the embassy building might suit a boutique brand, such as Starwood’s W Hotels, Hilton’s as-yet-unnamed lifestyle concept, Rezidor’s Missoni or Starwood Capital’s Baccarat brand. But perhaps the giant eagle over the main entrance would suit an American hotel company best.

The recent Grade II listing will not help the architects. The whole property will need to be reformatted if it is to provide rooms sufficiently large for today’s five-star guests, while any luxury hotel worth its salt will need a spa, a top-notch restaurant and bar and meeting facilities.

There is also the issue of accommodating sufficient luxury residential apartments to allow the Qataris to recoup a decent chunk of their initial outlay, while also meeting strict guidelines on providing an element of affordable housing.

Any hotel group keen to put its name over the door will need huge patience. It is likely to be 2016 or 2017 — at least — before the proposed new US Embassy in Nine Elms, South London, is ready for occupation.

It could be another two or three before the Grosvenor Square building is ready to accept its first guests. Just in time for another recession.

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