LEBANON — Developers of a multi-family housing project in downtown Lebanon are seeking the city’s approval to decrease the size of the project and include an additional parking lot. The request comes as another nearby housing project also struggles to progress.

The Lebanon Planning Board initially approved the Woolen Mill project, which sits off Mechanic Street in 2022. Developers, Delaware-based LWM Residential, are requesting the board’s approval to decrease the development’s size from 183 to 148 units and remove one building from the project at a special meeting Monday.

In the new proposal, a building at 25 Mechanic Street will be removed and the area will be used for parking instead.

This is not the first time LWM Residential has scaled down the project.

The Lebanon Planning Board initially approved 196 units and four residential buildings at the site; in December 2023, the Planning Board allowed developers to scale the project back to 183 units, omitting construction of another new building at 43 Mechanic Street. Instead, this building will be partially demolished and renovated.

The changes are “cost driven,” developer Jon Livadas said in a recording of a June Heritage Commission meeting. “The two smaller buildings (at 25 and 43 Mechanic Street) were inefficient and costing way more on a per unit basis and it was putting the project at risk.”

The project’s timeline has not changed despite delays. Developers continue to estimate construction will be completed by 2027, according to the new application materials.

Last year, the Lebanon City Council granted the property 11 years of property tax abatement under state statute 79-E, which gives property tax relief to encourage local revitalization. Projects that revitalize an underutilized property or rehabilitate an old or historic building may be eligible for relief.

The Woolen Mill was originally built in the 1880s and closed in the 1960s. Later, the building held Kleen Dry Cleaners’ commercial laundry, which closed in 2019.

Statute 79-E allows up to five years of tax abatement, but the City Council provided additional years because the property meets goals prioritized in the city’s master plan, including providing residential housing and rehabilitating a historic structure.

In the city’s master plan, growth is identified as an important goal, especially development and revitalization downtown. To that end, several projects have come before the Planning Board in recent years to create more housing in downtown Lebanon.

In July 2022, the board approved plans for a separate 152-unit apartment complex near the Woolen Mills project in the city’s downtown. The development is planned for a site just across from Colburn Park and next to the recently demolished fire station.

In addition to two new apartment buildings, developer Recreo LLC plans to open a new market or food court in the former Village Market building.

However, despite initial assessments that work would be completed in two years, construction has not yet started. As of Thursday, developers had not applied for a building permit.

The project has been delayed by spiking interest rates, rising construction costs and ongoing challenges related to the grocery store portion of the project, according to application materials.

“It doesn’t take much to change the calculus for redevelopers to make the project financially viable, so that was the start,” Jim Wasser, of White River Junction-based architecture and planning firm Studio Nexus, said of rising interest rates in a recording of a July Planning Board meeting. Studio Nexus is the architecture firm designing the project.

Another unforeseen issue has been making progress on the actual Village Market building difficult, developer Tim Sidore, of Recreo LLC, said. In the July meeting recording, Sidore noted a “chicken and egg” dilemma that means it is difficult to attract a grocery store or food court without nearby development, while at the same time the proximity of a grocery store or food court would make new housing in the area more attractive.

When the Planning Board initially approved the project, developers were given a building permit deadline of July 11, 2024, two years after the project was approved. This deadline was extended this summer at a July Planning Board meeting, held just three days before the original deadline.

The Planning Board extended the building permit deadlines for the project’s two phases until Feb. 28, 2025 and Nov. 20, 2025, respectively.

The entire Village Market project must be complete by June 30, 2027; this deadline cannot be extended. If the Planning Board approves the the Woolen Mill project’s proposal to downsize, its deadline for completion will be April 30, 2027. If either project fails to meet its deadline, it will have to comply with any changes in the city’s land use regulations.

Sidore said in the meeting recording that delays on the Woolen Mill project and other nearby housing developments were also inhibiting Recreo’s own progress, saying, “Property doesn’t work in a vacuum.”

In the July meeting recording, Sidore elaborated that increased development in downtown would make progress on the Village Market renovations more attractive to business owners who may eventually occupy the space.

“There’s a number of factors to consider and when we’re confident that enough of those that are working in our favor we’re going to be ready to press go,” Sidore added.

When asked at the July meeting if the project would be completed, Sidore said, “We do see the economics improving, this is a project we still want to do and we still believe in.”

The Planning Board will hear the request to downsize the Woolen Mill project at 6:30 p.m. Monday in the Council Chambers at City Hall.

Clare Shanahan can be reached at cshanahan@vnews.com or 603-727-3216.