The city severed its agreement on Wednesday with developer Peggy Noonan to build Presidio Terrace, a seven-story condominium project just north of City Hall.
The cancellation notice says she failed to comply with a city deadline to find legitimate financing, among other requirements.
Rio Nuevo Director Greg Shelko sent a letter to Noonan and the City Council that said the city is terminating her right to buy and develop the city-owned lot sandwiched between the Tucson Water building and the historic El Presidio Neighborhood.
Noonan said she was referring the issue to her attorneys and won't comment until speaking with them. She stopped short of saying she would sue the city, however.
In a letter on Oct. 2, Shelko said Noonan's Reliance Commercial Construction had not fulfilled the requirements of the council-approved agreement, and she had "30 days to remedy" the default or have her right to develop the property rescinded by the city.
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"What we got back was more confusing information" from Noonan, Shelko said of her response to the default letter. Therefore, he said, the city terminated the agreement for "lack of performance and no credible plan to move it forward in an expeditious way."
Shelko cited two specific faults with Noonan's response. First, that she changed the plans to include 101 units of rental housing instead of condominiums.
"That use is totally unacceptable," Shelko said, given that the city had talked for three years about developing the site with high-class condominiums.
In addition, Shelko said Noonan's new financing plan called for the seven-story building with 300,000 square feet to be built for only $29.7 million, a number said Shelko said is not realistic for a luxury condo development.
In his letter to Noonan, Shelko also said the developer did not have an adequate financing or a satisfactory marketing plan, design team or construction schedule.
Councilwoman Nina Trasoff, who said previously she believed the project would be under construction by midyear, said she was "very disappointed the Presidio Terrace project did not pan out."
She said Noonan had put her "heart and soul" into the project but added, "If it wasn't producing, we had an obligation to the community to move forward."
The city will eventually put the lot up for sale and have a competitive process to find a developer to build there, Shelko said.
Shelko said the site is one of the best parcels Downtown to develop because it could accommodate higher-end housing due to its location in the El Presidio Neighborhood.
"That parcel has the greatest chance for success . . . because of its location," Shelko said.
Noonan won a competitive process to secure the rights to build the project, which would have featured 72 lofts and nine town houses along with a cafe, a neighborhood store and an underground parking garage.
