City officials have agreed to pay a local development team $1.2 million to settle a 2007 deal on land slated for the Baltimore slots casino, clearing one of the last legal hurdles before the site can be developed.

Officials announced Tuesday that they had reached the agreement with Gateway South LLC, headed by Samuel Polakoff, who had planned to work with Ravens linebacker Ray Lewis to develop a portion of the 17-acre casino site off Russell Street. The deal is scheduled to go before the five-member Board of Estimates on Wednesday morning.

City Solicitor George Nilson, who negotiated the deal, said the city wanted to allay the fears of developers who hesitated to bid on the slots license with the earlier land agreement still unresolved. Bids are due at the end of next month.

"It was smart to reach a settlement now … since potential slots bidders were talking about the Gateway site," said Nilson. "It was a motive for us to settle sooner rather than later."

Polakoff, who had planned to team with Lewis to build an office, shopping and sports entertainment complex on the site, did not return a message Tuesday evening seeking comment.

In a statement released by the office of Mayor Stephanie Rawlings-Blake, Polakoff said "we are disappointed that we will not have the opportunity to see the completion of the Gateway South project we had proposed, [but] it was important for us to work with the City to allow the citizens of Baltimore to benefit from the impact that a [slots] facility could have on reducing property taxes and education funding."

Under state law, slots revenue may be used only for school construction or property tax relief.

Kimberly Clark, the executive vice president of the Baltimore Development Corp., which is leading talks with potential slots bidders on the city's behalf, said the deal would help resolve "a perception issue."

"There was a perception that issue was still hanging over the site," said Clark.

Clark said that officials of the Baltimore Development Corp., the state slots commission and the city have met with two developers who are considering submitting bids on the project and have scheduled meetings with three others. Potential bidders must submit a proposal — and a licensing fee of $22.5 million or more —by July 28.

Representatives of national casino operators including Caesar's, local attorney Hassan Murphy and local developer Pat Turner attended a meeting late last month for those interested in bidding on the site.

Some potential bidders say the terms of the license, which require the operator to turn over about 70 percent of gross profits to the city or state, would make it to difficult to run a viable casino. They have sought more time to hash out a deal.

Clark said there has been no indication that the deadline will be extended. Donald C. Fry, the chairman of the state slots commision, did not return a request for comment Tuesday evening.

City officials are counting on revenue from the casino to reduce Baltimore's property tax rate, which is twice as high as the surrounding counties', but they have been unable so far to find an operator to build and manage it.

When the state slots commission first sought bidders on the project in 2009, only one group submitted a proposal. The state and city later cut ties with Toronto homebuilder developer Michael Moldenhauer's Baltimore City Entertainment Group, and promptly became entangled in legal knots.

The agreement with Polakoff represents the latest in a series of resolutions of those legal challenges. Earlier this month, a Baltimore City Circuit Court Judge Sylvester B. Cox upheld a ruling by a state board denying a slots license to Moldenhauer's group.

John Dougherty, an attorney representing Moldenhauer in that case, declined on Tuesday to comment. Moldenhauer has until early next month to file an appeal in that case.

Nilson said his office had been engaged in intense negotiations with Polakoff for the past two months. The settlement, he said, was necessitated by an "unusual and ambiguous and potentially very expensive provision" in Polakoff's exclusive negotiating privileges for the site.

While the city informed Polakoff that it had ended his rights to the site late last year, the amount that it would pay him remained a matter of contention.

The 2007 agreement stipulated that if the city terminated the deal, it would be responsible for reimbursing Polakoff for any costs he had incurred in planning the project, Nilson said, including environmental surveys, marketing studies and legal work.

The agreement had been approved by a youthful employee of the Baltimore Development Corp., Nilson said. It had not been reviewed by the city's law department, he said.

The city owed Polakoff anywhere from $40,000 to $4 million for his preparations, Nilson said, and settled on the $1.2 million after considerable negotiations.

julie.scharper@baltsun.com

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