The deal will see 79 high-quality houses and apartments built on the five-acre site on Brentry Lane with construction to start in summer 2014.
Sixty-four of the new homes will be for open market sale by Lovell while 15 homes will be for social rent and shared ownership through Knightstone Housing Association.
The land was acquired by Lovell from NHS Property Services with planning consent for up to 80 homes. It been empty for more than a decade after the Brentry Hospital closed in 2000.
The new properties are designed to be energy-efficient, exceeding the environmental performance standards set down in Level 3 of the Code for Sustainable Homes.