The first significant test is looming for new rules intended to address concerns about a flurry of development activity in one of Portland’s most coveted neighborhoods, where traditional triple-decker and single-family homes are being replaced with high-end condominiums.

The city’s top planner says a proposal to combine two parcels on Munjoy Hill and knock down two houses to make way for a four-story condominium building shows signs that the new rules are working. But a group of residents who fought hard to enact additional protections says the opposite is true.

“This is the very same kind of building that caused everybody to get excited and get the zoning rules changed,” said Peter Murray, a North Street resident and member of the Munjoy Hill Conservation Collaborative. “We have a fragile and very authentic neighborhood here that is being destroyed piecemeal. It’s heartbreaking to see it happen.”

Developer Tim Wells plans to demolish two vacant single-family homes at 33 and 37 Montreal St. and replace them with a four-story condominium building with underground parking. But city staff members have designated 37 Montreal St. as a building that they’d like to see preserved, so they imposed a 12-month delay on any potential demolition to see if they can work with the applicant to save the building.

On Wednesday, Wells will ask the city’s Historic Preservation Board to lift the demolition delay so the project, which has been three years in the making, can finally move forward. He believes the project will be an asset to the neighborhood, providing much-needed parking in an underground garage and adding two additional on-street parking spots by reducing the number of curb cuts. The building will be highly energy-efficient and aesthetically pleasing, he said.

“We’re hoping that people will be open-minded and objective,” Wells said.

The board is not expected to make a decision this week. But the request marks the first significant redevelopment proposal since the City Council adopted the Munjoy Hill Conservation Overlay District in June. That district included a provision that empowered the city to delay the demolition of buildings that meet three conditions: built before 1930, representative of a predominant architectural style of the neighborhood, and structurally sound.

“It met all three criteria,” Portland’s Urban, Planning and Development Director Jeff Levine said about 37 Montreal St.

The new rules were adopted after area residents sounded the alarm over the rate at which existing buildings were being torn down and replaced with large, boxy condominiums that did not blend in with the neighborhood. Munjoy Hill was once a rough neighborhood to be avoided, but over the years it evolved into a working-class neighborhood. As the economy improved, the area has been rapidly gentrifying and is now one of the most sought-after neighborhoods for luxury condominiums.

Ultimately, the Historic Preservation Board could vote to lift the demolition delay or designate the building as a landmark, which would prevent it from being torn down. If the delay is lifted, the board would also be charged with reviewing the design of the project. But if the delay is kept in place and the building is not designated as a landmark, then the developer could wait out the 12-month period, which began June 21, and move forward with the demolition. The project would still need Planning Board approval as well.

Last winter, the council instituted a moratorium on demolitions and adopted interim design standards while the new rules were being drafted.

The Munjoy Hill Conservation Collaborative collected nearly 400 signatures in support of the new rules, which the council adopted after a roughly two-hour public hearing, as well as additional protections, including the creation of a historic preservation district. Portland currently has 11 preservation districts, which add more restrictions on the type of alterations that property owners can make to buildings within the districts.

Wells said it was too soon to say how many condominiums would be in the new development. But he said it’s been designed with both townhouses with patios and flats to attract retirees and young families, the latter of which are in short supply on Munjoy Hill. He also hopes to set an example for other developers by building an underground parking garage for up to 18 vehicles.

“I think we’ve got a project that will be one of the best-designed projects in Portland for a long, long time,” Wells said, adding that the development team is from Portland and cares about the neighborhood. “And we’re spending a lot of money to do that.”

Montreal Street resident Ed Gillis said he’d prefer to see 37 Montreal St. renovated, but he knows firsthand how expensive and time-consuming that can be. He bought his house and adjacent lot for $50,000 nearly 30 years ago and spent a decade gutting the building, leveling the floors and renovating it, adding historic-looking finishes.

“If I had it to do over again, I wouldn’t do it,” the 66-year-old joked. “I would love to see someone rehab those (houses) and keep it like an old neighborhood, but I can understand their point of view. They’re in pretty rough shape.”

Levine, the city planning director, said the proposal includes townhouse units along Willis Street and flats along Montreal. He’s encouraged by the developer’s response to the new rules, saying that a four-story building could work on the site, since the property is located near the Promenade Towers Condominiums, a 14-story building with 80 units constructed in 1975.

“I think they’ve come up with a really interesting proposal,” Levine said. “They’re thinking about the neighborhood context carefully and that’s an early sign of success of the ordinance.”

Murray, of the conservation collaborative, said the group is trying to get a meeting with the developer in hopes of reaching a compromise – perhaps a three-story building on one of the lots. But if that doesn’t work, the group will find itself in an all-too-familiar position.

“We’ll fight tooth-and-nail at every stage of this process,” Murray said.