Berkeley City Council approved a rebate July 19 that will return the financing needed to developers who are aiming to complete the construction of a hotel in Downtown Berkeley.

The rebate is necessary for financing the hotel with taxes the building will incur upon opening, according to the city’s economic development department. The rebate is projected to cost the city $1.5 million per year, or 50 percent of the Transient Occupancy Tax, for eight years.

According to Councilmember Kriss Worthington, the rebate rate for the hotel, which will be located on Shattuck Avenue, is much lower than for similar hotel projects built in cities like Anaheim, California and Palm Springs, California. If the hotel project fails to be built, Worthington said the developers, Pyramid Hotel Group, will not receive the rebate.

“The developers will pay all of the fees up front,” Worthington said, regarding concerns by Berkeley residents that the money would ultimately be given to the developers of the project. “They will get a rebate that is far less than the city of Berkeley will be getting for the building. If the hotel fails, we don’t lose a penny.”

Worthington added that the revenue the city will receive will be put toward the General Fund and “special taxes, assessments and mitigation payments,” including affordable childcare and housing mitigation fees. The agreement with the developers also calls for the hotel to involve members in the hotel and construction worker unions.

“Ongoing General Fund revenues for the first eight years are estimated to average $4.2 million per year with just over $3 million of that from Transient Occupancy Tax,” according to a report by the economic development department.

The rebate will pay 50 percent of the Transient Occupancy Tax back to the hotel group, which is set to tax each booked room by 12 percent. The rebate will only apply to the Transient Occupancy Tax revenues, so that the rebate will be low if the revenue is also low.

The total revenue from the hotel’s first year of operation is projected to be approximately $6.65 million, according to the city’s office of economic development.

Councilmember Jesse Arreguin said the hotel’s construction rebate is a “unique situation” for Berkeley, but that the financing will bring community benefits.

“It is essential that we have a new hotel in the Downtown district,” Arreguin said. “It will generate a significant tax revenue on an ongoing basis.”.

The hotel will be built at 2129 Shattuck Ave., the space currently occupied by Bank of America. The bank branch will be incorporated into the ground floor of the hotel, along with restaurants and conference spaces that will be open to the public, according to the city’s planning department.

“We want this hotel to happen,” Arreguin said. “It will be a critical economic development project.”