LYNNWOOD — Construction costs are stalling progress for one of Lynnwood’s biggest developments, city officials said.

In 2019, Lynnwood’s city council approved a 15-year development agreement for Northline Village, which would bring 1,369 housing units and a blend of office and retail space to the more than 19-acre site within walking distance of the Lynnwood City Center Station. The light rail arrived in Lynnwood two years ago, and the Northline Village project is in its initial stages, according to officials.

“It is the on-site improvements that are necessary, and that’s really a big upfront cost to overcome,” said Karl Almgren, the city’s community planning manager.

The current phase of the project includes aspects such as sewer, water, power, telecommunications and future roadway construction.

Since the ’90s, Lynnwood has adopted plans and policies to concentrate on growth in the City Center Alderwood subarea of Lynnwood, according to the city’s website.

Northline Village will reshape Lynnwood Square with two park spaces and new mid-rise buildings featuring 500K square feet of office space and half that in retail space, according to the city’s website.

Real estate investment firm Merlone Geier Partners acquired the site for Northline Village in 2014.

Following the project’s approval in 2019, the firm’s vice president at the time, Jamas Gwilliam, told The Daily Herald there’s no set construction timeline, but development will occur in phases so traffic, utilities and the housing market can keep up.

Representatives from the Merlone Geier Partners declined to comment, saying the development team “will reach out if appropriate.”

Less than seven years into the 15-year development agreement, significant increases in material and construction costs have made it hard to overcome the project’s initial phases, said Almgren.

“The civil work that’s necessary on that site is a pretty big upfront investment, and the current market’s just not quite supporting it,” he said. “Some of this was foreseen in the development agreement.”

In a January interview with The Daily Herald, Mayor George Hurst said he had high hopes Northline Village would be developed by the end of his term in 2029.

While chances of a finished project are low, one or two lots could be completed within the next three years, Almgren said. A lot in this case could range from a multi-family building to commercial spaces, including offices.

“There’s been a lot of work done on this site to advance it through design, utility upgrades, all of those things,” he said. “The site is primed to move forward.”

The project could use an interested developer who is ready for this market, Almgren said.

The project is located within one of Lynnwood’s two opportunity zones, a federally designated area that offers businesses and investors operating in low-income areas tax breaks. Additional financing opportunities will hopefully lead to a second wave of major development within City Center, Almgren said.

Several months ago, Lynnwood submitted an application to the United States Department of Commerce for Opportunity Zone 2.0, said Sarah Cho, Lynnwood’s City Center program manager.

Once finalized, the Opportunity Zone 2.0 map will be in effect through the end of 2036.

If the city’s application scores highly, officials hope to keep both its city center and south Lynnwood census tract, Cho said.

“For any project, not just Northline Village, if there is any sort of delay, it typically is due to the construction costs and the financing not penciling out,” she said.

When the Opportunity Zone 2.0 is announced, the city hopes to see a second wave of development in City Center, Almgren said.

Outside of Northline Village, Lynnwood is growing. In 2020, around 38,000 people called the city home. By last year, the number had grown to 43,000.

“We are building housing as quickly as we can,” he said. “We are not seeing the affordability levels drop within the region as much as we hoped.”

Despite affordability concerns, development continues in Lynnwood, such as the 294-unit project Polaris at Lynnwood, and with it comes new business opportunities, Cho said.

“I think over the next 5-10 years, you’re really going to see City Center take true form and really become more of a destination in Lynnwood,” she said.

Jenna Millikan: 425-339-3035; jenna.millikan@heraldnet.com; X: @JennaMillikan