Irvine Firm to Scale Back Project in Signal Hill : Development: Southwest Diversified will reduce the number of homes to be built to 450.

Unable to reach an agreement with Signal Hill officials, an Irvine-based development company has announced that it plans to scale back its proposed project for this small city’s hilltop.

Southwest Diversified Inc., the largest landowner in Signal Hill, will modify its design and develop 450 apartments, condominiums and houses on mostly vacant land once covered by oil wells.

Under the new proposal, the company would scrap such amenities as a park and trails, and would cut back on plans to clean up contaminated soil.

The project still must receive various city permits. But City Manager Douglas La Belle said he is confident that both sides can work together to end their feud and proceed with the development.

The project has been in dispute ever since Southwest Diversified proposed it in April, 1990. At the time, the company planned to build 1,279 residences, which might have increased the population of this 2.2-square-mile city of 8,300 residents by 50%.

City officials, nervous about the proposed growth, imposed a building moratorium in May, 1990, and the development company, saying it was losing money because of the moratorium, sued the city. That lawsuit is pending.

Since then, both sides have wrangled over the size of the project. Earlier this month, the City Council rejected the company’s new plan to build 798 residences, saying the number of units was still too large and the proposed park too small. Instead, the council said the company could build 652 units.

But company officials decided to fall back on a compromise reached by both sides last year that would allow Southwest to build 450 residences. Under this plan, the company would clean up only the 125 acres that it owns on the hilltop.

Company officials also announced last week that they are not interested in building the city’s long-anticipated Town Center West, a commercial strip that would have included the city’s first large supermarket.

City officials had hoped Southwest would sign an agreement to build the retail center. But the development company argued that it cannot attract a supermarket to open in the city unless it is allowed to build more housing units.