PORTSMOUTH, Va. (WAVY) — A Portsmouth church is suing the city and City Council, saying a change to the land use designation on a property the church had a permit to redevelop into multi-family housing resulted in the project losing its financing and the church filing for bankruptcy.

New Bethel Development LLC, an entity created by New Bethel Baptist Church, has filed a complaint in Portsmouth Circuit Court alleging that changing the property’s land use in 2018:

• created an unsecured liability for the bank
• caused an astronomic decline in the market and financing value
• forced the property into foreclosure
• forced the involuntary sale of the property at a significant loss
• created an environment where bankruptcy was unavoidable and a necessary protective option.

In addition, following the church’s bankruptcy filing and foreclosure of the property, City Council approved an application from a different developer to put a 280-unit multi-family apartment complex on the same property.

The complaint seeks $5 million in compensatory damages and $350,000 in punitive damages.

The city declined to comment because it hadn’t been served with the suit as of Tuesday.

Mark Whitaker, a Portsmouth council member, is one of four children born to New Bethel Baptist Church’s pastor James M. Bishop. He serves as assistant pastor.

According to the complaint, New Bethel Development bought the property at 4358 Greenwood Drive in the Cavalier Manor neighborhood in 2005 using a $1.8 million loan from Bank of America, which was then refinanced with Bank of the Commonwealth in the amount of $2.6 million. The church, which was next door to the property, was the guarantor of the loan.

At the time of purchase, the property was zoned for residential use under the multi-family urban residential designation. It housed a 103-unit rental complex that was built in 1960.

The property was purchased for redevelopment. It was ridden with crime and blighted at the time, the complaint said. By 2010, the city deemed the property to be derelict by the department of codes and compliance. The city ordered it to be demolished in 2013.

However, the church said economic and real estate market crises in 2009, as well as “marginal neighborhood conditions, random and illegal dumping,” made it challenging to maintain and develop the property.

Also in 2009, New Bethel Development submitted a housing use permit application to construct six three-story apartment buildings. The complex would be named The Evergreens of Bethel and contain 234 units, which averaged to about 16,9 dwelling units per acre.

The plan was submitted to the city Planning Commission and included parking, a community clubhouse, fitness center, theater, game room, business center conference room, pool and offices.

According to the complaint, the development plan was compatible with the density and other zoning standards. The Planning Commission and staff supported the application at that time. Portsmouth City Council granted the housing permit for the 234 units in March 2009. The permit was scheduled to be active until March 2011, when it would expire for any part of the project for which building permits hadn’t been issued.

A few days after City Council approved the housing permit, the Virginia General Assembly gave an extension of housing use permit approvals until July 2014 in an effort to address the housing crisis. The General Assembly in 2012 granted another housing use permit extension to July 2017, then again in 2018 to extend it until July 2020. It was extended again, and is now active through July 1, 2022.

In 2018, the city decided to change the land use designation of the Greenwood Drive property on the future land use map in the city’s Comprehensive Plan. It changed the designation from multi-family urban residential to “single-family.”

This was done despite the fact the previously approved housing use permit was still active for the parcel. The complaint claims no other property was “targeted by City Council.”

The Planning Commission did not recommend the change. The type of project proposed by New Bethel Development was consistent with other developments around it.

New Bethel Development said City Council’s change of the property from multi-family to single-family negatively impacted the value of the property. The new value of the property — $1.3 million, according to Southern Bank and Trust, compared to $2.2 million as a multi-family complex — was based on the expectation that the property would be rezoned to reflect the single-family land use, but the rezoning was never done.

A foreclosure on the property was scheduled for Sept. 24, 2019. That day, New Bethel Baptist Church also filed for Chapter 11 bankruptcy, which stayed the foreclosure.

In March 2021, the church came back to Southern Bank with a new payment plan, but it was denied. The property was then sold for $400,000.

Also in March, a different development came forward with a proposal for a 280-unit multi-family and mixed-use development consisting of seven four-story apartment buildings and a restaurant within a clubhouse.

City Council approved that request.

The church said that as a result of City Council’s actions, the plaintiffs had suffered $5 million in “taking and damages.”

The complaint demands a trial by jury.