HERCULES -- A deal for a prime downtown retail site that has been dragging on for several years comes before the City Council again Tuesday, with a substantial price drop related to the growing cost to develop a grocery store because of a pre-existing deed restriction.

Under the revised terms, a subsidiary of Safeway Inc. would pay the Hercules redevelopment successor agency $5 million, or about $10 a square foot, for the bullet-shaped, 11.44-acre tract known as Sycamore Crossing.

The proceeds would be further reduced by the cost of removing a mound of dirt stockpiled on the property over the years and undergrounding some utilities, leaving the successor agency with an estimated $1 million to $3 million, according to a staff report by City Manager Steve Duran.

The sale proceeds would go toward paying debts of the former redevelopment agency, but the city would reap "fiscal benefits ... in the tens of millions of dollars" over 30 years from sales tax and other tax receipts, Duran's report says, citing a fiscal analysis by Seifel Consultants.

The site, bounded by Sycamore Avenue, San Pablo Avenue and Tsushima Street, consists of two parcels of 8.2 acres and 3.2 acres, respectively. The parties initially had agreed to a $16-per-square-foot price in January 2012.

But a deed restriction on the 8.2-acre portion bars the establishment of a grocery store, so Safeway now plans a grocery store with rooftop parking on the unrestricted 3.2-acre tip as the anchor of a surrounding shopping center.

According to Duran's staff report, the new price of $5 million takes into account that Safeway's construction costs for a store with rooftop parking would be about $5 million more than for a conventional one-story store.

Earlier this year, John McNellis of Palo Alto-based McNellis Partners, which owns a 6.6-acre site known as Market Hall cater-cornered to Sycamore Crossing, proposed Market Hall as an alternative site for a Safeway store if the city's deal for Sycamore Crossing were to fall through. On Monday, McNellis confirmed he is willing to lease Market Hall to Safeway.

"Our initial site plan shows a traditional Safeway (store) and accompanying fuel center would fit very nicely onto our site," he said.

McNellis said he would "happily" buy the 3.2-acre "nose" of Sycamore Crossing from the city for $16 a square foot, or $2.2 million, as a retail site to complement a Safeway at Market Hall.

"We have been approached by two national drugstore chains, a national gas station chain, a fitness center and a couple of fast-food restaurants," he said Monday.

Also on Tuesday's council agenda is another land deal, a proposed sale of the 17.27-acre "Parcel C" along John Muir Parkway west of San Pablo Avenue for $8 million to Lewis Land Developers LLC.

Contact Tom Lochner at 510-262-2760 or tlochner@bayareanewsgroup.com. Follow him at twitter.com/tomlochner

IF YOU GO
What: Hercules City Council meeting
Where: 111 Civic Drive
When: 7 p.m. Tuesday