Goodbye housing, hello hotel.

Jim Knell, founder and chairman of SIMA Management Company, has proposed a 66-unit hotel along State and Ortega streets in downtown Santa Barbara.

The project replaces a previous proposal to build apartments at the site.

“Although it was our goal to build housing, with the affordable housing components, it wasn’t something that was feasible,” Knell said. “With housing, we had parking restrictions, we had affordable housing restrictions. We don’t need any concessions for the hotel.

“We have a lot less of a hurdle to go through.”

The project consists of a 32,799-square-foot, four-story, 66-room hotel, with a restaurant and bar, and conference rooms on six lots totaling another 30,004 square feet. The project also includes 16 parking spaces on the ground floor.

Knell, along with architect Kevin Moore, wants to merge the lots from 710 to 720 State Street and 15 E. Ortega Street. The buildings where The Press Room and Restoration Hardware sit would become part of the new hotel. 

The hotel project comes as Santa Barbara’s once-iconic downtown struggles with a loss of retailers, both big and small, and the community battles over the future of State Street.

The city rushed to close nine blocks of the street to cars shortly after the COVID-19 pandemic, and the results have been mixed.

Restaurants have heralded the outdoor dining space, but critics have claimed that the closure of the street has degenerated into an unsafe mish-mash of pedestrians, electric bike users, bicyclists, skateboarders, dog walkers, and sightseers, without a cohesive design or downtown theme.

The city of Santa Barbara has hired an $800,000 consultant to help with a master plan to redo the downtown as an open-air restaurant row with “experiential” destinations, and design standards that make the area feel more unified.

But that process will take several years, and in the meantime retailers are leaving and restaurants are fighting to survive amid the changes and new regulations handed down by the city.

On Tuesday, the City Council’s finance committee will begin discussion about a $5-per-square-foot monthly outdoor dining fee for restaurants. 

So amid all the master plan mayhem, hotels have emerged as one of the safer proposals in the downtown.

Drift Santa Barbara plans to open a 45-unit hotel this month at 524 State St., the site of the longtime Church of Scientology building. That hotel is across the street from Hotel Santa Barbara, which is also undergoing a renovation after a sale, bringing two new hubs for travelers to the downtown area.

Knell said his property will be an upper-end boutique hotel, on par with his other hotels, including The Landsby in Solvang. 

“It’s right in the heart of downtown,” Knell said. “There isn’t any other hotel better positioned than ours.”

The project will go before the city’s Historic Landmarks Commission, since it is in the El Pueblo Viejo District, for a concept review on Wednesday. 

Restoration Hardware, 710 State St., is on a month-to-month lease and would be replaced as part of the development.

“There isn’t going to be a big-box retailer looking to come into Santa Barbara with the mess that is there now,” Knell said. “The city, by closing the street off, created this quagmire of no traffic, homeless people, cyclists, and micro businesses. They created this low-end culture that is affecting these high-end retailers.”

The Press Room, 15 E. Ortega St., would also be affected, Knell said

“We negotiated a buy-out of their lease if we decided to no longer keep that space,” Knell said. “We have a right to terminate their lease and pay them some dollars to walk away. That agreement is already in writing.”

Santa Barbara Mayor Randy Rowse told Noozhawk on Monday that he had not yet seen the specifics of Knell’s proposal, but that a new hotel downtown in general seems like a good idea.

“In my mind, these are private properties that could be turned into whatever the developers want, as long as it is zoned for that,” Rowse said. “A hotel not only brings bed tax to the city, and people come and spend money, but it also brings vitality downtown with something that is going to be operating after 5 p.m.”

Rowse said anything that’s new that helps bring people and business downtown is a good thing.

“What I am looking for is vitality, any kind of functional way to have people active in town, the lights on at night,” Rowse said. “Anything that brings some vibrance to that area is a positive for State Street. 

Austin Herlihy, a commercial real estate broker for Radius, said it’s too bad that housing can’t be built at the site.

“I think it’s unfortunate that the rental housing option doesn’t work for this owner,” Herlihy said. “This could be an amazing housing location in a part of our city that needs it the most. I guess a hotel is the second best thing we could get.”

From Knell’s perspective, any lack of housing is not his fault; that’s on the hands of the city.

He proposed a 36-unit, mixed-use housing development — a mix of studio and one- and two-bedroom apartments — with 17 parking spaces. on the same spot in 2020. However, he pulled the application after resistance from city staff regarding inclusionary housing and parking requirements.

“This is a much cleaner way to go,” Knell said. “There’s not anything we need as far as concessions. At this point in time, hotels have a lot more value than apartments.”

He said the city needs to do a better job of managing State Street to bring people back to the downtown, which will help revive retail. 

“It is whether or not the city of Santa Barbara will reciprocate and create a State Street where businesses will want to create a retail environment downtown,” Knell said.