The city has decided not to grant developer Hill Street Realty more time to secure financing for the 18-story Berkeley Plaza project on Harold Way.

The city of Berkeley has decided not to grant developer Hill Street Realty more time to secure financing for the 18-story Berkeley Plaza complex on Harold Way, which has been one of the city’s most controversial housing projects in recent years.

In late December, Hill Street’s Joseph Penner told the city that the project would not pencil out. Hill Street submitted the building permit application that month but did not pay the associated review fees.

“The overwhelming and extraordinary costs of the Project have significantly limited the project’s financing options,” an attorney for the project team wrote to the city on Tuesday. “In particular, the mandated replacement of the existing subterranean theaters is a multi-million dollar expense that no theater company is interested in incurring, and no lender is interested in financing.”

After Penner’s December pronouncement, officials and staff continued to talk with members of the project team to see if there was any way forward. Mayor Jesse Arreguín, Councilwoman Susan Wengraf and Councilwoman Lori Droste met with Penner on Friday afternoon to see what it would take to save the deal. Penner said he’d like one more shot at securing financing. But he estimated there was a “10% chance that he would be able to pull it off,” Wengraf said.

In Tuesday’s letter, the project team asked for 18 more months “to ensure there is sufficient time to complete the necessary financing and to prepare and process all necessary submittals.”

The city, which had already granted the project three extensions since council approved Berkeley Plaza in 2015, said in a letter issued early Friday evening that the clock had run out.

“Once a project gets entitled, it does not indefinitely hold one of only three opportunities to build a 180-foot building in Berkeley’s Downtown,” the city wrote. “The condition of approval is designed to ensure that once a project gets approved, it gets built. If the project is unable to move forward in the required timeframe, then another housing development project has the opportunity to be initiated.”

The project technically had until Monday to pay fees related to its building permit application, but that day is a holiday.

Penner has not responded to any of Berkeleyside’s requests for comment.

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Wengraf called the ending to the Harold Way saga “a tragic situation” but said she understood the staff position.

“I think it’s a really good, important project so close to BART,” she said. “It’s literally the core of our downtown, that block. To lose the housing component to me is really sad. But the reality is, it’s a very, very difficult economy to construct in right now because construction costs have gone way up.”

Droste said she had been hoping an extension might be feasible.

“California’s going through a housing crisis. It would have provided a tremendous amount of money for the arts and affordable housing,” she said. “I think it would have been a big boost to downtown.”

Two other tall building projects are underway in downtown Berkeley: the 16-story Residence Inn hotel on Center Street, which is under construction; and the 18-story Walgreens project at 2190 Shattuck, which recently submitted its building permit application and fees.

With the end of Berkeley Plaza, the third slot for a project up to 18 stories is now available again. Applications can be submitted for it starting Tuesday.

In 2010, Berkeley residents voted to adopt the Downtown Area Plan, which the Berkeley City Council codified in 2012. The plan allows the construction of three 180-feet-tall buildings and four buildings up to 120 feet.

Note: This story was updated after publication to include additional context.

Emilie Raguso is Berkeleyside’s senior editor of news.