Ongoing disagreement between the city of Indianapolis and a group of downtown hotel owners has prompted city leaders to officially postpone construction of one of the two convention hotels planned for Pan Am Plaza.

Plans for the redevelopment project, led by Kite Realty Group Trust, call for a $120 million, publicly funded expansion of the Indiana Convention Center and two privately funded Hilton-brand hotels totaling more than 1,400 rooms.

IBJ previously reported that city leaders and Kite had been negotiating the development timeline and whether they should move forward with both hotels and the convention center expansion all at the same time as originally planned.

In a letter sent Friday to the group of prominent downtown hotel owners that have been opposed to the project, Mayor Joe Hogsett confirmed that the two hotels will not be built at the same time. Instead, Kite will build the 814-room, 38-story Hilton Signia first, along with an 80,000-square-foot addition to the convention center that would include a 50,000-square-foot ballroom.

Hogsett said construction of the additional 600-room hotel would be delayed to allow the city “to ensure that market demand exists.”

He also wrote that the current design for the Signia hotel would have more meeting space than the Signia in Atlanta, which is expected to have about 75,000 square feet of meeting space and connect to the Georgia World Congress Center—a major competitor to the Indiana Convention Center.

The hotel owners have raised concerns about how much meeting space would be included in the Hiltons, because they say the industry standard calls for 100 square feet of separate meeting for every room. The proposed meeting space for the hotels had previously not been disclosed.

Hogsett’s letter comes in response to a June 12 letter the hotel group, which includes well-known industry leaders White Lodging Services Corp. Chairman Bruce White and General Hotels Corp. CEO Jim Dora Jr., sent to him and the Indianapolis City-County Council last month.

In their letter, the hotel owners made several suggestions that would, in their opinion, improve the project.

They argued that the addition of that many rooms downtown would “destroy the delicate balance of supply/demand that is necessary to ensure employment stability in the downtown hospitality market.”

Their recommendations to ease their concerns included having the city acquire Pan Am Plaza, including the underground parking garage; withhold public dollars from the hotel project; create a committee made up of hotel owners, city and state officials, consultants, convention experts and urban planners to outline a 25-year sensible growth plan for the convention center and tourism industry; and re-issue the request for proposals for Pan Am Plaza after that 25-year plan is adopted.

The letter said White Lodging, which owns the JW Marriott, the Marriott Indianapolis Downtown and the Fairfield Inn & Suites Indianapolis Downtown, would not respond to the new RFP, if the city opted to do that.

“We hope you accept this proposal in the spirit in which it is offered,” the letter read. “That is, to sensibly grow the downtown hospitality and tourism industry, in a manner which obeys the fundamental laws of economics, and which complies with old adage ‘First, do no harm.’”

Hogsett’s response, which did not address the specific suggestions but outlined what he described as a “new framework” for the project, came almost a month after the June 24 date requested by the hotel group for a response.

“While we were aware that this group of hotel owners requested action by the city within a week or two of their most recent letter, our focus continues to be on a negotiation timeline that protects taxpayers and doesn’t rush such a potentially transformative project,” city spokeswoman Taylor Schaffer said in an email.

In addition to the city and Kite agreeing to delay construction on the second hotel, the new framework outlines that the Signia Hotel would have at least 75,000 square feet of meeting space, and Hogsett reiterating that public dollars will not be used to subsidize the hotels.

The city plans to use funds from its downtown tax increment finance district to cover the cost of the convention center expansion and related infrastructure, including a walkway above Capitol Avenue connecting it to the Indiana Convention Center.

“This new framework represents real change from the original proposal, without affecting the benefits of the overall project,” Hogsett wrote. “It also addresses your core concerns about the initial parameters, and we are thankful for the willingness of major stakeholders to come together to seek the kind of compromise and unity that has characterized fifty years of public-private partnership in Indianapolis.”

A spokesman for the hotel owners told IBJ that they have received the mayor’s letter and are reviewing it.