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The Y Lot in downtown Ann Arbor, as viewed from the Fourth and William parking garage.

(Ryan Stanton | The Ann Arbor News)

The city of Ann Arbor is selling a downtown parking lot to local hotelier and property manager Dennis Dahlmann for $5.25 million.

In return, Dahlmann must build a mixed-use development on the site by Jan. 1, 2018, including new apartments, office space and retail.

The City Council voted unanimously Tuesday morning — toward the end of a nearly seven-hour meeting — to approve the sale of the former YMCA property at 350 S. Fifth Ave., a prime piece of real estate commonly known as the Y Lot.

"The thought that we're going to be able to create something really magnificent on this site is exciting," said Council Member Jane Lumm, an independent who represents the 2nd Ward. "I think it will be a shining development for downtown."

The 0.82-acre property sits directly south of the Blake Transit Center with frontages on William Street, as well as Fourth and Fifth avenues.

City Administrator Steve Powers negotiated the sales agreement with the help of the city attorney's office and the city's broker, Colliers International, which will get a $315,000 commission from the sale of the property.

Dahlmann has agreed to all of the city's terms spelled out in a City Council resolution earlier this month.

Council Member Stephen Kunselman, D-3rd Ward, said he's glad Dennis Dahlmann is the one getting the property because he's "a very well-respected businessman in our community and will do us right."

"We have a purchaser who is very willing to comply with the things we wanted to put in the agreement," said Mayor John Hieftje. "I see a lot of benefits to this."

Dahlmann must construct a mixed-used building rising at least five stories in the next four years. The project must include retail/restaurant space on the ground floor, large-plate office space on the remaining lower floors, and residential apartments on the upper floors, with no apartment having more than three bedrooms.

The building and site plan must be based on the best available standards for energy efficiency as defined by the city code.

Ordinance-required parking must be provided on site, with access via an underground connection with the city's Library Lane parking garage.

The project also must include a substantial landscaped open space, including the grand fountain Dahlmann has described, and the project must adhere to the recommendations of the city's Design Review Board.

The rider to the purchase agreement states the landscaped open space must be at least 10 percent of the property's total square footage, and the fountain must be equivalent in size to the fountain in front of the Campus Inn on Huron Street.

Dahlmann owns the Bell Tower and Campus Inn hotels downtown. His purchase of the Y Lot blocks a competing hotel from being built on the property.

The city received five purchase offers for the Y Lot in October, three of which included plans for building a new downtown hotel.

If negotiations with Dahlmann had fallen through, the city was prepared to negotiate a sales agreement with Chicago-based CA Ventures LLC, which had plans for a 120-room hotel and 98 apartments. CA Ventures initially offered $5.15 million for the property but agreed to up that to $5.35 million to beat Dahlmann's offer.

City officials said they wanted to respect the integrity of the bid process and not accept late offers or allow developers to revise their bids.

Council Member Chuck Warpehoski, D-5th Ward, said he didn't like the idea of continuing Dahlmann's monopoly on the downtown hotel market, but he agreed with his colleagues that Dahlmann made the best offer.

"He offered the most money at the time the bids closed, and he offered other community benefits that many in the community have been clamoring for," he said.

Council members noted there are other properties in the downtown where a hotel could be built if there's market demand for one.

Council Member Christopher Taylor, D-3rd Ward, said Dahlmann's proposal was the clear winner of the five the city received.

Council Member Christopher Taylor, D-3rd Ward, said he decided to support the sale agreement after receiving feedback from his constituents.

Although there is a sense that the hotel stock in town is "not consistent with everyone's aspirations," he said, Dahlmann's proposal was the clear winner.

"I think people value the work he's done in the community," Taylor said. "I think people value the buildings he has worked on."

The city is looking to unload the former YMCA property — now a public parking lot that is zoned for dense development — before a $3.5 million balloon payment is due by Dec. 16. The city purchased the property for $3.5 million in 2003, but has been making interest-only payments for the last decade.

Net proceeds from the sale — after the city's debt and other costs related to the property are paid — will go to the city's affordable housing fund.

"I am so happy that this is before us," said Council Member Stephen Kunselman, D-3rd Ward, who has been pushing the city to sell the property.

Kunselman said he has "a long history" with the Y Lot. He served on the Planning Commission nearly a decade ago when the city approved a site plan for a mixed-use development on the site called William Street Station.

That project, which ended with the city battling the developer in court, never went anywhere. The plans included a hotel and affordable housing.

"I've spent a lot of time with this property on the Planning Commission and then again as a City Council member," Kunselman said. "We've had a lot of history here — 10 years worth of history with the Y property."

He said he's glad Dahlmann is the one getting the property because he's "a very well-respected businessman in our community and will do us right."

Ryan Stanton covers Ann Arbor city hall for The Ann Arbor News. Reach him at ryanstanton@mlive.com or 734-623-2529 or follow him on Twitter.