NARRAGANSETT — For about 30 minutes last night, a routine update on Gilbane Development Co.’s projects in the Pier area hit all the right notes.

Robert Gagliardi, Gilbane’s director of property management, said the commercial and residential projects are on schedule and he took lots of notes as Town Council members expressed preferences about signs, walkways, speed bumps and other details.

Then, Gagliardi dropped what council members said was a bombshell.

Phase two of the commercial project will take place, he said, with renovations to three smaller Pier Marketplace buildings that house several businesses, including a restaurant, a daycare center and a coin laundry.

But because of a shortage of parking in the area, he said, Gilbane does not plan to expand the buildings to provide more commercial space or affordable apartments above the commercial space. Instead, it will simply renovate them.

Some council members reacted as if they had heard the long-awaited catch that was sure to emerge from the May 2006 deal between the town and Gilbane, arrived at after more than a year of hearings and meetings.

“This was everyone’s fear,” said Councilwoman Krista J. Garrett, who told Gagliardi: “We were promised additional affordable housing.”

“That was if it was economically viable,” Gagliardi replied.

The presentation ended quickly, with council members saying the subject needs its own meeting, perhaps a workshop to discuss the matter with Gilbane. They also said the town will have to research just what the agreement between the town and Gilbane says.

Town Solicitor Mark A. McSally did not get into specifics, but he did tell the council there is some leeway in the agreement.

“The contract does not specify that there will be a third story with affordable housing,” he said.

This is not the first time parking has been held up as a concern in the Pier area, where a new supermarket and a liquor store opened last year and an upscale restaurant — all three part of first phase of Gilbane’s commercial project — is expected to open this month.

In fact, the council last night adopted a new parking ordinance for the Pier area that sets tighter limits on the number of permits businesses will receive for employees to park on streets where parking is allowed only by permit.

But council members said they did not believe Gilbane — which won approval to transform 88 apartments into luxury condominiums and add up to 16 new condominiums in return for making the commercial changes — can come back and say the three smaller buildings will not be expanded.

“They never talked about it being economically feasible,” Councilman James P. Durkin said after the meeting. “If it’s economically feasible to build million-dollar condos, why isn’t it economically feasible to build some apartments.”

But Gagliardi said there is not enough parking to justify the expansions.

“It’s not a prudent thing to do,” he said as he was leaving Town Hall.

Until now, Gilbane had mostly won praise for its handling of the project, which many saw as the best deal the town could get given that Gilbane owns the residential and commercial land.

The two have a long history. Gilbane was the only bidder on a town-sponsored urban renewal project that razed 48 Pier-area businesses and 21 residences in the early 1970s. The company bought the land for $400,000 but failed to live up to the town’s hopes, ultimately building the apartments where many had expected a new downtown.

redgar@projo.com