The city of Santa Barbara plans to give away the land underneath Paseo Nuevo and a portion of property tax revenue, at a value between $32 million and $39 million, in a complex real estate deal that would bring housing, an upscale, high-end grocery store and fitness center to downtown.

The public will get its first glimpse of the new plan for Paseo Nuevo at Tuesday’s Santa Barbara City Council meeting, which begins at 2 p.m. at City Hall.

The latest proposal comes after a year of negotiations and discussions between the investment team that owns the ground leases on the mall for another 40 years, the developer, a consultant and the city.

The plan that began under former City Administrator Rebecca Bjork — to demolish the mall and build more than 500 units — has been scaled back in a scheme that preserves most of the interior of the mall as it is today.

The former Macy’s building is still set for demolition, and the developers plan to build a 7-story, 233-unit market-rate apartment building.

The development would stretch from the corner of State and Ortega streets, around the corner to Chapala.

Separate from that, the city plans to work with the developer to build 80 below-market rate units on top of Parking Lot 2, on the corner of Chapala and Canon Perdido streets.

The exact levels of affordability have not been determined.

The development team pivoted from demolishing the mall because it would have been too expensive to build a new foundation for the housing across the span of the mall.

Instead, they have snaked it around the corner and opted to build on land that the city had given to them in an effort to sweeten the deal.

Under this arrangement, the owners of the lease and the developer would see between a 4.47% and 6.83% return on their investment.

The upscale grocery store would be something like “Eataly” or “Erewhon” at the size of about 17,000 square feet.

Inside the mall, to replace some of the current tenants, the city and the developer have proposed a fitness center of about 25,000 square feet. These would be the two new anchor tenants.

The former Nordstrom building has a separate owner and is not part of the deal.

In a letter to the Santa Barbara City Council, Dan Gullett, former principal planner for the city, outlined a series of concerns with the project.

Gullett said the Paseo Nuevo redevelopment is a major public-private investment and a “once-in-a-generation opportunity to reshape the heart of our city.”

He said this deserves careful consideration that “aligns with our housing, climate, and cultural goals while reflecting the community we are today and aspire to be.”

Gullett, who did not work on the Paseo Nuevo project when he was a city employee, raised concerns about the height of the building and the idea of anchoring the mall with exclusive, expensive tenants.

“The proposal includes a large gym and grocery store and exceeds the City Charter’s 60-foot height limit,” Gullett said. “Exceeding the height limit for a gym, in particular, raises serious concerns.

“The gym and grocery store together account for 35,000 square feet, which is significant area.”

He said while a grocery store downtown could be transformative, it must reflect community needs.

“A permanent farmers market, public market hall, or a modest grocer like Trader Joe’s would do far more to serve residents, support local agriculture, and activate the area daily than a high-end fitness chain or boutique market geared toward an exclusive clientele,” Gullett said.

The 80 affordable units, Gullett said, are also not enough.

“A target of at least 150 affordable units across all phases appears reasonable and necessary, particularly if total unit count increases,” Gullett said. “The recent reduction from 500 to 233 market-rate units suggests an opportunity to revisit the unit mix.

“Public land should be used to create more homes for those who need housing, not larger homes for those who don’t.”

The City Council on Tuesday is expected to decide whether it wants to go in the direction that has been outlined by staff, AB Commercial and the developer, Georgetown. City officials said any other configuration would cause them to walk away from the project.

Even though the downtown real estate is among the most treasured in the state, the current lease agreement lasts another 40 years. AB Commercial would have difficulty selling the mall in its current form because 40 years is not enough time to pay off an amortized loan.

Once the city disposes of the land to them, however, and formal agreements are reached, AB Commercial could sell the land. At that point, the city would have no more involvement or ownership of any parts of the mall.

Santa Barbara City Councilwoman Meagan Harmon said she is pleased with the current direction. She said the project has the potential to revitalize downtown.

“While there are still important details to negotiate and understand, including certain financial aspects of the project, I am celebrating the commitment of 80 new affordable housing units,” Harmon said. “I am looking forward to continuing the conversation.”