Rita and John Santillanes, owners of the highly visible quarter-block lot at the northwest corner of Division Street and Third Avenue where a hotel construction project has been frozen in its initial stage for nearly four years, have decided to give up on the project and put the property up for sale.

The 36,680-square-foot parcel, located at 2 W. Third, near the Division Street entrance to downtown from Interstate 90, is listed for $2.5 million.

Rita Santillanes says that, until recently, she had hoped to secure financing to restart the $9 million, 155-room Best Western Peppertree Inn project.

"We were moving forward, but with Walt Worthy's announcement of 700 new rooms, I didn't think it was wise," Santillanes says. "I'm not bitter. I just hope we can sell the property."

Spokane developers Walt and Karen Worthy announced plans earlier this month to build a 15-story hotel and parking facilities near the Spokane Convention Center and INB Performing Arts Center downtown on a block that the Spokane Public Facilities District owns. The PFD also owns and operates the convention center, the performing arts center, and the Spokane Veterans Memorial Arena.

Santillanes, who is a member of the PFD board of directors, says she supports the Worthy project, although it would reduce greatly the demand for rooms that the downtown Peppertree was envisioned to serve.

"I think Walt's project is a great one," Santillanes says. "It will be extremely beneficial to Spokane. It's what we need to expand the convention center."

The PFD plans to add 91,000 square feet of space to the convention center as part of a $65 million funding measure approved by Spokane County voters in April.

The Santillaneses bought the Third Street parcel in 2007 and had planned to construct a hotel and parking facility there in time to open for the peak travel season in 2009, just months before the U.S. figure skating championships were held here in early 2010.

At the time of the purchase, the St. John's Lutheran Church and a Subway restaurant occupied the property, and the hoteliers planned to raze them to make way for the hotel. The Spokane City-County Historic Landmarks Commission held up demolition for three months until the city determined the church building need not be listed on the National Register of Historic Places.

The recession deepened during that delay, and the now-defunct Bank of Whitman withdrew construction financing, although it had already issued a total of $2.4 million in a real estate loan and advances toward the project, court records show.

The Santillaneses obtained a building permit in late 2008 and proceeded with site and foundation work, but unable to secure financing, put the project on hold, leaving the concrete and soil exposed and gathering weeds in the fenced-off site, where a portion of the sidewalk has begun to buckle.

Absent new financing, the project site has remained dormant, and, with the announcement of the Worthy project, it's time to leave it behind, Santillanes says.

Santillanes says she's reluctant to go outside of her area of expertise to develop the property for different use.

"Hotels are all I know," she says. "It's better to do what you do well than do something you know nothing about, but I don't think the market can handle more than 700 new rooms."

The listing agent, commercial real estate broker Joel Crosby, of Spokane-based Coldwell Banker Tomlinson, says the property has been on the market for less than a month, and some potential buyers have looked at it.

"It could be great for a multipurpose development with a whole bunch of different retail possibilities because of its great location," Crosby says. "If people come off the freeway, it's the first property they see."

A daily average of nearly 40,000 vehicles passes buy the property, he says.

Crosby says he's been in contact with the city of Spokane about the current and future status of the property.

"The city would like to see it developed in a positive way, and it's interested in having the gateway to the city look good," says Crosby, who served as a Spokane city councilman from 1986 to 1993. "My goal is to work with any potential buyer and make something good happen."

The Division street gateway to downtown is the city of Spokane's top priority in a multijurisdictional effort to improve entrances to the city, says Jan Quintrall, the city's director of business and development services.

"If we had part of that land we could widen and unsnarl some of that mess," she says.

The city has applied for a $500,000 state grant toward an $805,000 design and construction of gateway improvements at I-90 interchanges at Division, Lincoln, and Maple-Walnut streets.

Meantime, the city has asked the property owners to repair the damaged sidewalk on the south side of the property, Quintrall says, adding, "We're not excited to let it sit there looking like it does for another year."

The Santillaneses also own Best Western Peppertree Inns near Spokane International Airport and in Liberty Lake, Omak, and Auburn, Wash., all of which they developed.

Santillanes says she's arranging refinancing for the Best Western Peppertree Airport Inn, at 3711 S. Geiger Blvd. The refinance package also would fund a planned $1.1 million remodel at the hotel, she says.

The project would include an exterior makeover and rehabilitating all of the common areas in the hotel, she says. EA White Construction Co., of Tualatin, Ore., would be the contractor on the project. EA White had been the contractor on the now-scratched Peppertree downtown project.

The Auburn property is undergoing a $600,000 remodel, and Santillanes says she's acting as her own contractor there.

"Those two projects will keep us busy," she says.

Santillanes says she's not in the market to develop a new hotel anywhere—for now.

"Once the Third Avenue property sells, I'll probably be looking again," she says.