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A development and financing agreement for a new headquarters hotel, near the Oregon Convention Center, was reached Tuesday after several months of negotiations between Metro and Minneapolis-based Mortenson Development.

The proposal, subject to Metro Council approval, spells out how the $212 million hotel would be financed, built and operated. If councilors were to grant approval later this month, money could go toward costs related to design review, and construction could feasibly start by summer 2015.

If plans were to hold up, the 600-room hotel would open by fall 2017, according to Metro.

“Before we get to closing, we need to design and get approvals for what’s envisioned, and all parties need to line up their financing,” said Andy Shaw, chief of staff for Metro Council President Tom Hughes. “Once that’s done, we will close up the design review process and move into construction.”

The agreement calls for a $15 million increase in the project cost to $212 million because of escalating construction and private lending costs. Mortenson would be responsible for the extra costs. Public financing would remain at $78 million, according to Metro.

Lawsuits challenging public financing plans are pending in Clackamas and Multnomah counties. The Coalition for Fair Budget Priorities, a group of mostly hoteliers, believes public money would be doled out unfairly.

If Metro were to prevail in those suits, it would issue up to $60 million in revenue bonds at closing. The bonds would be paid back over time by proceeds from transient room taxes collected by the hotel.

“We’re confident that we’re going to prevail in those lawsuits,” Shaw said. “We need to ensure that we have the ability to issue the revenue bonds that we have for this project before we close. The legal issues need to be addressed sufficiently before we can proceed.”

The hotel, upon completion, would be purchased from Mortenson by Chicago-based Hyatt Hotels Corp. It would be operated at an upper upscale level – one level below luxury, according to industry standards. As part of the development agreement, Hyatt would provide a 500-room block guarantee with at least 36 months advance notice and a 300-room block guarantee with at least 24 months advance notice.

Metro also would reimburse Mortenson at closing for 40 percent of predevelopment costs, but not more than $600,000. That financing would come from a $4 million grant already approved by Metro, Shaw said.

Minneapolis-based Elness Swenson Graham Architects is the lead design firm for the project and Ankrom Moisan Architects is the local partner, according to Metro.

Mortenson would use a design-build approach, with a target of at least a Leadership in Energy and Environmental Design silver rating. The agreement includes prevailing wage and other workforce equity requirements.

Metro Council will hold a public hearing on the development agreement at its June 19 meeting. The group is expected to vote June 26 whether to approve it.