Work is set to begin on a £150 million scheme set to transform the top end of Digbeth after the developers signed up a new hotel for the site.

The first phase of the Beorma Quarter project, which is being backed by Kuwaiti money, is set to begin in September or October after a deal was struck with the as yet unnamed operator for a new hotel on the corner of Digbeth Street and Allison Street.

The first phase will also see the transformation of the Victorian 35,000 sq ft Grade II-listed Cold Store building and eventually the project will include a 27-storey tower as well as the restoration of further listed buildings and new public spaces.

Keith Williams, who represents the Kuwaiti-based Salhia Real Estate in the UK and introduced them to the Birmingham opportunity, said securing the first occupier for the site was the catalyst to get the project off the drawing board and into reality.

He said: “This project was always going to move ahead on a pre-let basis so to secure a fantastic operator to the development means we can now get on site later this year.

“We have also secured development funding for the project from HSBC after a competitive three-way tender, which is unusual in this climate, while £18 million has already been invested to get to where we are today.”

The Beorma Quarter plan, named after the man who founded Birmingham in the seventh century, was first mooted four years ago but the challenging market conditions and the complex nature of the site between the Bullring, St Martin’s Church and Selfridges have added to a more protracted process than originally anticipated.

The development is in one of Birmingham’s most historic areas. Archeologists have discovered evidence of activity stretching back to the 13th century, with the site containing some of the city’s last surviving remnants of the medieval property subdivision system, characterised by groups of long, thin plots known as burgage plots. The design of the proposed tower is set to pay tribute to that heritage.

A state-of-the-art geothermal system called Aquifer Thermal Energy Storage (ATES) will also tap into ancient wells beneath the area and heat the scheme through six 100-metre energy boreholes.

Heat from each building will be extracted in the warmer months, creating a cooling effect, and this will be stored in the water below and extracted in winter for heating, cutting energy use significantly and CO2 emissions by at least 25 per cent.

“This will be a first in Birmingham and one of only a couple of similar geo-thermal schemes anywhere in the UK,” said Mr Williams. “With the geothermal power source and bringing back to life the derelict Cold Store building as a business centre, we are not only creating one of the most sustainable developments possible but also a scheme that fits the city’s international outlook.”

He added that he hoped to have secured a pre-let for the proposed tower in the next six to 12 months.

The progress on the Beorma Quarter scheme will be a welcome shot in the arm for Digbeth, which has suffered a number of setbacks in its regeneration in recent years.

A £150 million scheme to transform 4.5 acres of Digbeth, called Connaught Square, went into administration in 2010, leaving its funders, Allied Irish Bank, millions of pounds out of pocket. The development, just 100 yards away from the Beorma scheme was set to include 658 apartments, a four-star hotel with sky bar, a massive underground car park and a new Irish Centre. It was also set to bring the city’s hidden river, the Rea, back to street level.

The future of another prime development site in Digbeth also remains unclear after proposals to move the city’s wholesale markets to a new home in Witton were scrapped, although the city claims that the market will have to move. Traders are currently fighting to stay at their current home.

US property giant Hines – which has invested in Brindleyplace and One Snowhill via in recent years – was believed to be keen on the site before the Witton scheme fell through.

The Kuwaiti investment in Birmingham is also a welcome boost for the city, which has been courting Middle Eastern cash. Salhia was established in 1974 and listed in 1980 after extensive projects in Kuwait and around the Gulf and in recent years has become increasingly active outside its borders. Abdulaziz AlNafisi, the son of Salhia’s chairman, said the organisation was increasingly looking abroad for opportunities.

He said: “During the 1990 war the board we diversified because of the geo-political risk in Kuwait, and since then we have done a number of successful joint venture projects, but the Beorma Quarter is our first independent project in the UK. We were looking at different opportunities and we found that in Birmingham the council was progressive and enthusiastic. We couldn’t say that with many of the councils that we deal with so that was a breath of fresh air.

“This is our largest single investment outside of Kuwait and while the market is difficult, our last three projects in Kuwait were built during the recession.Some people look at us and think we are idiots but we love doing that – although we have also been lucky.”

Beorma Quarter Timeline

* May 2008 Image revealed of the dramatic skyscraper that could be the newest addition to Birmingham’s skyline.

The 27-storey tower block will be the focal point of the quarter, across the road from Selfridges in Digbeth, and plans include a hotel, restaurant, apartments, shops, offices and a public space.

The scheme is named after an Anglo-Saxon king – after whom Birmingham is named – and Kuwaiti backers Salhia Investments said the scheme was still at pre-application stage.

* February 2009 The development is dealt a blow after the plans draw criticism from members of Birmingham City Council’s conservation group.

* August 2009 Planning permission granted for the £150-£200 million redevelopment.

* October 2010 Preliminary building work reported to begin before Christmas.

* February 2011 Work is poised to begin, according to the Middle Eastern backers’ UK representative – but there is uncertainty about when the skyscraper will go ahead as the developers will only build it if occupiers are found in advance.

* April 2011 The Post reports a land-grab dispute between property owner Ingleby – backed by Salhia – and a charity which prevents work from starting.

* May 2011 It is reported that Birmingham City Council begins preparing a Compulsory Purchase Order allowing it to acquire the two-acre site earmarked for the quarter, although a final decision to go ahead will have to come back to a sub-committee.

* May 2012 Plans evolve to include a commitment to locate the President Kennedy memorial mural on the site, which has been in storage since being removed from Snow Hill circus six years ago.