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Construction of the palace was initiated in 1908 by the local government of Santander for the purpose of providing a seasonal residence for the royal family of Spain. Funding was provided via popular subscription of the local populace. 
The design and construction of the palace were overseen by architects Javier González de Riancho and Gonzalo Bringas Vega, with construction completed in 1912. King Alfonso XIII and his family first arrived at the Palacio de la Magdalena on August 4, 1913, and returned annually to summer at the palace thru 1930. The royal family used the palace as a base for numerous recreational and sporting activities, and the king sometimes also held government meetings at the property. The annual trips ended with the proclamation of the Second Spanish Republic in 1931. 
Beginning in 1932, the palace was used to host summer courses through the Menéndez Pelayo International University. In 1977 Don Juan de Borbón sold the palace and the peninsula back to the city of Santander, which had previously given it as a gift to the royal family, for 150 million pesetas. The palace, which was declared an historical monument in 1982 and renovated between 1993 and 1995, continues to be used as a conference and meeting hall today. It is the most visited place in the city of Santander.
The building has an eclectic style, combining English, French, and regional styles. It has two entrances, one on the north side for carriages, with a portic, and another to the south, which is the main entrance. The south entrance features two octagonal towers and double staircase tranches. The building is covered with stone masonry slate. The highlight of the interior is the reception rooms, which hold paintings of interest by artists such as Luis Benedito, Joaquín Sorolla y Bastida, and Fernando Alvarez Sotomayor.
The stables were designed by Javier González de Riancho. They emulate a medieval English village with sharp roofs of steep slopes and wooden tiles. After summer courses were started, the stables were converted to student dormitories.
The palace is also used in external shots for the Spanish TV series Grand Hotel.
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