By Elisabeth Smith

SACRAMENTO (CBS13) — A controversial plan to house the homeless in Sacramento has been canceled.

The city had approved spending more than $12 million to convert the Hawthorn Suites Hotel on Bercut Drive into more than 200 permanent apartments for the homeless. That move sparked a lawsuit by nearby business owners saying there are already too many shelters in the area.

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The business district opposed the homeless hotel project and said the city was going back on a resolution they made in 1989 to not add any additional shelters in the area.

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Now the state says an appraisal of the property is lower than the owners wanted to sell the land, and an agreement has fallen through. The state grant money will now be allocated to other Project Homekey projects on a waiting list.

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Project Homekey is part of a $600 million initiative by Gov. Newsom to convert hotels and other properties into long-term housing.