For 20 months, a burned-out building in the heart of North Beach has been a dead zone in a neighborhood already grappling with a surge in vacant storefronts.

A March 2018 fire at 659 Union St. led to the closure of five food and drink businesses. Only one, Coit Liquors, was able to reopen nearby.

A new plan to replace the empty structure and an adjacent garage at 659 Union St. with up to 98 apartments, 14 hotel rooms and new storefronts is sparking backlash over a proposed height increase and shadows on nearby Washington Square Park.

The tension underscores the fraught politics and financial challenges of building taller in one of the city’s historic retail districts, where little development has occurred recently.

Developer Red Bridge Partners, which owns the building along with a local family, proposed this month a new building rising eight stories and 85 feet. It would be one of the largest new projects in the area and requires Board of Supervisors approval to raise the height limit from 40 feet.

“Our vision is to build a project that brings much-needed housing and vibrant retail to the North Beach community. It’s important to us and to the community that we make the best out of the unfortunate destruction caused by the recent 2018 fire,” Jeff Jurow, a managing partner at Red Bridge Partners, said in an email. “San Francisco is in a housing crisis and we believe everyone, in every neighborhood, has a responsibility and an obligation to help.”

But Supervisor Aaron Peskin, who represents the district and would have to sign off on a height increase, said he opposes the proposal.

Peskin said the project isn’t appropriate for the neighborhood and would illegally cast shadows on adjacent Washington Square Park. The city’s 1984 Proposition K forbids buildings taller than 40 feet that cast shadows on public parks unless the Planning Commission rules otherwise. Washington Square Park reopened this month after a $3 million, five-month renovation.

“It’s too tall. It’s too bulky. It does not fit into the context,” he said. Peskin said his constituents have stopped him on the street to call the project an “anathema.”

Peskin also said North Beach doesn’t need another hotel and criticized Jurow’s qualifications, calling him a “real estate hustler.” Jurow hasn’t built any projects in San Francisco and has a background in managing apartments.

Jurow said the building is designed to shift away from Washington Square Park, and he’s continuing to meet with the community to get feedback.

“In the end, all we can hope for is that Supervisor Peskin works closely with us to revitalize a critical corner of Washington Square Park. Supervisor Peskin can play a critical role in the speed and success of the project,” Jurow said.

Peskin said he’s open to more discussions about the future of the site. “Everyone wants that thing to come back online,” he said.

Real estate website SocketSite first reported the new proposal.

Stan Hayes, president of the Telegraph Hill Dwellers, said the neighborhood group had “very strong views opposing” the project.

Dan Macchiarini, president of the North Beach Business Association, said the group hasn’t taken a stance on the project but he personally has concerns.

“We generally are pretty nervous about breaking zoning restrictions,” he said. “I don’t see the architecture being consistent with the neighborhood.”

Some community members are more supportive.

“The idea of adding more apartments to that site excites our members. It’s something the neighborhood does need,” said Danny Sauter, president of North Beach Neighbors, which hasn’t taken an official position.

Sauter said he doesn’t think a new shadow justifies blocking additional housing and is “disappointed” in Peskin’s stance.

The North Beach Business Association would support restoring the existing three-story building, Macchiarini said.

Jurow said saving the original structure isn’t possible because the fire has gutted the building and only the walls remain. A new building within the current zoning could rise to 40 feet and include 47 residential units, but Jurow said it would be financially challenging to make a smaller project feasible and would squander an opportunity.

“An as-of-right project simply will not build enough housing. We have a great opportunity to build new housing in a neighborhood that has not seen any significant housing growth,” Jurow said.

Construction costs in San Francisco are among the highest in the world, and costs for the 85-foot project are estimated at $30 million. Rental projects over 25 units must provide 20% affordable housing on-site or pay city fees to help fund affordable housing elsewhere. Tenants displaced by fires must also be offered the right to return at their previous rent under city law. The 2018 fire was the second at the building. A 2013 fire displaced dozens of upstairs residents.

The building owners have another financial hurdle: They’ve sued the property’s insurance carrier, Homeland Insurance Co. of New York, to get payment related to the 2018 fire, according to San Francisco Superior Court records. The insurance company disputes that it’s liable in court documents.

Jurow and an attorney at Sheppard Mullin, which is representing Homeland Insurance Co. in the case, declined to comment on the litigation.

The developer will continue holding neighborhood meetings on the project next year.

“We anticipate robust community engagement, and we intend to take the time to get it right given the iconic location and importance to the neighborhood,” Jurow said.

Roland Li is a San Francisco Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf