The city's Urban Redevelopment Authority may be forced to compensate a Columbus developer in order to get the company to waive a seven-year-old rental restriction -- one that URA officials negotiated -- now standing in the way of plans to build more apartments on the South Side.

Nationwide Realty Investors is asking for "financial consideration" to waive the provision in a 2002 agreement it made with the URA to build more than 270 apartments and townhouses on East Carson Street adjacent to the SouthSide Works development.

The agreement, negotiated under former Mayor Tom Murphy, virtually prohibits any apartment building on the 110-acre SouthSide Works site, excluding about 83 high-end units that were under development at the time.

That restriction now is interfering with plans by South Side-based Soffer Organization to add another 117 apartments at the former steel mill site as well as an effort by Downtown developer Ralph Falbo to build rental units on a different part of the property.

Nationwide teamed with Continental Real Estate Cos., also of Columbus, in 2002 to build Carson Street Commons, a 276-unit apartment and townhouse development on a 6.5-acre tract between 25th and 26th streets. Nationwide later assumed full ownership of the complex.

Brian Ellis, Nationwide president and chief operating officer, said the covenant barring any further residential rental development "was a key component of our decision to invest there in the first place."

At the time, said former URA Executive Director Mulugetta Birru, "Everybody was worried about the market [on the South Side] so we had to give assurances to every developer."

"If I was going to allow another developer to do 300 units here, 300 units there, [Nationwide] wouldn't have done it. They wanted protection for their investment," he said.

Seven years later, Nationwide expects "everyone to live up to the agreement we have in place," Mr. Ellis said. The firm, he added, is willing to consider a waiver, but only if it receives "financial consideration" in exchange.

He argued the company's investment in Carson Street Commons could be hurt by waiving the rental restriction.

"We are interested in working with everyone but we have a large investment there and we're going to take appropriate steps to protect our investment," he said.

Mr. Ellis would not divulge the level of financial compensation it is seeking. He said it has presented proposals to both the URA and Mr. Falbo.

The covenant never was an issue until recently when Soffer, citing weak market conditions, decided to drop plans to build condos at SouthSide Works in favor of apartments. Mr. Falbo also switched from condos to apartments for the same reason.

While the covenant bars additional rental properties from being developed, it does not prohibit for-sale condominiums.

If Soffer wants to build apartments, either it or the URA likely will have to come up with the compensation Nationwide is demanding.

Soffer is in no position to do so, said Mabon Lichtenfels, vice president of construction for the developer. The investment in the housing itself probably precludes the developer from adding to it by offering compensation to Nationwide, he maintained.

"There's not a lot of fluff or profit margin in building a brand new apartment building," he said.

Mr. Lichtenfels added Soffer is "diligently working with the URA" to try to get a waiver. Without relief, the covenant could kill the plans for the apartments, he said.

The URA has argued to Nationwide that Carson Street Commons, which has a 95 percent occupancy rate and where rents range from $1,144 to $1,874 a month, has benefited by being next door to SouthSide Works, with its popular entertainment, retail and dining choices, URA Executive Director Rob Stephany said.

Although Mr. Stephany said Soffer should be the one to compensate Nationwide for a waiver, he would not rule out URA involvement. Asked if the agency would consider compensating Nationwide, he replied, "If push came to shove, I think yes" because of the importance of the project and the potential added value to the SouthSide Works development.

But state Sen. Jim Ferlo, a URA board member and former city council president, is opposed to using redevelopment authority money for that purpose.

"I don't think it's fair. It's not appropriate," he said.

Mr. Ferlo prefers a settlement that would give Nationwide a crack at development opportunities in other parts of the city. Like Mr. Stephany, he said Carson Street Commons has benefited from the proximity of the SouthSide Works attractions.

"We've been nothing but good partners and promoters for [Nationwide]. They need to be fair and be partners with the URA. They don't need to burn any bridges," he said.

At the same time, Mr. Ferlo criticized the Murphy administration for negotiating such an open-ended deal. The agreement says only that the rental restriction "may be amended at a future date subject to the mutual agreement of the parties."

The administration and Mr. Birru were "so anxious to get something going, they pretty much gave away the country store, so to speak," Mr. Ferlo said.

"It was pretty much an opening-the-checkbook kind of philosophy to spur any development," he said. "It was like each deal was 'let's make a deal.'"

Mr. Falbo, who separately is negotiating with Nationwide to try to get a release for his 39-unit apartment development, said he has not come across a similar restriction in all of his years in business.

"I suppose that in order to encourage someone to come into the development to the degree Nationwide did, there had to be some arrangement to make it worth their while," he said.

Mr. Murphy and Mr. Birru defended the agreement.

At the time, before the SouthSide Works development took off, nobody knew what the market would be for apartments, the former mayor said. Continental and Nationwide, he said, wanted some assurance that their investment would be protected.

"What people seem to forget is that we didn't have a lot of developers lined up to invest in old steel mill sites," Mr. Murphy said. "Hindsight is wonderful, but at the time, it was perceived as a very high-risk investment."

In retrospect, perhaps there should have been an escape clause in the agreement, he conceded. But back then, the restriction seemed to be "reasonable to do."

He said that if Soffer now has a problem doing apartments, "They certainly can develop more retail or commercial space."

Mr. Birru added that back when the rental restriction was negotiated, Soffer had no plans for apartments at SouthSide Works other than the 83 Continental and Nationwide allowed, and was focused on office and retail development.

He does not believe the covenant was a mistake.

"If we didn't do that, I'm confident that [Continental and Nationwide] never would have built the apartment building they built," he said.

While at the URA, Mr. Birru said he also took steps to protect Soffer's investment in retail and commercial space by not allowing competing development on other parts of the steel mill site.

"SouthSide has become a very successful venue," he said. "Nobody believed that would happen. Being a Monday morning quarterback doesn't help."

Looking for more from the Post-Gazette? Join PG+, our members-only web site. You'll get exclusive sports content, opinion, financial information, discounts from retailers and restaurants, and more. Our introduction to PG+ gives you all the details.