The Sacramento City Council approved a settlement Tuesday with downtown property owner Moe Mohanna that will clear the legal logjam blocking redevelopment of the bleakest stretch of K Street.

Approved unanimously by council members meeting in closed session, the settlement of the city's eminent domain lawsuit against Mohanna includes payment of $18.6 million in city redevelopment funds for his nine properties in the 700 and 800 blocks of K Street.

Mohanna also has agreed to drop the various lawsuits he filed against the city.

Mayor Heather Fargo said the settlement probably will be finalized in Sacramento Superior Court by the end of this week.

"We are absolutely thrilled to have this agreement today," Fargo said after emerging from the closed session. It's been a long time coming."

The Sacramento Housing and Redevelopment Agency will take over ownership of Mohanna's properties.

It plans to turn over those in the 700 block to furniture retailer Joe Zeiden, who proposes to turn a stretch of tired storefronts just outside the K Street Mall into a retail row anchored by his Z Gallerie store.

On the 800 block, the redevelopment agency has committed to negotiating with hotel developer Bob Leach, whose most recent project was Le Rivage luxury hotel along the Sacramento River south of Sutterville Road.

With Mohanna remaining as a limited partner, Leach plans to build a 400-room hotel on the site of a current hole in the ground on K Street. He also would build a mixed-use project fronting L Street.

Leach said he has a letter of intent from Hilton Hotels.

If Leach and Mohanna move forward with their hotel project, they will have to buy back the land from the redevelopment agency for $150 per square foot.

The often combative Mohanna was subdued when speaking to reporters after the council action.

Mohanna bought his first property on the K Street Mall 33 years ago, and long has said he wanted to develop the properties himself.

"We all have to learn to let go," he said. "In this case, it's better to let go."

"This is the right thing to do for the community," Mohanna added. "It's the right thing to do for my family. It's been a bitter fight."

The settlement follows several months of court-supervised mediation aimed at ending the eminent domain case.

Retired Superior Court Judge Michael J. Virga, who supervised the mediation, was in the audience at Tuesday's City Council meeting.

On Tuesday, Mohanna told reporters the money would not go to him but would be used to pay off banks and investors.

The mood at City Hall was celebratory Tuesday night.

Council members set aside the acrimony that has characterized the council since its members split into two camps – one supporting Fargo for re-election and the other supporting her rival, former NBA star Kevin Johnson.

The big question now, however, is whether getting rid of the legal hurdles will produce change on K Street in the near future, given the current economic slump.

"This was hard work, but now the hard work really starts," said Michael Ault, executive director of the Sacramento Downtown Partnership.

Zeiden wasn't in the audience on Tuesday. But council members said he is still interested in moving forward.

Leach said he planned to have a hotel built within five years. He said the downtown hotel market remains strong.

"I could build this hotel in this economy as bad as it is and still be successful," he said.

Call The Bee's Mary Lynne Vellinga, (916) 321-1094.