A proposal to build two hotels in East Liberty is in limbo after the developers were unable to secure financing, prompting the city to try to salvage the $42 million project.

Urban Redevelopment Authority board members yesterday authorized the purchase for $300,000 of two parcels from Highland Hotel LLC that were to be used to buiuld a 105-room Homewood Suites and a 113-room Hampton Inn.

As part of the deal, the URA also is assuming a $1.5 million loan that Highland Hotel LLC had received from the Commonwealth Financing Authority for the project.

With control over the properties and the adjacent Highland Building, which also would be used for the project, the URA hopes to entice another developer to build the hotels, Executive Director Rob Stephany said.

"At this point, the project's just in sort of a stalemate and we think it's too important of a project to not get off the ground," he said.

If nobody steps forward to take over the project, the URA will seek new proposals for redeveloping the properties, which are on the fringe of the neighborhood's booming commercial corridor.

Highland Hotel LLC was a partnership involving Eugene Zambrano III, president of Zambrano Corp., and Terminus Real Estate, a Tennessee developer that originally wanted to turn the Highland Building into condominiums.

Mr. Stephany said he does not believe an effort to force the Zambrano Corp. into a Chapter 11 reorganization by subcontractors who are owed money had much impact on the stalled East Liberty project. He said it had more to do with the credit crunch.

Leigh A Burch III, Terminus Real Estate president, confirmed that financing was the big issue.

"It's a very, very exciting project but the timing's not on our side with what we were trying to do," he said.

Mr. Zambrano could not be reached for comment.