It was supposed to usher in a new, brighter era for Portland’s Bayside neighborhood.

More than a decade ago, a Florida development company announced sweeping plans to turn 3.25 acres in the beleaguered Bayside – once the site of junkyards and industrial uses – into a lively neighborhood with 800 market-rate apartments in four 165-foot towers, 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. Ultimately, Portland greenlit a scaled-down proposal about half its size.

Now, 10 years after the city first approved its plans, the lots are still awaiting transformation while Portland and the development company remain mired in a complicated web of lawsuits in multiple courts, litigated by a revolving door of attorneys.

Today, concrete construction barriers outline the rectangular blocks of dirt, gravel and weeds between Trader Joe’s and Whole Foods that, had plans for The Midtown project moved forward, would likely be a thriving mixed-use neighborhood.

Instead, in the intervening years, dozens of tents popped up along the adjacent Bayside Trail, which became one of the largest and most visible signs of Portland’s homelessness crisis. The encampment had roughly 84 tents by the time it was cleared last spring.

The vacant lots are now more than ever a stark reminder of what could have been.

Neither the city nor the developer can say when or if the lots will see the development that the area still sorely needs.

The ‘Midtown’ development as proposed in January 2014, looking east from the intersection of Marginal Way and Preble Street. Imagery from Google and from the City of Portland.

The $85 million project fell apart in 2018 when the developer, Federated Cos., did not pull the necessary permits and its site plan approvals expired.

Both the city and Federated have blamed each other for the failed project.

Federated said it invested millions of dollars in the effort – but that as the project shrunk in size, so did city support, ultimately leading to the expiration of project approvals and denial of the building permit application, which then spiraled into allegations of contract violations.

For the better part of the last decade, Portland and Federated have ensnared each other in a tangled mess of lawsuits that have blocked the project from moving forward.

COURT CASES

Late last month, a federal judge dismissed Federated’s accusations that the city had violated several of its constitutional rights, including, among others, seizing a condemned lot without providing the company adequate time to object; attaching an unreasonable number of conditions on the project’s approval and then refusing to work with the developer on the conditions; and imposing so many site development limitations on the property that it was effectively stripped of all economically beneficial uses.

It was the first ruling related to the case in nearly two years.

U.S. District Judge Jon Levy also dismissed Federated’s claims that the city had “unreasonably multiplied the proceedings in this case.” He denied Federated’s request that the city cover the company’s legal fees and provide compensation for the time and money it sunk into the project – an amount the developer estimated is “eight figures.”

But the judge allowed Federated to refile its other complaints ranging from civil trespassing for storing snow removal equipment there to multiple violations of five interconnected contracts it had with the city to develop the buildings and surrounding property.

Federated accused the city of failing to pay certain required sums related to the agreements for both a parking garage and work that Federated was going to do to improve Somerset Street.

Many of the allegations in the suit, including breaches of contract and fraudulent misrepresentation, concern a “performance guaranty” – a bond, cash payment or bank letter of credit the city requires to ensure that if a developer goes under, the city isn’t left in the lurch.

Federated claims the city waived this requirement, while the city contends that it did not. Part of the reason the city denied the building permit was because Federated did not provide the performance guaranty.

The company refiled the complaint last week.

Earlier this month, Portland asked the federal court to hold off on that case until a judge decides on the city’s countersuit.

In its countersuit filed in June, the city alleges Federated broke a contract when it accepted $1 million from the city to build a parking garage but failed to not only get a certificate of occupancy but also start construction or even get a building permit within the two-year time frame outlined in the agreement. 

And it wants the $1 million back. Russell Pierce, Portland’s attorney, said that ruling may not come until next year.

A third lawsuit, filed by Federated, accuses Portland of “taking without payment of just compensation” when it reclaimed the lot meant for the parking garage in 2021 for just $10 through eminent domain.

Federated purchased the group of four lots for $2.3 million in 2016. Without Lot 6, it argues, “the remainder of Federated’s project site is worthless as presently designed.”

The lawsuit accuses Portland’s condemnation and seizure of the land as a “flagrant, willful, intentional and wanton disregard” for Federated’s constitutional rights.

That case is still working its way through the federal court system.

LITIGATION ‘NOT THE ANSWER’

Pierce said that the March order dismissing Federated’s constitutional challenges was a significant step forward for the city, which has been frustrated by the “intractable litigation.”

The dismissal, he said, effectively narrows the case down to a question of breach of contract under state law, even if the complaints have been refiled in federal court.

“We hope that sends a message to them that litigation is not the solution here,” Pierce said. “The city is interested in developing the lots, not litigating with these Federated companies from Florida.”
But Federated argues that the company is in too deep to back down. Jonathan Cox, founder and chairman, said the city needs to be held accountable for breaching its contracts and obstructing the project’s completion.

“On that basis we believe the city to be in no better, or worse, position than they were at the outset of this matter,” he said in an email, adding that the city still faces a constitutional challenge in the eminent domain case.

“The facts underlying this matter have not changed, and the city’s actions remain unquestionably unlawful,” Cox said. “The city’s state court claims amount to nothing more than a distraction, one that the city created in an inappropriate venue for the purposes of complicating these proceedings. The contract and its obligations are clear, and we look forward to having this matter fully heard.”

The city and Federated already have failed two attempts at mediation. While they continue to battle it out in court, the future of the site remains unclear.

A city spokesperson said Portland is eager to develop the lots and is happy to receive any proposals for allowed uses in Lot 6, the intended site of the parking lot. The city is inviting interested developers to explore viable solutions.

Because the ongoing litigation concerns the compensation for the lot, not its ownership, the court case does not preclude the city from seeking new development.

A PROBLEM FOR TAXPAYERS

While the lawsuits have persisted, taxpayers have paid almost $1.2 million in interest on a federal loan for the parking garage that was never built.

When the Florida development company agreed to buy the city-owned land for $2.3 million in 2011, the city agreed to help finance the construction of a $15 million parking garage.

Portland received about $8.1 million in federal loans from the Department of Housing and Urban Development to help finance the garage. The city said it disbursed about $1 million of that to Federated to cover permitting and design costs.

But that’s where movement primarily ceased.

Federated did not officially file for a building permit to begin the first phase of construction – the garage – until 2018. Its first application was denied and it failed to secure one by the time the entire project’s city approvals expired.

Federated could have appealed the city’s denial or reapplied for its approvals, but it chose instead to sue the city for breach of contract, seeking financial damages.

In 2021, city officials voted to reclaim the land set aside for the parking garage, known as lot 6, through a rare use of eminent domain after an appraiser found the land had “negative fair market value” because of deed restrictions. The appraisal also found that the other lots were worth about $13 million. Eminent domain allows a municipality to seize private property for public use but it must pay the owner a fair market value.

A composite image of a Portland Press Herald aerial photo and the architectural models shows the Bayside neighborhood and the proposed ‘Midtown’ buildings as proposed in January 2014, looking towards Back Cove. Original photo by Gabe Souza/Staff Photographer; architectural model courtesy of the City of Portland.

The HUD loan was repaid in full in October 2023. The city did not respond to questions about where the money to repay the loan came from.

While the multiple lawsuits make their way through the court system, indefinitely stalling the Midtown project, interest in building out the Bayside neighborhood is growing.

Another development, almost at the scale of Federated’s initial proposal, is slowly taking shape.

Last summer, the planning board approved a project that would add 804 apartments, just over 200 of which will be affordable.

The proposal by Reveler Development calls for seven new buildings along Lancaster and Elm streets.

In addition to the apartments, the development plans include 29,000 square feet of commercial space and two open spaces: a pedestrian-friendly “living street,” or woonerf, and a 6,000-square-foot public green. The project is expected to be built in phases over the next 10 years.

John Laliberte, Reveler CEO said in an email Tuesday that the first phase – the construction of an eight-story building with the 200 affordable units and three ground-level retail spaces – received planning board approval in October.

He anticipates breaking ground by the end of the year.

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