Chef Thomas Keller’s plan to build a luxury inn to go with his restaurants in Yountville was almost called off at last week’s Yountville Town Council meeting, during a heated debate over funding for affordable apartments linked to the proposal.

But the planned development is now a go, as the council agreed to back a $300,000 loan for 11 units of below-market-rate housing on Keller property.

Before Keller can develop his proposed 20-room inn at the corner of Washington Street and Webber Avenue, he must fulfill the town’s affordable housing obligations. To meet those requirements, Keller plans to set aside a section of land behind his Ad Hoc restaurant for Napa Valley Community Housing to build 11 units.

Funding problems linked to the affordable housing nearly stopped plans for the inn last week, after the Town Council initially refused to offer Keller a $300,000 unsecured loan to cover part of the housing project’s $632,000 funding gap.

Keller’s attorney, Michael Holman from Dickenson, Peatman & Fogarty, told the council his client would not proceed with the project if the town did not share some of the financial risk.

Because of the timing of the meeting, the council had only one day to make a decision before it ran up against a state housing grant deadline that would force a nearly year-long delay.

After some hesitation from council members — particularly Councilmember Lewis Chilton, who initially said that “discussion of an unsecured loan is not a possibility” — the council finally agreed to the $300,000 loan.

Mayor Cynthia Saucerman and Councilmember Steve Rosa recused themselves from the discussion to avoid conflicts of interest because of their residences’ proximity to project sites. Vice Mayor John Dunbar, Councilmember Bill Dutton and Chilton — the remaining councilmembers — voted unanimously to agree to the loan.

“This was a situation where you have to pick the best of the bad options available,” said Chilton, adding, “There was no perfect option available, yet a decision had to be made that we ultimately believed would best serve the entire community. I believe the council made the right decision.”

According to a memorandum of understanding signed by town representatives, the $300,000 will be funded from the town’s Housing Opportunity Fund and paid directly to NVCH for construction costs.

Because repayment to the town begins when Keller’s inn begins operation, the loan will not be repaid if the inn is not built.

Yountville Planning Director Bob Tiernan pointed out the inn still has a long way to go in the approval process. Formal plans have not been submitted, and after that the inn must undergo environmental and design reviews and public hearings.

Chilton worries that if the inn is not built, he is concerned Keller could sell the property and make a profit off of housing the town helped fund.

“It concerns me that the Keller group fulfills their affordable housing obligation on the parcel even if they don’t repay the loan,” said Chilton. “If the inn is not built and the property sold, the town essentially paid a large portion of the affordable housing obligation on behalf of the landowner. The land would be worth significantly more to a potential buyer — probably millions more — but the town is left with the bill and no possibility of repayment despite likely large profits earned on the sale.”

The council eventually agreed that even if the inn is never built and the loan never repaid, $300,000 would be a good investment for 11 guaranteed units of affordable housing.

Said Dunbar, “When you consider the ramifications of losing the 11 units of affordable housing,” the unsecured loan is “an appropriate risk.” The security, he said, is the housing.

Tiernan said there is no reason at this point to expect that the inn will not be built.

If all goes as planned, he said, construction should start on both the homes and the inn next spring. In Yountville, Keller operates The French Laundry, Ad Hoc, Bouchon and Bouchon Bakery.