Jun. 3, 2008 - Passers-through and garlic lovers will have two new temporary homes come 2010.

The Gilroy Economic Development Corporation announced Monday that a 180-room Holiday Inn and a 76-room Candlewood Suites, along with two adjacent restaurants, will open in 2010 on the east side of Forest Street, near the intersection with Leavesley Road, right off U.S. 101.

The addition of 256 rooms to Gilroy's roster of 664 represents a 39 percent increase in hotel capacity, according to figures provided by Jane Howard, executive director of the Gilroy Visitor's Bureau. If the new rooms fill regularly, the extra space could translate into about $375,000 in additional annual tax revenue for the city.

"This is a real win. I was so excited to hear the news," Howard said. "It gives travelers more choices."

As the manager of the Super 8 Motel on San Ysidro Avenue, Roshan Kika welcomed the news, as well.

"It's a good thing because of the Garlic Festival. Gilroy will always stay busy because of the Garlic Festival, and there are a lot of things in nearby cities, folks passing through for the moto GP -- we're like back-up for them," Kika said. "Business has been steady, so it's good."

Kika referred to the 2008 Red Bull U.S. Grand Prix at Mazda Raceway Laguna Seca in Monterey that will take place this July. EDC President Larry Cope pointed to this event and the Garlic Festival, too. There are also tourists heading toward the coast and business persons stopping over, both of whom might do a little shopping while they're in town, Cope said, especially during better economic times.

As the co-owner of the quaint, three-room Fitzgerald House Bed & Breakfast on Rosanna Street, Larry Mickartz noted that the hotel business is down because the larger economy is down and gas prices are high, but Gilroy's particular hotel climate must look promising if new tenants are coming to town, he said.

"They've obviously done some homework, and they think there's a market here and the potential here," Mickartz said. "Business attracts business. When we're full, we refer to other places, and when they're full, they refer to us, so I don't think this presents a problem."

When the 2007-'08 fiscal year ends June 30, city officials expect to bring in about $982,167 in hotel taxes from Gilroy's nine hotels and various RV parks. If the projection holds true, it will be the first time the city surpasses its 2001 hotel tax revenue of nearly $930,000. Since the tax income sank as low as $737,746 in 2004, but has rebounded every year since, with an 11-percent jump last fiscal year, according to city figures.

Despite slower retail sales, the city's hotel tax rose 2.6 percent during the first quarter of this year, or $172,091, compared to the same three-month period last year. Since December, retail sales tax revenue has fallen nearly 7 percent, or about $570,000, compared to the same six-month period between 2006 and 2007. The hotel tax accounts for about 3 percent and sales tax about 44 percent of the city's general fund revenue. The city council will vote on the new hotels in the distant future.

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