The city of Bend is no longer trying to buy the Rainbow Motel, but is still pursuing the Bend Value Inn, with plans to convert the building into a homeless shelter.

But whether the city receives state money to fund the purchase is now up in the air.

The city has been a part of a grant program called Project Turnkey, which has been giving out $35 million worth of grants to cities and other

entities to buy hotels and convert them into homeless shelters.

But after the city found significant structural issues in the first hotel that was eyed for use as a shelter, the Old Mill & Suites motel, the council withdrew from the agreement, and that put the city behind other cities going through the grant process, said Carolyn Eagan, the city’s economic development director.

“We weren’t going to take a property just so homeless people could live there,” Eagan said Thursday. “We wanted something … we could run as a top notch site.”

Megan Loeb, the program officer for the Oregon Community Foundation, said that there are limited Project Turnkey funds up for grabs after one applicant turned down the grant money due to lack of community support for a homeless shelter.

But at this point, there are more qualified applicants than funding and it will be a competitive process.

Eagan said the city is likely no longer in the queue for the original $35 million, which has to be spent by the end of June. The city hopes to continue evaluating the Bend Value Inn and that more Project Turnkey money will be allocated by the state Legislature to pay for the project.

Loeb said having more money coming to Project Turnkey is a “hopeful aspiration.”

“It isn’t a guarantee, but we have communicated members of the Legislature that we do have more qualified applicants and that a number of them are substantially through due diligence,” she said.

The project won’t die if the city isn’t allocated state money, Eagan said. The city can use federal funding from the American Rescue Plan, which has been given to cities and counties for COVID-19 relief, or money from the city’s general fund.

Eagan said she believes the city made the right decision by not moving forward with the original hotel, even if it does mean the city doesn’t receive the grant money.

The city took more time to conduct due diligence, which means inspecting the site to make sure it is suitable, so the city could be realistic about the cost of renovations.

Eagan said she wonders whether other cities that moved more quickly will likely find similar structural issues like Bend did but just after the sale.

“We knew more about our property going in then other communities likely are,” Eagan said.

On Wednesday, the Bend City Council voted unanimously to negotiate a sale price with the owners of the Bend Value Inn on Division Street. The council also voted to end a purchase and sale agreement with the Rainbow Motel on Franklin Avenue, mostly because it would be more expensive to buy in comparison with the Bend Value Inn, which a purchase and sale agreement prices at no more than $2.5 million, Eagan said.

The city continues to have interest in the Rainbow Motel property, however.

“We remain committed to increasing options for temporary, transitional, and workforce housing in Bend, including through public and private partnerships in the Bend Central District,” Councilor Gena Goodman-Campbell read in a motion on Wednesday.