A deal may be struck this week that would cut in half the size of the low-income Cherry Creek housing project in east Medford in exchange for a city-owned downtown property.

A deal may be struck this week that would cut in half the size of the low-income Cherry Creek housing project in east Medford in exchange for a city-owned downtown property.

The proposed agreement could resolve a long-standing dispute between the city of Medford, the Jackson County Housing Authority and neighbors in the Berkeley Way and Spring Street area.

"We're optimistic and hopeful that this agreement will reach fruition," said Jason Elzy, director of development for the Housing Authority.

The Medford City Council will discuss the proposed ordinance that spells out the agreement at 7 p.m. Thursday at City Hall, 411 W. Eighth St.

According to the City Attorney's Office, the agreement could save the city hundreds of thousands of dollars and avoid a five-year legal battle.

Under the agreement, the 100-unit Cherry Creek apartments would be reduced to 50 units, with the Housing Authority transferring 2.5 acres of the 6-acre property to the city for a park and buffer between the complex and Spring Street. The Housing Authority would give $150,000 to the city for development costs for the transferred property.

In exchange, the city would swap a commercial-zoned lot at the corner of Sixth and Grape streets to the Housing Authority, which would build a 30,000-square-foot building that would house retail on the bottom floor and contain 50 units of low-income housing. The property is a parking lot behind the Mail Tribune and contains Bonsai Teriyaki and Sushi, which would eventually be razed.

Before the agreement is finalized, the Housing Authority and city will undertake appraisals of the two properties to make sure they are of equivalent value. The city and the Housing Authority could decide to back out of the deal if the properties have a substantial difference in value.

Under the agreement, the Housing Authority would pay Bonsai for the costs associated with relocation, with assistance from the Medford Urban Renewal Agency.

"I have to make a decision right away," said Kwang Yi, owner of Bonsai. "Otherwise, it will slowly, slowly kill me."

He said that once the word gets out that the restaurant will be torn down, he might lose customers.

Also, it will affect his five employees, who will worry about their jobs, he said. Yi said he has been holding off making improvements inside the restaurant, such as replacing carpeting, because he wasn't sure how long his lease would continue.

Yi said he would prefer the city let him know as soon as possible, so he could either move to another location or concentrate his efforts at his East Barnett Road restaurant.

The Housing Authority purchased the property on Spring Street with the understanding that it was appropriately zoned for the apartment complex.

The City Council denied the complex after neighbors mounted opposition. The Oregon Land Use Board of Appeals ruled the city made serious mistakes in denying the Housing Authority's application.

In response, the city filed an appeal to the Oregon Court of Appeals. This was followed by the Housing Authority threatening legal action, asserting the city discriminated against low-income families.

The Housing Authority plans to build a three- or four-story building on the Sixth and Grape streets property, with possible underground parking. It could take up to five years for the project to be built.

For the Spring Street property, the Housing Authority could begin construction of the two-story apartments by spring 2013. The project could cost about $10 million, with $2 million in financing and another $8 million from tax credits.

Chris Hill, who is one of six residents who have been actively involved in contesting the 100-unit complex, said, "We are in support of this compromise agreement."

In her discussions with other neighbors not involved directly in the legal actions, Hill said she has found general support for the agreement as well.

Councilman Dick Gordon said he still has questions about the housing project that he will bring up between now and the City Council meeting.

Gordon is concerned about the overall condition of Spring Street, which doesn't have sidewalks and has potential issues with pedestrians and vehicles.

"There is too much traffic on Spring Street," he said.

Another issue is connecting Berkeley Way from Spring Street through to McAndrews Avenue.

"I need to ask more questions before I take a position," he said.

Reach reporter Damian Mann at 541-776-4476 or email dmann@mailtribune.com.