The Portland City Council on Monday evening approved a settlement agreement that effectively ends a long running legal battle over a large housing project that has held the city’s Bayside neighborhood in limbo for over 14 years. 

Portland councilors voted to approve the agreement with The Federated Companies, a Florida-based developer, to buy three Somerset Street lots for $15 million.

The settlement dismisses multiple federal and state court cases surrounding the beleaguered “Midtown” project that once promised to revitalize the struggling neighborhood but never actually got off the ground.

What was the Midtown project?

More than a decade ago, Federated Cos. announced sweeping plans to turn several vacant blocks  in Bayside into a lively neighborhood with 800 market-rate apartments in four 165-foot towers. It also planned to add 100,000 square feet of retail space and ample parking.

While initially met with enthusiasm from city officials, a group of residents and others opposed the scope of the project, which they said conflicted with the city’s comprehensive plan. A group called “Keep Portland Livable” challenged the project, and the case was ultimately settled out of court in late 2014, with Federated agreeing to cut the number of apartments nearly in half and make the buildings shorter. Portland greenlit the scaled-down proposal.

When Federated agreed to buy the city-owned land, the city said it would help finance the construction of a parking garage on one of the four parcels, known as Lot 6. 

How long has this been going on?

Federated began negotiating with the city to buy the lots in 2011, formally presented plans in 2013 and purchased the lots in 2016, for $2.3 million.

But the project, estimated to cost $85 million to build, fell apart in 2018 when Federated Cos. did not pull the necessary permits and its site plan approvals expired. That kicked off  seven years of finger-pointing and lawsuits between the city and Federated, which have each blamed the other for the failed project.

Why hasn’t it been built?

There are three interconnected federal lawsuits that have kept the lots vacant as the city and developer remain mired in litigation.

The primary suit concerns Lot 6, the site of the planned parking garage, which the city seized by eminent domain in 2021 after providing $1 million to help build it. Eminent domain allows a municipality to seize private property for public use, but it must pay the owner a fair market value. According to an appraiser, deed restrictions rendered the land essentially worthless, so the city paid only $10. 

Federated’s lawsuit accuses Portland of “taking without payment of just compensation,” and argues that the condemnation and seizure of the land was a “flagrant, willful, intentional and wanton disregard” for the developer’s constitutional rights.

The other two lawsuits, one filed by Federated, and the other by the city, are centered around alleged breaches of contract. 

Which parts of Bayside does this affect?

The four lots in question are spread across roughly 3.5 acres along Somerset Street, across from Whole Foods and extending down to Elm Street. They are next to the Bayside Trail and the parking areas of several Marginal Way businesses, including Trader Joe’s.

The project is unrelated to several other large-scale developments planned for the area.

One, by Reveler Development, calls for seven new buildings — including over 800 new apartments — along Lancaster and Elm Streets. The first phase of the project is under construction, according to the plan’s website, and the rest is expected to be built within 10 years.

Redfern Properties has also expressed interest in adding 500 apartments in The Kennebec Block, a property bounded by Lancaster, Pearl Kennebec and Chestnut streets. But the company has said financing challenges and escalating economic uncertainty may keep the $150 million project from moving forward anytime soon.

What’s next?

The city and Federated will close on the lots Tuesday.

The settlement agreement cancels pending litigation, prevents Federated from any further legal action against the city and would, according to city attorney Russell Pierce, “buy the city’s peace.”

City officials have said that they’re still interested in seeing development on the land.

“City staff have had recent focused discussions with a number of developers who are interested in taking over development of the lots, but not until the litigation is dropped,” Pierce said in a memo to the council. There is interest in building mixed-use housing, including a parking garage, he said.

Pierce said if councilors chose not to approve the settlement, the cases would drag on and the eminent domain case would have gone to jury trial by the end of the year.

Editor’s Note: This story has been updated to reflect that the council approved the settlement Monday night.