Developers of a planned hotel at the northwest corner of Third and Division—near one of the main entrances to Spokane—say they've lost financing for the $9 million-plus project, but are optimistic they can re-establish it by May and that construction can resume by June.

The project, a five-story, 115-room Best Western Peppertree Inn & Suites, which is planned to include a connected parking structure, has been on hold since the foundation was poured last winter.

"We're desperately working on new financing," says, Rita Santillanes who is co-developing the project with her husband, John.

The original financing for the project fell through as the developers sought permits to demolish a former church at the site last summer, and they haven't been able to obtain new financing due to the recession, she says.

The Santillaneses also own Best Western Peppertree Inns at Spokane International Airport and in Liberty Lake, Yakima, and Auburn, Wash.

The couple bought the Third Avenue property, which is the former site of St. John's Lutheran Church and a Subway restaurant, in July of 2007. They previously had hoped to open the hotel this year at the busy Division street entrance to downtown from Interstate 90.

Last July, the Spokane City-County Historic Landmarks Commission determined the brick church building was eligible for listing on the National Register of Historic Places.

Santillanes says the commission's move delayed demolition of the brick church building for three months, "while we went through the hoops to show it wasn't a historic building."

During the delay, the recession deepened, and the developer's bank, which Santillanes declines to disclose, withdrew its financing commitment before the project started. Nonetheless, the project proceeded through the city's plan review process, and the Santillaneses obtained a demolition permit to raze the church structure in September and a building permit for the hotel in December.

"We kept going as long as we could," Santillanes says. "At some point, we had to put it on hold."

Prior to the recession, banks required developers to put up 20 percent of the capital needed for such projects, she says. After their initial financing fell through, banks started asking the developers to put up 40 percent of the capital, Santillanes says, adding, "That's just not feasible."

She says lenders are starting to give the project consideration again, and she's optimistic that a lender will approve financing for it soon, because the hoteliers' revenue has been stable at their Liberty Lake and airport hotels, and the new hotel is planned at a high-traffic location.

"We keep thinking banks have to make changes" to be more willing to make loans, she says. "We're seeing it happening with housing loans. Business loans have got to follow soon."

Joe Wizner, the city's building official, says he checked on the status of the project this week, and the contractor seemed confident construction will resume before summer. EA White Construction Co., of Tualatin, Ore., is the contractor on the project, and Dale Sweeney Designs PLLC, of Bellevue, designed it.

Santillanes declines to disclose how much the construction delay has added to the cost of the project, but says, "It's a substantial amount."

Dan Skindzier, the city's inspector supervisor, says building permits are good for one year and can be extended.

"We usually don't deny requests for extensions unless a project is abandoned," he says.

Kristen Griffin, the city's historic preservation officer, says the city's demolition ordinance requires the commission to determine whether structures are eligible to be placed on the national or local lists of historic places.

The simple fact that the church was more than 50 years old made it eligible for historic listing, Griffin says. Once the commission made that finding, it was up to the city's building department to determine whether the hotel project could proceed, she says.

In September, the department determined the project met the "replacement building" criteria needed to allow removal of a potential historic structure, Griffin says.

Construction is expected to start next month on a $2.2 million church in the Latah Valley area that will replace St. John's church. The 14,000-square-foot structure is to be located on 8 acres of land at 5810 S. Meadow Lane Road.

The design for the church project, which is expected to be completed by year-end, incorporates stained-glass windows that were removed from the former church building before it was demolished.