Along-standing legal dispute over a proposed low-income housing complex in east Medford took a major step toward resolution Thursday night.

Along-standing legal dispute over a proposed low-income housing complex in east Medford took a major step toward resolution Thursday night.

The City Council and the Medford Urban Renewal Agency agreed to a compromise that would cut in half the number of units to be built in the Cherry Creek housing project off Spring Street.

Under the agreement, reached with the Jackson County Housing Authority and neighbors — who were opposed to the original project — another low-income project would be built in Medford on a city-owned lot at the corner of Sixth and Grape streets, now used as a parking lot behind the Mail Tribune.

"All compromises are difficult," Councilman Al Densmore said, voicing support for the deal.

At least three council members thought the city had compromised too much.

Karen Blair, John Michaels and Dick Gordon voted against the agreement.

Gordon said he was bothered by the city giving up a parking lot that could be needed in the next few years as more businesses open in the downtown.

He also worried that the proposed apartment complex would add to the traffic problems on Spring Street.

The agreement calls for the proposed 100-unit Cherry Creek apartment complex to 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 that contains Bonsai Teriyaki and Sushi, which would be razed.

City Attorney John Huttl clarified earlier information released by the city by saying that both the Housing Authority and MURA would share in the costs of relocating the restaurant. Previously, information indicated just the Housing Authority would assume those costs.

The City Attorney's office calculated the agreement could save the city hundreds of thousands of dollars and avoid a five-year legal battle.

Before the agreement is finalized, the Housing Authority and city will appraise 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.

Chris Hill, one of the neighbors who opposed the Cherry Creek apartment project, said, "This is a compromise that we can support."

Medford resident Paul Kangus said he was troubled by a "divide and conquer" deal that now included a downtown Medford project.

"I feel the downtown part of the project is disparate and not par of the Cherry Creek part," he said.

Jason Elzy, executive director of the Housing Authority, said the downtown apartment complex would fill a hole in the housing portfolio and would better serve the community.

However, Elzy said, "This is not a perfect solution for any one party, but it's a good compromise."

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 Cherry Creek project 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 could begin construction of the two-story, Cherry Creek apartments by spring 2013. The project could cost about $10 million, with $2 million in financing and another $8 million from tax credits.

Reach reporter Damian Mann at 541-776-4476, or email