Developers Scott Stiteler, center, and Don Martin, right, will receive a subsidy equal to about $660,000 for 100 city parking spaces. The 100 below-market-rate spaces are more than a third of the spaces in the city's new $16 million downtown parking garage. GREG BRYAN / ARIZONA DAILY STAR

The city has settled its long-running dispute with Rialto block developer Scott Stiteler, giving the developer $1.5 million in cash and other benefits.

In the deal signed this week, Stiteler and his partner, Don Martin, will receive a subsidy equal to about $660,000 for 100 city parking spaces.

The 100 below-market-rate spaces are more than a third of the spaces in the city's new $16 million downtown parking garage.

The settlement is more than the $950,000 in damages the city would have had to pay Stiteler because the two sides couldn't make a deal.

Stiteler and a group of other developers - which then included Jim Campbell and Portland, Ore., developers Williams and Dame - signed a pre-development agreement with the city in December 2008.

It said the city would approve a formal development agreement for the Rialto block downtown in six months or it would owe Stiteler $950,000. Campbell and Williams and Dame later dropped out.

After the city delayed action on the development agreement in mid-2009 that would have given Stiteler and Martin $4 million worth of downtown land for $1.7 million in developer contributions, Stiteler and Martin withdrew from negotiations and later filed a claim. The two later got into a lawsuit with the Rialto Theatre over rent.

Stiteler disputed the $1.5 million figure, saying he is paying close to the market rate for covered parking spaces. He said the settlement "should be a case study on the good things that can happen when the public and the private sector work together."

The main points of the deal are:

• The city gives $750,000 to the Stiteler and Martin in cash, which much be matched on a 3-to-1 basis by the developers on spending to improve their properties in east downtown. The payments would be spread over two years to help the city's dire fiscal position.

• The city could theoretically have taken back $350,000 of the $750,000 if Stiteler didn't get a tenant for the Rialto block property by June 1. However, the city has agreed to waive this provision because of the exhibit "Bodies . . . The Exhibition" that is in the space with a six-month lease.

• The city agrees to waive $125,000 in permit fees for the remaining construction and development of Stiteler's properties in the area.

• Stiteler would pay the city $300,000 for the right to develop another lot north of Stiteler's One North Fifth project on North Fifth Avenue. The city agrees to take the $300,000 and use it to upgrade the property.

• Both sides will pay their own legal fees.

• The developers would pay $50,000 to Skrappy's youth club if the organization gets a long-term lease for a building on East Toole Avenue.

• The developers get the right to rent 100 spaces of the 283 spaces in the city's new $16 million Depot Plaza parking garage from the city at below-market rates. The rate would be $25 a month per space for five years and then $35 per space a month for five years after that. The parking rates are not to exceed $100 a space thereafter.

Parkwise head Chris Leighton said the going rate for parking in a covered garage downtown is $85 a month, which is the cost at the Pennington Street Garage and the garage under City Hall. He said spaces in the Wells Fargo garage can cost as much as $140 a month.

Using the $85-a-month figure, the subsidy to Stiteler would be $360,000 for the first five years and $300,000 for the next five years, and that's if parking rates don't go up.

Stiteler said he "challenged that math" and said his spaces are close to market rate because he's renting the space in bulk. He referenced a deal that Madden Media made with the city to rent spaces in the Pennington Street Garage for $35 a month.

"It's not as simple as the going rate," Stiteler said.

Stiteler said he is a trailblazer of downtown redevelopment and has put in much of his own money to refurbish the former Martin Luther King Jr. housing project, build retail space along Congress Street, bring in the "Bodies" exhibit and bring restaurateur Kwang C. An to downtown.

His much-publicized plans to bring restaurateur Janos Wilder into one of his spaces downtown fell through because of the public nature of his negotiations with the city over the development agreement, Stiteler said.

City Attorney Mike Rankin said the developers get a lot of value out of the deal, but the city gets some things as well.

He said the city's liability was $950,000 in potential damages plus the attorney's fees if the city lost in court, which it saved by settling.

In addition, he said the developers will now pay $300,000 for the new lot on North Fifth Avenue, which the developers could have previously had for only $1. Rankin also said he expects the permit fee waivers to be closer to $30,000 than the $125,000 maximum.

The city also gets to pay over time, which helps its fiscal situation, Rankin said. If it lost the lawsuit, it would have had to make a lump-sum payment, he said.

City Councilman Steve Kozachik, who was elected to office in part because of his criticism of the development deal with Stiteler, said the city did the best it could with a bad deal signed by the previous council.

Kozachik called it a good deal because it washes away some of the city's legal liability and gives the city some development downtown for its money.

"He had the city over a barrel," Kozachik said of Stiteler. "We made lemonade out of lemons."

Contact reporter Rob O'Dell at 573-4346 or rodell@azstarnet.com