City officials are pushing for mediation with the Virginia Commonwealth University Health System over the fallout from a failed multimillion-dollar redevelopment project at 500 N. 10th Street, with a two-week deadline looming for the two sides to reach a resolution.

In a letter sent to VCU Health CEO Marlon Levy on Monday, Mayor Levar M. Stoney and City Council President Kristen Nye requested VCU Health mediate over the scrapped plans for the former Public Safety Building property.

As part of the agreement after the project’s end, VCU Health was set to provide about $2.5 million annually until 2045 in “payment in lieu of taxes” due to the project being tax-exempt.

Earlier this year, however, state lawmakers directed VCU Health to end their payments, and leadership later voiced their desire to end the deal.

“The City is prepared to pursue all available options, including litigation, to collect the Guaranteed Obligation payments,” Stoney and Nye stated in the letter. “However, we would prefer to participate in a collaborative dialogue to reach a mutually beneficial agreement.”

In 2021, VCU Health, the city, and developer Capital City Partners LLC signed a lease agreement for a $325 million development project at the location.

The agreement included plans to build a facility with office space, retail areas and parking, alongside a commitment to pay $617 million in rent over 25 years.

VCUHS halted the project in 2022 before construction began, with site conditions and increased construction costs cited in a report from the Joint Legislative Audit and Review Commission among the obstacles they faced.

VCUHS paid almost $80 million to developers and investors, and to demolish the old building, when it exited the project in February last year. City Council authorized the public safety building’s demolition in late June 2023 and it was completed in August this year.

“While [the project plans] were well intentioned, by late 2021 construction and other challenges made it simply impossible to build the original project,” Marlon Levy said in a statement following the project’s end. “Moving forward today would cause dire long-term financial repercussions.”

VCU and VCU Health have until Friday, Dec. 6, to notify the City if they intend to resolve the matter through a “mutually agreeable” mediator.

“We received the letter today and look forward to reviewing it,” said Grant Heston, vice president of Enterprise Marketing and Communications at VCU and VCU Health when asked for a response.