The Tauranga City Council says a company selected to develop a hotel and conference centre in the central business district has advised it will not go ahead with the development.
The council selected Tainui Group Holdings as the preferred tenderer for the Durham Street development early last year.
An independent economic impact assessment showed a $26 million international standard hotel would give strong economic benefits to the city and region.
The company has decided not to go ahead with the development because capital costs were well above the figure allowed for in that assessment.
Tauranga mayor Stuart Crosby says the council is working with another potential investor on the site's future development.