The $230-million multiphase American Locomotive Works is being taken over by McCormack Baron and Olneyville Housing.

The Providence Journal / Sandor Bodo

PROVIDENCE, R.I. — Struever Bros. Eccles & Rouse — the Baltimore-based development firm behind some of the largest mill rehab projects in the state — has walked away from its biggest Rhode Island project, the $230-million American Locomotive Works in Providence.

The financially struggling company had already halted work on the Dynamo House, a $150-million renovation of the South Street Power Station in Providence and dropped out of a smaller commercial development in West Warwick.

Over the past year, the company has shed 36 of its 40 Providence-based employees.

William C. Struever, the company’s president and chief executive officer, confirmed on Tuesday that the firm has relinquished its ownership stake in the American Locomotive Works project, also known as ALCO.

“Like many other real estate development and construction companies, Struever Bros. Eccles & Rouse is working through the complex challenges of these trying economic times,” Struever said in a statement. “While Struever Bros. will have no continued ownership in the future phases of ALCO, McCormack Baron and Olneyville Housing are committed to the revitalization of one of the most important projects in all of Providence.”

McCormack Baron Salazar, a St. Louis-based housing developer, has agreed to be lead developer for ALCO, expanding its role within the group of partners developing the project.

“We know they’ve got issues, and we want to help them in any way we can,” Karl Schlachter, the company’s senior vice president, said of Struever Bros. “We’ve worked with them in the past. They got us interested in Providence in the first place.”

Schlachter says the company is committed to the next two phases of the project, which call for 194 units of housing and 50,000 square feet of commercial space.

Future phases of the project, however, remain uncertain.

AT 23 ACRES, the proposed redevelopment of the former American Locomotive, U.S. Rubber and Nicholson File factory buildings in the Valley neighborhood was to be the largest single development in the Capital City after Providence Place mall.

When it was proposed in 2005, ALCO was envisioned as a nine-phase, $333-million development with 650 residences, 450,000 square feet of commercial space and a 180-room hotel. Over the years, however, the plan was scaled back considerably.

Last year, the overall proposal called for a $230-million project with 378 residential units, 404,044 square feet of office space, and 30,280 square feet of retail space. The proposed hotel was eliminated.

But even in its diminished scope, the projects promised to bring nearly 2,000 new construction jobs and an additional $167 million of investment into the city over the next three years.

It received support from the city, which granted the project a package of tax incentives earlier this year, including a $7.3-million tax incremental financing bond, or TIF, and a tax-stabilization treaty.

City Planning Director Thomas E. Deller said Struever’s withdrawal will not affect those agreements, as long as McCormack Baron adheres to the project’s scope for the next two phases.

Schlachter, of McCormack Baron, said the company will meet the 85 units of low- to moderate-income housing and 25 units of “work-force housing” required in the tax agreements for phases two and three, but that the number of market-rate housing units will be reduced.

Assuming that the city agrees to that change, the firm must then win approval for low-income housing tax credits from Rhode Island Housing, which is key to the project’s financing, according to Schlachter.

TUESDAY’S ANNOUNCEMENT is the latest blow to the once-vaunted Struever Bros., which came to Rhode Island in 2003 credited with helping revive the Baltimore harbor front.

The company made its first foray into the state in 2003, renovating a 313,000-square-foot historic mill in Olneyville with Providence developer the Armory Revival Company.

One year and $68 million later, Rising Sun Mills opened the first of 135 apartments and 138,000 square feet of commercial space. The company followed later with the $100-million Royal Mills apartment and condominium complex in West Warwick.

But the elimination of the state’s historic tax-credit program in 2007 and the collapse of the credit market in 2008 cut off two major sources of funding for Struever’s Rhode Island projects. The company’s unpaid bills mounted as banks and major lenders refused to issue credit.

Over a two-year period, Struever reduced its total staff from 350 to 75 employees and began withdrawing from Rhode Island and elsewhere. The firm also has pending projects in North Carolina and New York.

In June 2009, Struever Bros. gave up its stake in the Cotton Shed, a 30,000-square-foot development of another Royal Mills building into commercial and retail space, after the company defaulted on its loans. Another investor, Consortium Structured Investments, of Charlotte, N.C., has taken the lead role in that project.

And work halted late last year on the $150-million Dynamo House, a project to turn the vacant South Street Power Station in the Jewelry District into a five-star hotel and the Heritage Harbor Museum.

Meanwhile, dozens of Rhode Island contractors still claim they are owed millions of dollars from the company for work they completed.

pmarcelo@projo.com