EVERETT — Another delay looms for a downtown hotel project on former city land, increasing the frustration for elected leaders who have spent six years trying to make it happen.

The City Council now has to decide whether to grant a yearlong extension for developer Touchstone Corp. of Seattle to finish lining up financing for an eight-story, 156-room Courtyard by Marriott hotel. Under a deal the city and Touchstone struck last year, the developer was supposed to have broken ground by the end of this month.

“For me, this is embarrassing,” Mayor Ray Stephanson said during Wednesday’s City Council meeting. “We told our citizens and our small business owners that we were going to have a project in October 2013.”

The estimated $27 million project is proposed for a half-acre parcel on the southeast corner of Colby Avenue and Wall Street.

The mayor favors giving the developer a little more time: “It’s important, it’s relevant, I think we can still be successful.”

The next move won’t be Stephanson’s to decide, but the City Council’s.

The council can grant the extension, or pull the plug on the project altogether. That would mean starting from scratch and asking other developers to pitch projects.

A third option is forcing Touchstone to pay cash and interest for the property, something that hasn’t happened so far because the city swapped the land for space in the proposed hotel’s parking garage. The city could demand $1.1 million for the land and require Touchstone to forfeit $500,000 in earnest money.

Council members haven’t made up their minds.

“Should we just end the relationship and open the bidding back up and see if we get a better deal?” Councilman Ron Gipson wondered aloud.

Councilwoman Brenda Stonecipher said waiting another year would be better — and faster — than going through the bid process again.

Councilman Paul Roberts said he needs to do more homework.

“In the final analysis, what drives my decision is what’s best for the downtown core,” Roberts said.

The council took no formal vote this week, but plans to revisit the project later this month.

Touchstone since December has had ownership of the building site, which sits behind the Everett Police Station and for years has served as a city parking lot.

An owner and principal from Touchstone, Jim O’Hanlon, went to Wednesday’s council meeting to deliver the disappointing news.

“I’m here today to ask for an extension of the construction timeline for one year, to October 2014,” he said.

O’Hanlon proceeded to sketch out the finances for the project. At this point, he said his company already has more than $7 million in equity, but can’t get investors to supply the other $20 million.

The company has spent $1 million, so far, on architectural designs, engineering and permitting.

“The project is now totally ready, shovel ready as they like to say,” O’Hanlon said.

Earlier delays owed to the economic downturn, he said. The latest holdup, according to Touchstone, stems from changes to a federal program known as EB-5. The program gives foreign investors a path to U.S. citizenship if they invest $500,000 in a community with high unemployment.

Under those rules, Touchstone’s project must be able to demonstrate the creation of more than 400 direct and indirect jobs. Direct jobs include construction and future hotel workers. Indirect jobs include increased employment at downtown restaurants and shops, and in Everett’s case, Comcast Arena three blocks away.

The proposed hotel building also would include an underground parking garage and 4,000 square feet of street-level retail at Colby Avenue and Wall Street, most of it tied to a restaurant.

Changes in federal standards for counting indirect jobs has led to some EB-5 projects being turned down, spooking some foreign investors, O’Hanlon said.

Touchstone still hopes to enroll 40 overseas investors in three to six months, he said. At the same time, O’Hanlon promised his company will explore other types of financing in case the original plan falls through.

“We do intend to see it through,” he said. “We think it will be an excellent addition to your city and an excellent investment for us.”

The land had been home to the former Allen Buick car dealership until the city bought and demolished it in 1974. It’s been used for city parking ever since.

The effort to redevelop the property has been under way since at least 2007, when Everett issued a request for proposals. The following year, the city accepted Touchstone’s plan for a hotel.

Specifically, city leaders wanted a project that would inject life into the downtown area. They also expect the project to generate more taxes and to bolster surrounding property values.

A hotel development would be an easy walk to the Edward D. Hansen Conference Center at Comcast Arena.

“Having a hotel adjacent to the Edward D. Hansen Conference Center is a good thing, and will likely lead to more business being booked in the conference center,” said Amy Spain, executive director of the Snohomish County Tourism Bureau.

The other large hotels in downtown Everett sit near I-5: the 243-room Holiday Inn Downtown Everett and the 134-room Best Western Cascadia Inn near I-5. A 110-unit Hampton Inn by Hilton hotel is under construction at the corner of Wall Street and W. Marine View Drive, about four blocks west of the Marriott proposal.

The 2008 agreement between Touchstone and the city has undergone 10 amendments. The original deal called for a hotel of more than 10 stories, which was later reduced.

Earlier iterations of the deal had the developer paying Everett $1.6 million for the parcel, slightly more than the land’s appraised value. Instead of monetary payment, Everett opted for the right to use 48 spaces in the hotel’s parking garage. That number is based on an estimated market rate of $33,000 per space.

Had construction begun this month, the developer projected finishing within two years. Touchstone’s earlier predictions for ground-breaking passed in 2011 and 2012.

Touchstone has developed several projects throughout the metro Puget Sound area, including big-box retail stores, office buildings and a 150-room hotel in Kirkland.

Noah Haglund: 425-339-3465, nhaglund@heraldnet.com.