A syndicate of investors is backing the project which will see Telfer House in the Merchant City turned into a 96-bedroomed ibis Styles hotel.
Refurbishment work starts in the summer and is expected to take a year to complete.
An extra floor will also be added to the current seven storey distinctive sandstone building in Miller Street near Ingram Street.
The cash is coming from an investors syndicate put together by Glasgow-based Maven Capital Partners which is one of Britain's leading private equity firms.
Tax incentives make the project an attractive investment and it's the second refurbishment hotel to be taken on by Maven after a former hotel in North Wales was last year redeveloped into a Travelodge.
Telfer House which has been empty for a number of years was snapped up at auction last summer for around £560,000. It will trade as an ibis Styles hotel.
The name will be used under a franchise agreement with a French chain which owns the ibis brand. The new hotel will be run by RedefineBDL, the UK's biggest specialist hotel management company.
The Merchant City area is seen as a key leisure destination with its range of eateries and bars, designer shops and event venues.
Deal broker Ramsay Duff at Maven Capital Partners, said: "We are delighted to have secured this opportunity for our investors, offering useful tax incentives with a high quality property asset."
There's already a budget ibis Hotel in West Regent Street.