The city of Portland and the Florida developer of the “midtown” project have negotiated an agreement that will allow the 440-unit residential and commercial development in the Bayside neighborhood to move forward.

The announcement comes more than three months after the nearly $100 million development deal appeared ready to implode when the developer suggested it could build hotels on a portion of the property instead of housing. The city responded by announcing that the developer’s agreement had expired, citing a provision in the contract that gave the city the option to cancel the deal if Federated Cos. did not take possession of the property within a specific time frame.

Now after weeks of intense discussions, Federated has agreed to back away from any hotel proposal in favor of constructing the mixture of apartments and commercial retail space approved by city planners in April. The deal moves both sides closer to ending a public saga that has stretched beyond five years, endured two revised designs and one costly lawsuit.

“I think it was really one of those situations where all sides were pretty frustrated with where they were,” said City Manager Jon Jennings, who was hired in July when communication between the city and Federated had broken down and Federated was threatening to sue. “What I was trying to do was to come in as the new person and clear the air and negotiate the path forward,” Jennings said.

CONSTRUCTION MAY TAKE TWO YEARS

If the deal goes through as planned, the six-story complex would be the largest single addition of market-rate housing to Portland’s peninsula in years, meeting some of the heavy demand for new housing on the city’s peninsula and fulfilling officials’ goals of increasing the city’s population.

Federated will pay the city roughly $2.4 million for the 3.5-acre plot located at Chestnut and Somerset streets. In turn, the city will invest roughly $9 million to construct an 800-space parking garage and roughly $2.7 million to raise the grade level of Somerset Street, to be paid for through a combination of federal loans and grants, tax increment financing money and general obligation debt.

As part of the agreement, the city will pay the first $50,000 toward environmental cleanup of the site and Federated will pay anything beyond that.

Construction is estimated to take up to two years. Preparation of the site is expected to begin before the end of the year.

“We are pleased with the recent progress that has been made under the direction of the new city manager and with the assistance of city staff, who have dedicated many hours over the course of the last five years to assist in moving this project forward,” Federated CEO Jonathan Cox said in a written statement. “We are hopeful this trend of positive momentum continues as we prepare to start construction of this project.”

Greg Mitchell, Portland’s economic development director, said the resolution reached Wednesday is a giant stride toward achieving long-held goals of attracting new, young residents and growing the city’s housing stock.

That it took more than five years is a testament to the developer’s commitment, Mitchell said. “Its been a long time frame for a developer to hang in there,” he said.

Federated first signed the land deal in 2011. A year later, a second deal was finalized for the city to share the cost of constructing the parking garage that will support the new development.

YEARS OF TURMOIL AND DELAYS

The project has undergone considerable change since it was first designed.

When Federated released early drawings that depicted four 14-story towers with 850 market-rate apartments and two parking garages for more than 1,100 cars, an opposition group, Keep Portland Livable, coalesced against the plans. The opponents said the height and scale of the buildings were out of character for the neighborhood and would wall off a portion of the city.

The group eventually sued in federal court in February 2014, but the case was never heard. Working with its detractors, Federated cut the project’s scope in half, to its current size of 440 units, 800 parking spaces and 90,000 square feet of retail and commercial space. In exchange, Keep Portland Livable withdrew its suit.

The city’s Planning Board gave its final approval in April. But trouble re-emerged a month later, after Federated made an informal inquiry about replacing two of the four residential buildings with hotels.

The city, which has made new housing construction a priority, voided the land sale deal in June and informed Federated that it would have to come back to the City Council and go through another approval process.

Federated, with five years and untold millions already invested in the project, threatened to sue. It was around this time, in July, that the city hired Jennings, who has extensive private-sector and development experience.

Jennings said he immediately began the process of rebuilding a relationship with Cox and Federated to calm the waters.

Although the city had said that for the development to move forward, Federated would have to seek new approval and a vote from the City Council, Jennings said he determined that was not necessary because the substance of the project had not changed.

“I think the introduction of a new city manager clearly helped the process,” Mitchell said. It brought “someone new into the discussion who didn’t have the history of the five years of trials and tribulations.”

Note: This story has been updated to replace an outdated rendering of the project with one of the current plan.