PORTLAND — A $40 million project that would have put an eight-story office building and a parking garage on city land in Bayside has become a victim of the economic downturn.

MaineHealth last week announced the cancellation of the project, citing economic instability and financial uncertainty.

Bill Caron, president of MaineHealth, said in a written statement that even with new tax credits, a Housing and Urban Development grant and a favorable deal with the city, MaineHealth could not reach its financial goals.

” … Much has changed in the past six to nine months,” Caron said. “With the near collapse of the finance markets and the subsequent credit crunch, what was attractive and possible just a few months ago now carries a great deal more risk.”

The city began negotiations with MaineHealth last summer following a request for proposals for the city-owned land in Bayside. The MaineHealth deal included an agreement that the company would build a parking garage the city had already designed and approved. 

“We’re obviously disappointed, but understand the economy has played a role in this decision,” City Hall spokeswoman Nicole Clegg said. “Redevelopment of Bayside remains a priority for the city.”

MaineHealth was working with United Way of Greater Portland on the Bayside project. United Way Chairman Brian Petrovek said his organization understood and accepted MaineHealth’s decision to pull out.

“While we were working closely together to develop this venture, MaineHealth had a great deal more risk in this project than the United Way of Greater Portland,” Petrovek said in a prepared statement.

Caron said both organizations still need to find a solution to their office space constraints, but in a cost-effective way.

” … We have decided to step back from our efforts for a few months and reassess our needs and alternatives,” he said.

Kate Bucklin can be reached at 781-3661 ext. 106 or kbucklin@theforecaster.net.