BERKELEY — The City Council has agreed to give a developer a $13 million break on fees for a downtown hotel project, warning that it might not be viable otherwise.

Center Street Partners LLC has a use permit to build a 16-story tower on the northeast corner of Shattuck Avenue and Center Street. The site currently is occupied by a low-rise Bank of America branch that would be demolished and rebuilt on the ground floor of the Berkeley Place Hotel, which will have about 335 rooms and is supposed to have a dining room, conference space, a cafe and full-service restaurant, parking garage, pool and fitness room.

Under a financial arrangement approved July 19 by an 8-0 vote of the council with Councilman Max Anderson abstaining, the city would rebate $1.5 million a year for up to eight years, with adjustments for inflation. The rebate would be capped annually at 50 percent of the Transient Occupancy Tax proceeds generated by the hotel. Rebates would cease when their cumulative total equals the $13.1 million estimated total of impact and permit fees.

According to a staff report by Economic Development Director Michael Caplan, the project, without the rebates, would achieve an approximately 6.7 percent return, compared to an expected 8 percent to 12 percent return for similar projects; the projections are from the developer group, reviewed and confirmed by independent consultants, Caplan’s report continued.

The lower rate of return would make it difficult to obtain financing, officials of the developer group and the city agreed.

“Our conclusion is, without this rebate, this project is unlikely to be feasible,” Caplan told the council.

Several council members have said that development of a downtown hotel is a high city priority.

In his report, Caplan said the hotel project is expected to generate $4.2 million a year in new general fund revenue for the city, and that a $1.5 million-a-year rebate on fees would still net the general fund $2.7 million a year.

“The net impact of this resolution would be positive for the city’s general fund,” the report stated.

Anderson noted that while city officials discuss giving back “millions upon millions” to developers, poor city residents are “fighting tooth-and-nail every year for a modicum of services.”

Commenting on the project’s supposed employment benefits to residents, Anderson said that workers come from as far as Stockton to work on Berkeley construction projects.

The developer group previously had estimated that a project labor agreement with building trades is a “significant community benefit” worth $5.635 million.

Also, it estimated the community benefit of a labor agreement with the hotel workers union at $7.941 million.

About two dozen members of the public spoke, with more than two-thirds criticizing the rebate deal. Several chastised the council for what they characterized as a giveaway of taxpayer money to a developer at a time when residents, especially in South Berkeley, face a shortage of affordable housing and services.

Contact Tom Lochner at 510-262-2760. Follow him at Twitter.com/tomlochner.