A Vancouver Island city is suing the company that built the troubled Olympic Village in Vancouver for failing to build a hotel next to its new convention centre.

The City of Nanaimo is suing two real estate development companies, Millennium and Suro Development Company, for $3 million after they failed to build the 18-storey hotel as part of the Port of Nanaimo Centre.

Financing problems have affected Millennium before. In 2009, the City of Vancouver had to take over the $1 billion financing of Millennium's construction of the Olympic Athletes Village after the New York hedge fund financing the deal backed out.

In its statement of claim, the City of Nanaimo says it paid more than $71,000 to develop the hotel plan, $20,000 a month in project management fees, and nearly $200,000 in other costs.

Construction delays and financing problems plagued the project, forcing the city to revise its contracts with Millennium and then to stop payment.

The claim states there was an agreement in place to ensure repayment if the hotel plan fell through or if financing was an issue.

The development companies have until the end of the month to file a defence.

No stranger to problems

Nanaimo had high hopes for the hotel, seeing it as an integral part of the much-needed revitalization of its downtown core.

Mayor John Ruttan says the new conference centre can accommodate up to 960 people at meetings — but the city only has about 1,000 hotel beds and that limits the size of conventions that can book the convention centre.

"I wouldn't want to even put a figure on the numbers of people or conferences that we may have lost but I think common sense dictates that there would have been certainly larger conferences that we could have attracted," said Ruttan.

"I'm aware of several that we did lose because of the accommodation, so we also have to recognize that the city has also lost a great deal of money because the conference centre is owned by the city of Nanaimo, so when it doesn't do well, the city doesn't do well," he said.