A blighted pocket of East Oakland may finally get the shopping center it was promised in 2010, but it could cost a total of $14 million in federal tax credits.

That’s because, according to developer Sid Afshar, it’s no easy feat to persuade a business to open shop in a perceived crime zone. Starbucks and Chipotle turned Afshar down, he says, but Walgreens considered moving into the planned development at Foothill Boulevard and Seminary Avenue, an area long inhabited by drug users and prostitutes.

Afshar’s company, Sunfield Development, says it will turn the site into 27,000 square feet of retail space, providing 52 construction jobs and 54 permanent jobs for the area, along with anticipated millions in property and sales-tax revenue for Oakland.

To draw national retail outlets to an area with a high unemployment rate, the city appears willing to bend over backward.

“We’re talking about a historically neglected neighborhood in which residents don’t have places to get aspirin, children’s diapers or pharmacy services,” said Oakland Councilwoman Rebecca Kaplan. “You have people who don’t have cars who have to travel far to get to the nearest pharmacy.”

On Tuesday, the Oakland City Council is scheduled to decide whether to approve $8 million in federal tax credits for the project. It already granted $6 million in credits to the project in 2013.

That vote follows a heated debate over whether to grant Walgreens an exception from Oakland’s living-wage requirement. Oakland’s living wage, which raises minimum hourly rates to $14.10 without health coverage or $12.27 with coverage, kicks in whenever a project receives a city subsidy of $100,000 or more in a 12-month period, and employs at least 20 people.

Tough bargaining

Walgreens demanded a waiver from the living-wage rule, arguing that it planned to employ fewer than 20 people and therefore could not meet the higher hourly rate, according to city documents. After dropping its demand in February, Afshar said, the retailer asked him for a 30 percent reduction in rent. At that point, he said, the project needed additional public funds to keep going, in part because construction costs had surged.

A spokesman from Walgreens was unavailable for comment.

Larry Gallegos, development program manager at the city’s economic and workforce development department, said businesses willing to move into East Oakland are in a good negotiating position, since the area is so desperate to attract retail.

“It’s hard to say whether it’s a renters’ market,” Gallegos said. But, he added, East Oakland “hasn’t seen too much retail activity in years.”

Afshar first obtained exclusive rights to the 1.7-acre, city-owned parcel in 2010, and in 2012, city officials offered to sell it to Sunfield for $6,000. The city then awarded $6 million in federal tax credits to the project from the New Market Tax Credits program, which was launched by Congress in 2000 to spur economic growth in low-income communities. Oakland received $20 million in New Market Tax Credits in 2013 and would be granting the lion’s share to this project.

More challenges

But even with the subsidies and strong support from Councilwoman Desley Brooks, Afshar said he faced formidable obstacles. The state’s decision to eliminate city redevelopment agencies in 2011 stalled several real estate projects that were in Oakland’s pipeline, including this one.

In the meantime, Afshar said his construction costs were rising, and he was having trouble persuading new merchants to come in. With Starbucks and Chipotle turning the city down because they perceived the area as a crime zone, he said, he’s now counting on Walgreens to make the project work.

“Because of their commitment to the neighborhood, and their commitment to Oakland, they went ahead despite projected losses,” he said of the multinational drugstore chain. “And that commitment is noble.”

He said Walgreens doesn’t need to open another store in the area and that doing so will actually dilute its profits. “They normally would not have gone ahead with the project,” he said, adding that the company is effectively opening its new store as a community service.

Subsidizing development

Kaplan said it’s not about Walgreens in particular; it’s about putting a drugstore in a part of East Oakland that really needs one. She stressed that Oakland has a long history of handing public subsidies to private development.

“If you look at the history, the total amount going into this one doesn’t look quite as big,” she said.

But nonprofit organizations have raised questions about the city’s willingness to oblige a large corporation, especially when officials were considering the living-wage waiver.

“We saw a situation where it looked like Walgreens was putting pressure on the city to waive a requirement that was critical for any development that gets city subsidies,” said Jennifer Lin, deputy director of the community organization East Bay Alliance for a Sustainable Economy.

The City Council is also considering changing the terms of its deal with Sunfield to a ground lease in order to retain ownership of the land, which was appraised at $2.4 million.

“When it became clear he was asking for additional subsidies, we couldn’t continue honoring the original $6,000 price,” Gallegos said.

Rachel Swan is a San Francisco Chronicle staff writer. E-mail: rswan@sfchronicle.com