The LivingSpace building at 184 Castle St, which has a rateable value of $6 million, had been bought by the university for an undisclosed sum, Property Services director Barry Mackay said.
''Settlement is not until April 26, so this is commercially sensitive at this time.''
The building, which features 128 rooms all with en suites, plus amenity areas, would not be operated as a hotel, but would be converted to high-quality student accommodation.
''To build a new building would cost significantly more than purchasing this property so it is commercially justifiable,'' he said.
The university also bought the fixtures and fittings. It will take over the hotel on April 26.
The property was previously registered to Castle Street Ventures Ltd, which was placed into liquidation in December 2010. It was formerly directed by property developer David Henderson.
Tourism Dunedin chief executive Hamish Saxton said the loss of 128 rooms would leave a gap in the Dunedin accommodation market and be ''challenging to replace''.
The organisation had been contacted by a tour company yesterday looking for alternative accommodation as a result of the sale, Mr Saxton said.
Mr Saxton hoped the gap in the market would attract others to invest in the Dunedin accommodation sector, but said this would not solve the shortage in the immediate term.
A listing on the Colliers International website said the hotel was for sale by tender, closing on March 11.
The listing said the property had a land area of 1518sq m, five storeys and 33 car parks.
According to a report written last year by the receiver, BDO chartered accountant Stephen Tubbs, Castle Street Ventures Ltd owed a ''known'' total of $15,163,488 to creditors. This total included $11,243,353 owed to Equitable Property Holdings Ltd. The report says Mr Henderson was made bankrupt in November 2010.
The company was linked to LivingSpace Properties Ltd, which had also been placed in receivership and owned LivingSpace Invercargill, a 64-room hotel, which was also for sale by tender closing on March 11.
Mr Tubbs declined to comment on the sale of the Dunedin hotel or confirm whether hotel staff had been laid off.
A representative from the hotel declined to comment when contacted yesterday and directed queries to the receiver.
There were no rooms available on the hotel's website yesterday.
