October 20, 2010 --TRAVERSE CITY -- Demolition is slated to begin this fall to make way for a hotel in downtown's Warehouse District, a project that will require a publicly funded, $1 million pedestrian tunnel under Grandview Parkway to the bay.

State taxpayers are expected to contribute more than $3 million to subsidize Hotel Indigo, a 105-room boutique hotel to be built between Garland Street and Grandview Parkway.

Traverse City and Grand Traverse County officials signed off this week on a development agreement for the project.

The plans go to the Michigan Economic Growth Authority board on Nov. 16, when it will decide on close to $1.1 million in brownfield incentives for building demolition and infrastructure, and close to $1 million in future credits under the Michigan Business Tax.

Demolition should begin soon after the state approves the project, county officials said.

"Hopefully with that, they can begin demolition when they wanted to at the end of November," said Jean Derenzy, director of the Grand Traverse County Brownfield Redevelopment Authority.

Engineering consultant Garth Greenan said the estimated construction period is about 14 months, and developers hope to open the hotel in spring 2012. The project is planned for a nearly 1-acre site that includes a former auto shop, two other office/retail buildings and two adjoining parking lots on the north side of Garland Street.

The hotel, an estimated $10 million-plus project, is being developed by Grand Traverse Hotel Properties LLC, owned by Rochester Hills builder Jeff Schmitz. He's also building a Hotel Indigo in Lafayette, La. The Traverse City project will include a small outdoor plaza, indoor pool and spa, a lounge and underground parking.

The development agreement requires the city's Downtown Development Authority to proceed with an estimated $1 million public pedestrian tunnel under Grandview Parkway.

The long-discussed tunnel project is part of a proposed pedestrian pathway linking the downtown area to the Warehouse District across the Boardman River, then under the parkway to the city's bayfront. The tunnel is planned just east of the hotel development site, DDA Deputy Director Rob Bacigalupi said.

The city received a $50,000 Coastal Zone Management grant to help design the tunnel, and engineering should begin in early 2011, Bacigalupi said. Construction costs will be paid for through the city's TIF 97 tax increment financing district.

The TIF 97 district will be repaid with future property-tax revenue generated by the hotel development. Bacigalupi said grants also may be available to underwrite some of the tunnel's construction costs.

The DDA and hotel developers will evenly split the cost of streetscape improvements along Garland Street, Bacigalupi said.

Hotel Indigo is a boutique hotel chain that's part of the InterContinental Hotels Group, the world's largest hotel operator. Hotel Indigo is based in Atlanta and operates 36 hotels, mostly in the U.S., with more than 50 new projects in the planning stage, according to the company.

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