Portland officials say their exasperation over the stalled “Midtown” development project continues to grow – as does the bill for interest on a federal loan taken out to cover part of the cost of a parking garage to support it.

“This is by far the most frustrating project during my tenure,” said Jon Jennings, who has been city manager for more than three years.

Midtown, which was first discussed in 2011 and projected to cost about $85 million, was seen as a transformative project for the Bayside neighborhood, once the site of junkyards and industrial uses. But the original plans, which called for apartments, offices and retail space in tall buildings, were challenged by residents and momentum stalled. The Somerset Street site was purchased from the city by the developer, Federated Cos., in 2016 after company and city officials had discussed the project for five years.

City approvals for the project lapsed in March and there’s no sign of activity on the project. The deadline for Federated to begin work is September, Jennings said, and the few conversations he’s had with the chairman of the real estate investment company have gone nowhere.

Federated put the blame on Jennings.

“The city manager has ignored our repeated requests for continued discussions,” Federated’s Portland lawyer, Patrick Venne, said in a statement. “Instead, the city regularly and unabashedly distorts reality in furtherance of political ends.” The statement said the city’s most recent letter to the company “was overly formal, defensive and riddled with inaccuracies.”

“Counterproductive behavior like this significantly lessens the prospect of resolution without litigation, which may now be our only option,” Venne’s statement said. “We remain open to discussion, but the city has rejected the alternatives.”

$400,000-PLUS INTEREST ON LOAN

While the stalemate continues, bills for the city continue to pile up.

The city has paid more than $400,000 in interest on an $8.2 million federal loan intended to help pay for an 800-car parking garage that is supposed to be one of the first parts of the project to be built. Portland had planned to pay back the loan with increased property tax revenues on Bayside land, and Jennings said officials see the garage as key to development of that section of the city. Most projects that city officials hope would be spurred by Midtown would require parking that isn’t currently available there.

Portland officials have discussed simply returning the loan to avoid the growing interest charges, but the contract with Federated requires that the money be available, Jennings said. As long as the contract is in place, the city will abide by its requirements, he said.

Both sides have threatened to sue each other, but no suits have been filed, Jennings said. Portland’s position, he said, is that Federated needs to reapply for city permits, a process that would take months. The company, meanwhile, wants the city to reissue the permits without requiring the developer to again go through the lengthy formal process.

PERMITS AT HEART OF DISPUTE

In recent months, Federated has accused the city of sabotaging the project, but city officials say the company is unwilling to follow city rules.

Jennings rejects the contention that Portland officials have put up roadblocks.

“When you think of the hundreds of thousands of square feet that have been developed in the meantime, the city is not responsible for holding up the project,” he said. Federated Chairman Jonathan Cox “keeps pushing back, wanting the city to simply reinstate the approvals that he had, but we don’t have that discretion,” Jennings said.

The $85 million proposal for Bayside calls for retail space and housing. However, both Federated Cos. and the city say the other is putting up roadblocks.

Greg Mitchell, the city’s economic development director, said a court eventually may have to sort it all out. He said there are deadlines for starting work on a large parking garage, and financial guarantees that could lead to the developer owing the city hundreds of thousands of dollars in taxes – and Portland will insist those provisions in the contract be followed.

‘WE HAVE BENT OVER BACKWARDS’

“Time is running out,” Jennings said. “The window (for moving ahead) is closing soon. We have bent over backwards to work with the developer.”

Portland hired an outside law firm in March after Cox raised the possibility of suing the city. Both sides have had sporadic talks in the meantime, Jennings said.

Peter Monro, one of the co-founders of a Portland activist group that sued Federated over its original proposal for much taller buildings, said the delay should give city officials time to rethink the whole plan. The suit was settled with a revised plan scaling back the size of the development.

Monro said development projects in downtown that rely on parking garages should be rethought in favor of those that link living and work spaces.

“I think there is a fundamental misconception in City Hall on how we should develop the city,” he said, saying most new metropolitan development focuses on ways to eliminate or reduce car use. “We would love to see some other things for the project to hinge on rather than parking.”

Edward D. Murphy can be contacted at 791-6465 or at:

[email protected]

This story was updated at 10:15 am Jan. 19 to clarify a description of the group suing Federated Cos.

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