Chicago developer Dan McCaffery and city officials have agreed to pursue a long-term lease for redevelopment of the Strip District’s celebrated Produce Terminal in up to four phases, beginning with a public market at the 16th Street end of the building.

A memorandum of understanding that establishes the development plan says the lease will require McCaffery Interests to dedicate at least 20,000 square feet to the “largely food-centric” market and 40,000 square feet for local and regional businesses.

McCaffery will pay the Urban Redevelopment Authority $600,000 for the first phase of construction, followed by two lease payments of $950,000 apiece for the second and third phases. The city stipulated that leased space for Contemporary Craft be extended, though its rent will increase.

The memorandum follows three years of discussion with McCaffery about renovating the Pennsylvania Fruit Auction and Sales Building that stretches for five blocks along Smallman Street in the heart of the Strip. The lease that is negotiated will set a timeline, says McCaffery, who can now seek financing for the estimated $50 million project and talk with potential tenants.

“This is a memorandum of understanding that we will attempt to negotiate a lease and a disposition agreement with the city. Eventually they have to, quote-unquote, transfer title to me,” says McCaffery, who asked for an option to buy after 15 years. “It’s taken a good amount of time to find agreement on major issues on that MOU and I’m delighted that we have. We won’t be looking for ways to slow it down. We’ve got another interest rate increase coming, and all of these things hurt.”

Both he and city officials have “a lot of work” to do before construction can begin, he notes. Central to his plan to transform the terminal into office and retail space is a city proposal to improve the safety and design of Smallman Street for pedestrians and vehicles, including delivery trucks. City Planning Director Ray Gastil has said upgrading Smallman into a “super street” with tree-lined public spaces, new lighting, sidewalks and crosswalks could cost up to $20 million.

“I wouldn’t want to be able to open that building tomorrow morning,” McCaffery says. “There are no sidewalks to walk on, no stairs to get up to most of it, so it’s pretty much inaccessible. And it’s wrecked, let’s be honest.”

The one-story brick building, opened in 1926, has only two tenantsContemporary Craft at the 21st Street end in a bright and renovated space, and a rose seller in one bay. McCaffery has said he wants to take advantage of architectural details such as high ceilings and large windows in the terminal and a warehouse across the street, at 1600 Smallman, that he has under contract to redevelop. The projects would use historic tax credits as part of the financing plan.

The lease will require McCaffery to leave the Produce Terminal intact, except for cutting pedestrian pass-throughs at 17th, 18th and 20th streets to access parking in the back and the trail along the Allegheny River beyond. The core and shell renovation must meet LEED Silver standards.

The URA agreed to establish a revolving public investment fund to support small, local businesses that seek space in the terminal or elsewhere in the Strip.

The URA preferred to lease the building to preserve public interest in a historic asset. The property would return to the tax rolls, and taxes are needed to support a proposed $7.5 million tax-increment financing plan for the street improvements.

City Council needs to approve the lease, rezoning to urban industrial for the redevelopment, andalong with County Council and the Pittsburgh Public Schools boarddevelopment of the TIF plan. School board members have expressed concern about a TIF, which would require a second vote for approval later.

A hands-on developer, McCaffery has an office in the Strip District and visits Pittsburgh often. His construction team will join the staff in that office once the project advances, he says. He’ll hire Pittsburgh laborers for the construction work.

“We’re going to do our best to make it a reality as quickly as we can,” he says.