Santa Rosa city leaders have pulled the plug on a proposal to have a developer build a boutique hotel and city-owned parking garage, a project they had hoped would prove a boon to the struggling downtown.

The City Council in a closed-door session Tuesday indicated it will not extend an exclusive agreement with MetroPacific Properties of San Rafael to build a 151-room hotel and six-story, 545-space parking garage on a 1.3-acre E Street site now home to a 116-space city parking lot.

The agreement, already extended once, is set to expire Dec. 1. Unless the council votes for an extension, negotiations will end, said City Attorney Caroline Fowler.

"It's dead," Councilwoman Jane Bender said Thursday when asked about the status of the project. She said the original terms of the deal had changed since the city agreed to a joint project with MetroPacific in August 2008.

"The bottom-line is they wanted a whole lot more than we agreed to. We can't do that and they don't have the money to go ahead," Bender said.

But Sia Barmand of MetroPacific believes the council decision "is based on miscommunications." He said his company is willing to stick to terms of the original deal, including having the city pay no more than $11.7 million toward construction of the garage.

Barmand said the differences between the city and his company "involve a lot of other deal points," differences he hopes to clarify during further discussions with city staff next week.

"I don't know if the deal is dead but if it is dead I think it can be revived," he said.

However, he also said the city council's discussions about possibly reducing the size of the parking garage would shift unreasonable added costs to his company and potentially make the project unworkable.

The E Street property, just across Second Street from the U.S. Post Office, has been the site of several failed proposals over the past five years.

The most recent, a proposal by Monahan Pacific Corp. of San Rafael, was a joint project with that city that was to include 183 condominiums atop a 545-space garage. It was rejected by the council in 2007 after nearly two years of planning when the developer said he couldn't go forward unless the city was willing to give him $6 million more toward the garage construction.

Deputy Parking Director Cheryl Woodward said MetroPacific had been pushing to have the city pay for its own financial and outside legal advisors rather than having the developer pay for them, as originally agreed upon. She estimated those costs at $100,000.

She said the developer also proposed to have the city pay additional fees and guarantee a profit margin for its garage construction that could add up to $2 million in additional costs to the city.

And the developer also indicated that with a bad economy, the hotel market wouldn't become healthy until 2012-13 at the earliest, she said.

"There is no certainty in that," Woodward said. "The city could be holding the property for several more years. How long do we wait?" she said.

Barmand insisted that the joint project would be built in 2011, in time to capture the initial revival of the hotel market. He said the real stickler is the city's debate over the size of the garage, an issue that took center stage when a new, more transit-oriented majority took control of the council last November.

Several council members are seeking to reduce its size by 100 spaces, contrary to the 545-spaces for which MetroPacific submitted a development plan in competition with two other builders to win the right to develop the site.

Whether the city could move forward and lower the number it contractually established caused some concern it might be legally required to rebid the project.

"There would be potential risks to the city to change the deal," attorney Fowler said Thursday.

"We are still good to pay for the costs if the deal points for the 545-space garage remain intact," Barmand said.

"The problem we have been running into since last year is the city doesn't know what it wants," he said.

If the city demands fewer spaces, Barmand said his company would be forced to pay for construction of additional spaces to make sure enough are specifically available for hotel patrons and employees.

"That would make it too expensive for us to build a hotel there," Barmand said.

He said the 545-space garage would have plenty of room without his company having to go to the extra expense.

If it costs his company more to provide parking, the amount the city must pay for its portion of the garage would go up correspondingly, he said.