The NHS is privately marketing a 100-year-old hospital building that provides affordable housing for 52 nurses and other key workers to property developers to create a One Hyde Park-style complex of luxury flats overlooking Hampstead Heath.

The Royal Free hospital is promoting Queen Mary’s House – a gift from the Lever Brothers co-founder Lord Leverhulme 97 years ago – as “Hampstead Gardens … a rare opportunity to create one of the most desirable new-build schemes in London”.

A password-restricted website set up by the Royal Free London NHS foundation trust describes the 1.6 acre site as “the last major development site in Hampstead with an unrivalled position between the heath and Hampstead Village”.

Facebook Twitter Pinterest Plans for Queen Mary’s House. Photograph: Ryder Architecture

The hospital’s Hampstead-Gardens.com website shows architect’s plans to convert the site into 162 luxury flats in four five-storey blocks with underground car parks. Local agents said the three-bedroom penthouse flats could sell for up to £10m each. They put the total sale value of the scheme at about £280m.

The website, created with the high-end estate agent consultancy Knight Frank and the architects Ryder Architecture, tells potential builders they do not need to worry about affordable housing lowering the tone of the development as the legally required affordable units can be housed in a separate development on the main hospital site.

The building, which was dedicated by Queen Mary in 1921 and rededicated by the Prince of Wales in 1992, houses 52 nurses, teachers and other key workers paying affordable rents of £551.09 a month for single rooms with shared kitchens and bathrooms. The residents have been told they may have to vacate the premises by July 2020 but the trust said it is “committed to finding them alternative, affordable accommodation should the site be sold”.

Otto Schwalowsky, 26, an intensive care nurse at the Royal Free who has been living in Queen Mary’s House for nine months, said it was “a real shame” that the hospital was considering selling the building, which was gifted by Leverhulme for use as a maternity ward. “NHS hospitals have to have key worker accommodation,” Schwalowsky said. “We [NHS staff] don’t get a huge amount of money anyway, so it’s good to be able to walk to work.”

Facebook Twitter Pinterest Otto Schwalowsky, intensive care nurse. Photograph: Alecsandra Dragoi/The Guardian

Schwalowsky said he would not be able to afford to privately rent anywhere to live nearby. “Rents in Hampstead are at least triple [what we pay here], you’d have to get a room share,” he said.

John Cudjoe, 63, who lives in a room a few doors down from Schwalowsky, said he was worried he might become homeless if he loses his affordable housing. “A one-bed flat is about £1,400 a month – that’s all my wages gone. I’m stuck,” he said.

Cudjoe, who has worked in health records at the Royal Free for 30 years and earns about £19,000 a year, said the trust has sold several other key worker accommodation blocks in recent years. “We wouldn’t be the first residential place they’ve sold,” he said. “They seem to be doing quite a lot of selling their affordable properties for development.”

The trust has not submitted a planning application to Camden council but has told developers it has held “a pre-application meeting with the local authority to discuss a change of use to C3 residential”. The building is classed as C2, meaning it is classified as a hospital or care homes.

Facebook Twitter Pinterest Queen Mary’s House, Hampstead. Photograph: Alecsandra Dragoi/The Guardian

The plans state that no affordable housing need be incorporated into the development. It says: “As part of the sale a parcel of land located on the Royal Free Hospital Pond Street site will be made available to a purchaser to locate any affordable housing provision arising from the redevelopment of Hampstead Gardens.”

The trust has given guided tours of the site to local property developers and estate agents. Trevor Abrahamson, the founder of Glentree International, an estate agency that specialises in selling homes in Hampstead and Highgate to rich overseas investors, said he was given a private tour of the site 18 months ago and offered his advice on how to best maximise value from the site.

“It’s a wonderful location and undoubtedly supports luxury apartments,” Abrahamson said. “It really is as extraordinary as it appears and it is very rare to find a piece of land in that location. It could easily be the One Hyde Park of Hampstead.” He said he expected apartments in the building, if developed, to sell for £2,300-2,500 per sq ft. The trust’s plans propose four blocks of apartments comprising 113,807 ft, which at 2,500 per sq ft works out at a potential sale price total of £285m.

Facebook Twitter Pinterest Plans for Queen Mary’s House. Photograph: Ryder Architecture

Labour’s Tulip Siddiq, the MP for Hampstead and Kilburn, said she was worried about the potential loss of affordable housing and would contact the hospital directly. “There is a severe shortage of social, affordable and key worker housing in my constituency and we need to focus on building more homes,” Siddiq said. “I want to ensure that we preserve the social mix that we are so proud of across Camden and I’ve always pledged to stand up for those who are being priced out of the communities that they grew up and work in.”

Stephen Stark, a local Conservative councillor and spokesman for planning, said he was concerned the Royal Free appeared to be marketing the development before it had formally applied for planning permission. “Councillors and local residents are very concerned about this potential development and the hospital’s approach,” he said. “We as ward councillors certainly wouldn’t want to see just luxury homes on the site. We acknowledge the need for affordable housing, a social mix and accommodation for key workers. Hopefully we will have cross-party support in achieving that.”

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A spokesman for the Royal Free said: “No decision has been made to sell Queen Mary’s House. The Royal Free London must use its estate in the most efficient way to ensure we can deliver the very best care to our patients. With this in mind, a process to market QMH has begun to establish the level of interest in the site with a view to a possible sale in the future.

“Any future developers would need to also provide affordable housing in the area. Residents – who are all on short-term leases – have been informed and the trust is committed to finding them alternative, affordable accommodation should the site be sold.”